Exam (elaborations)
WALL STREET PREP QUESTIONS AND ANSWERS
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WALL STREET PREP QUESTIONS AND ANSWERS
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WALL STREET PREP QUESTIONS ANDANSWERS
Assets6-6ans--resources6a6company6uses6to6operate6its6business6
includes6cash,6A/R,6PP&E
Liabilities6-6ans--represents6the6company's6contractual6obligations6and6includes6A/
P,6debt,6accrued6expenses
Shareholder's6equity6-6ans--is6the6residual
the6value6of6the6business6available6to6the6owners6(shareholders)6after6debts6have6been6
paid6off
Income6statement6-6ans--
illustrates6the6profitability6of6the6company6over6a6specified6period6of6time
broad6sense:6shows6revenue-expenses
Balance6sheet6-6ans--
snapshot6of6the6company6economic6resources6and6funding6for6those6resources6at6a6give
n6point6in6time6(A6=6L6+6SE)
Revenue6-6ans--"top-line"6
represents6the6sale6of6goods6and6services6
it6is6recorded6when6earned6(even6though6cash6might6not6have6been6received6at6the6time6
of6transaction)
Expenses6-6ans--netted6against6revenue6to6arrive6at6net6income
COGS6(directly6associate6with6good6production),6SG&A6(indirectly6associated6with6produ
ction),6interest6expense6(expense6related6to6paying6debt6holders6periodic6payments),6tax
es,6depreciation6expense6(non-
, cash6expense6accounting6for6the6use6of6PP&E,6often6imbedded6within6COGS6and6SG&A
)
Net6income6-6ans--"bottom-line"
revenue-expenses
the6profitability6available6to6common6shareholder's6after6debt6payments6have6been6mad
e6(interest6expense)
EPS6(earnings6per6share)6-6ans--
portion6of6a6company's6profit6allocated6to6each6outstanding6share6of6common6stock
EPS6=6(net6income6-6dividends6on6preferred6stock)/
weighted6average6shares6outstanding
Cash6flow6statement6-6ans--
While6cash6is6not6necessarily6received6when6a6sale6occurs,6the6income6statement6still6re
cords6the6sale.6As6a6result,6the6income6statement6captures6all6the6economic6transactions
6of6the6business.
The6cash6flow6statement6is6needed6because6the6income6statement6uses6what6is6called6a
ccrual6accounting.6In6accrual6accounting,6revenues6are6recorded6when6earned6regardles
s6of6when6cash6is6received6(revenue6includes6sales6using6cash6and6made6on6credit6A/R)
6Since6we6also6want6to6have6a6clear6understanding6of6the6cash6position6of6a6company,6w
e6need6the6statement6of6cash6flows6to6reconcile6the6income6statement6to6cash6inflows6an
d6outflows.
"cash6position6of6the6company"
cash6from6operating6activities,6cash6from6investing6activities,6and6cash6from6financing6ac
tivities
Cash6from6operating6activities6-6ans--mostly6indirect6method
starts6with6net6income6and6includes6the6cash6effects6of6transactions6involved6in6calculati
ng6net6income.6reconciliation6of6net6income.6
Net6income6(income6statement)6
+6non-cash6expenses
-6non-cash6gains
-6period6on6period6increases6in6working6capital6assets
+6period6on6period6increases6in6working6capital6liability6
=6CF6from6operations6
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