Hey there, found this interview question online that I feel will be relevant to an interview I'm having on Friday. Seems relatively easy but I can't get the balance sheet to balance, and only by a little bit. Any guidance would be appreciated.
At the beginning of the year, you finance 100 million dollars of inventory by taking on 100 million dollars of debt. The debt is amortized 20% at the end of the year and the interest on the debt is 5% cash, 5% paid in kind. At the end of the year you sell your inventory for 200 million dollars in revenue at 100 million dollars in cost. Walk me through how these changes impact the 3 financial statements at both the beginning and end of the year.
I think: Beginning of year: IS: Nothing CFS: -100M Inventory, +100M LTD BS: +100M Inv, + 100m LTD = balances
End of Year IS: Revenue +200M COGS -100M Operating Income 100M Amortization -20M Interest Expense -10M (5M is PIK) Pretax Income 70M Tax @ 40% = -28M Net Income = 42M
CFS: Net Income 42M Amortization +20M PIK +5M Change in Inventory +100M Cash + 167M
BS Cash +167M Inventory -100M Assets +67M
RE +42M LTD -20M amortization + 5 PIK = -15M L&SE= 27M
All it looks like I need to do is flip the signs so that 15M gets added to the 42M of RE, but I'm not sure at what point this would happen. Not used to amortizing debt so maybe it works differently than depreciation.
Any help would be greatly appreciated.
Amortizing debt = debt repayment, so doesn't show up on I/S, only on CFS. This is what I got:
Beginning Year: I/S: no impact CFS: CFO: -100, Debt: +100 = 0 B/S: Inventory +100, Debt +100 = balanced
End Year: (assuming interest on beginning balance) I/S: Rev: +200, Cost: -100, Cash Interest; -5, PIK Interest: -5, Pretax Income = 90, NI: 56 CFS: CFO: +56 +100 + 5 = 161, CFF: -20, Change = 141 B/S: Cash +141, Inventory: -100 = 41. Debt: -20+5, NI: +56 = 41 = balanced
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