Breaking into Wall Street 400 Guide.pdf file:///C:/Users/HP/Desktop/New%20folder%20(2)/Breaking%20in
Breaking into Wall Street 400 Guide
Questions & Answers
1. Walk me through the three financial statements
Answer "The 3 major financial state-ments are the income statement, balance sheet,
and cash flow statement.
The income statement gives the companies revenue and expenses, and goes downto
net income, the final line on the statement.
The balance sheet shows company's assets (resources) such as cash, inventory,and
PP&E, as well as its liabilities, such ase debt and accounts payable, and shareholders
equity. Assets must equal liabilities plus shareholders equity.
The cash flow statement begins with net income, adjusts for non-cash expenses and
working capital changes, and then lists cash flow from investing activities and
financing activities. At the end, you see the company's net change in cash.
2. Major line items on income statement
Answer Revenue, COGS, SG&A, OperatingIncome, Pretax Income, Net Income
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3. Major line items on balance sheet
Answer Cash, Accounts Receivable, Inventory,PP&E, Accounts Payable, Accrued
Expenses, Debt, Shareholders Equity
4. major line items on cash flow statement
Answer Net Income; Depreciation & Amor-tization; Stock-Based Compensation;
Changes in Operating Assets & Liabilities; Cash Flow From Operations; Capital
Expenditures; Cash Flow From Investing; Sale/Purchase of Securities; Dividends
Issued; Cash Flow From Financing.
5. How do the three statements link together?
Answer "To tie the statements together,Net Income from the Income Statement
flows into Shareholders' Equity on the Balance Sheet, and into the top line of the
Cash Flow Statement.
Changes to Balance Sheet items appear as working capital changes on the Cash Flow
Statement, and investing and financing activities affect Balance Sheet items such as
PP&E, Debt and Shareholders' Equity.The Cash and Shareholders' Equityitems on the
Balance Sheet act as "plugs," with Cash flowing in from the final line on the Cash Flow
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Statement."
6. If I were stranded on a desert island and only had one financial statement
and I wanted to review the overall health of a company, which statement wouldI
use and why?
Answer You would use cash flow statement because it gives true picture ofhow much
cash the company is actually generating, independent of all the non-cashexpenses you
might have. And cash flow is #1 thing you care about in analyzing financial health of a
business.
7. If you could look at 2 statements, which two would you use and why?
Answer Thenyou would pick the income statement and balance sheet because you can
create theCFS from both of them (assuming you have "before" and "after" versions of
balancesheet corresponding to period income statement tracks
8. Walk me through how depreciation going up by $10 would affect the state-
ments?
Answer Income statement operating income would decline by $10, and assuming a
40% tax rate, net income would go down by $6 because of reduced tax expense
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CFS net income at top goes down by $6, but $10 depreciation is a non-cash expense
that gets added back, so overall cash flow from operations goes up by $4.There are no
changes elsewhere, so the overall net change in cash goes up by $4.
BS PP&E goes down by $10 on assets side because of depreciation, and cash isup by
$4 from changes on CFS
Overall assets is down by $6. Since net income fell by $6 as well, shareholders'
equity is down by $6 and both sides of the balance sheet balance.
*Remember that an asset going up decreases your cash flow, whereas a liability
going up increases your cash flow
9. If Depreciation is a non-cash expense, why does it affect the cash balance?-
Answer Because it is tax-deductibale.Since taxes are a cash expense, depreciation
affectscash by reducing taxes.
10. Where does depreciation usually show up on the income statement?
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