Investment Banking Interview Guide Flashcards

Vocabulary flashcards based on the Investment Banking Interview Guide covering accounting questions and answers.

Income Statement

Lists a company’s revenue, expenses, and taxes, with its after-tax profit at the very bottom, over a period of time.

Cost of Goods Sold (COGS)

Represents the expenses that are linked directly to the sale of products/services.

bottom line

Net Income represents the company’s __ – how much in after-tax profits it has earned.

Balance Sheet

Shows the company’s resources – its Assets – and how it acquired those resources – its Liabilities & Equity – at a specific point in time.

Asset

An item that will result in, directly or indirectly, additional cash in the future.

Liability

An item that will result in, directly or indirectly, less cash in the future.

Retained Earnings

Represents the company’s saved up, after-tax profits (minus any dividends it has issued).

Cash Flow Statement

Tracks changes over a period of time and adjusts for non-cash revenues or expenses and additional cash inflows and outflows to determine how your cash balance actually changes.

Cash Flow from Operations (CFO)

Net Income from the Income Statement flows in at the top, then you adjust for non-cash expenses, and consider operational BS items changes.

Cash Flow from Investing (CFI)

Anything related to investments, acquisitions, and PP&E shows up here. Purchases are negative because they use up cash, and sales are positive.

Cash Flow from Financing (CFF)

Items related to debt, dividends, and issuing or repurchasing shares show up here.

Goodwill

The premium that the company has paid over other companies’ Shareholders’ Equity when acquiring them.

Deferred Revenue

The company has collected cash in advance from customers for products/services yet to be delivered, and it will recognize this as real revenue over time.

Accrued Expenses

The company has recorded these as expenses on the Income Statement, but hasn’t yet paid them out in cash yet – used for recurring monthly items without invoices, such as employee wages, utilities, and rent.

Payable

Accounts _ is mostly for one-time expenses with invoices, whereas Accrued Expenses is for recurring expenses without invoices.

Prepaid Expense

An expense’s value that is already paid in cash, for a future product or service but you do not record the expense on the Income Statement yet because it hasn’t been delivered yet.

Working Capital

The difference between current assets and current liabilities.

Cash-based accounting

When revenue and expenses are recognized when cash is actually received or paid out.

Accrual accounting

Recognizes revenue when collection is reasonably certain and recognizes expenses when they are incurred rather than when they are paid out in cash.

Last-In, First-Out; First-In, First-Out

LIFO stands for and FIFO stands for – they are 2 different ways of recording the value of Inventory and the Cost of Goods Sold (COGS).

LIFO

A method of recording the value of Inventory and the Cost of Goods Sold (COGS) that uses the value of the most recent Inventory additions for COGS.

FIFO

A method of recording the value of Inventory and the Cost of Goods Sold (COGS) that uses the value of the oldest Inventory additions for COGS.

Calendarizing

Meaning “Rather than using a company’s normal fiscal year figures, let’s use another year-long period during the year and calculate their revenue, expenses, and other key metrics for that period.”

addition; subtraction

When a Liability is written down you record it as an on the Income Statement. When an asset is written down, it's a .

PP&E

Short for plants, property, and equipment.

Noncontrolling Interest

If you own over 50% but less than 100% of another company, this refers to the portion you do not own.

Net Income Attributable to Noncontrolling Interests

The portion of Net Income that's not yours. It is a subtraction on the Income Statement since it does not belong to you.

Equity Interest

Where you do not consolidate the statements at all and reflect Percentage of Other Company That You Own * Value of Other Company and show it as an Asset on the Balance Sheet.

Trading Securities

These Securities are very short-term and you count all Gains and Losses on the Income Statement, even if they’re unrealized (i.e. you haven’t sold the Securities yet).

Available for Sale (AFS) Securities

These Securities are longer-term and you don’t report Gains or Losses on the Income Statement – they appear under Accumulated Other Comprehensive Income (AOCI). The Balance Sheet values of these Securities also change over time because you mark them to market.