Is my tactic for approaching this question the right method if I am every asked it in an interview?
Start by saying there are 3 financial statements and give a brief description of each one e.g.
The Income Statement shows a company’s revenues and expenses over a time period to arrive at net income.
The Balance Sheet is a company’s statement of financial position that shows Total Assets = Total Liabilities + Shareholders' Equity - essentially it shows a snapshot of a company’s assets.
The Cash Flow statement shows how a company’s cash balance has changed during a given time period.
I then go onto talking about how they link:
I mention that the income statement links with the cash flow statement as net income derived in the income statement is used in the cash flow statement to find CFO. Then the cash flow statement links to balance sheet as the cash found is used under the current assets in the balance sheet.
(student from a non-finance major trying to self teach myself everything so would appreciate all the help).
Thanks
That's more in depth than you'll need. Just buy the WSO or BIWS interview guide and study it. I was a non-finance major from a non-target and thats what I did. It's all you need for technicals.
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Help with Financial Statement Links (Originally Posted: 10/07/2007)
Does anyone know of any (emergency) resources that explain how the financial statements are linked (i.e. how a change in one line item affects all three statements)? Please help!
lol. please dont tell me that u are applying to ANY finance position.
http://www.baruch.cuny.edu/tutorials/statements/view_tutorial.html
Raw Material Flow Through Financial Statements (Originally Posted: 09/22/2013)
Say, there is a company that produces widgets and the price of one of the raw materials of the widget increases. How would this be reflected in the financial statements?
And what would the accounts on the B/S look like?
Ahh, this sounds like a LIFO/FIFO question. I'd google those if you haven't heard those terms before- your prof may be trying to teach you these methods by having you discover them for yourself.
COGS at an industrial/retail/non-financial firm is usually based on historical cost, rather than any sort of mark to market*.
Caveat: I'm a quant, not an equity research guy. And I haven't done Accy since undergrad.
Hi IlliniProgrammer,
Thanks for the response. I was thinking of the question from more of an Ibanking technical interview perspective.
I think if COGS were to increase the effect would be (Correct me if I'm wrong): I/S: Decrease EBT -> Decrease Net Income
CFS: Decrease Net Income B/S: Decrease Cash, Decrease RE and of course your whole: Dr. Raw Material Cr. Accounts Payable ...etc.
But I fear I'm oversimplifying it and missing out on something.
Is this basically asking how does an increase in inventory affect the BS? If so, Inventory and Accounts payable are affected.
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