Interview Question- Financial Statement Relationships
What are good things to bring up when the interviewer asks you to tell him how the financial statements tie together?
I would say:
net income (IS)->used to calculate retained earnings->cumulative value of retained earnings is on balance sheet dividends paid (Cash flow statement)->used to calculate retained earnings->retained earnings is on balance sheet net income (IS)->first line item on statement of cash flows->you adjust it with CFs from investing,operating and financing activities to get net change in cash->net change in cash is reflected in the cash balance on the balance sheet depreciation (IS)->gets added back to net income on the cash flow statement->cumulative depreciation is found on the balance sheet
what are better ways to say the above or what are other relationships I should use?
Net income from the income statement is the first line item on the statement of cash flows. Net income from the income statement falls under shareholders equity on the balance sheet. Ending cash balance on the balance sheet is the beginning cash balance on the statement of cash flows. Furthermore, changes to balance sheet items appear as working capital changes on the cash flow statement. Investing and financing activity from the cash flow statement affect balance sheet items such as PP&E, debt and shareholder's equity
I would also mention interest expense on IS is calculated based on the BV of PP&E on BS.
Yes, that too!
there can be other sources of interest expense ....
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