Modeling test: Create cash flow statement
Hi all,
I will have to absolve a simple modeling test soon and was hinted that it will mainly focus on recreating a cash flow statement within 20-30 min. Do you know any good sources for exercises?
I tried to recreate public cash flow statements, but this is usually much more tedious and time consuming (and I think not all information are published within the publich IS and BS to recreate the exact same CFS sometimes).
Any ideas? How to approach this?
Best,
M.
Take a simple industrials company (like Honeywell), and create their CFS from the BS and IS.
Thanks for the suggestion, but it is almost impossible to recreate such a CFS (within the given time frame).
why is it almost impossible? especially if the balance sheet and income statement data is already filled out 20-30 mins is way more than enough time to recreate a CFS..
Hey Howard,
thanks for your reply. I tried to rebuild Honeywell for example, but they are using a lot of different underlying schedules, intransparent non-cash expenses they do not clarify properly (e.g. even the Net Working Capital changes are not directly calculatable as difference within the BS since they make adjustments due to divestments I do not understand).
So the normal structure for (operating) CF of course still applies, but it is very difficult to understand all adjustments they do to arrive at their numbers.
Maybe this is all natural for someone with extensive Corporate Finance experience, but not for an analyst position. Any recommendations?
Best,
M.
got it, I'm now seeing that you're way overthinking it. When you are recreating the cash flow statement from honeywell, don't even look at their cash flow statement; create your own. what does this mean?
Top line of CFS will be net income
Below that is the add back of non-cash charges (D&A, SBC)
below that is operating assets and liabilities (so for example, you will make a line for accounts receivable and will calculate the change in cash by taking the prior year's AR - current year's AR (because remember, an increase in assets is a decrease in cash and vice versa) and for liabilities you take the current year accounts payable (for example) and subtract it by the previous year's accounts payable (opposite of assets)
this brings you your cash flow from operations
then you move into cash flows from investing, which will be any investing activities but is generally at least capex (capex is an increase in PP&E, so just like with AR, PP&E is an asset, which an increase in decreases cash. so you'll take the last year's PP&E, subtract depreciation, and basically find x (x being capex) to get to the current year PP&E)
then you have cash flows from financing, which is dividends, new share issuances, share repurchases, etc.
you add these together and then you have your net change in cash.
You are way overthinking this. There is no way you will be asked to recreate the actual cash flow statement of a company. It will most likely be a simplified CF with only the main line items (NI, D&A, NWC, CapEx, and maybe Debt repayment/issuance) which you will be able to pull directly from the BS and IS, as well as any assumptions they give you. You wrote that it is a simple modeling test to be completed in 20-30 minutes, do you really think they would ask you to put together a legit CFS?
Thanks for your reply. Yes, I agree, I also doubt they will give me a full 10K or equivalent, but I was getting nervous due to the replies here that made it seem it is quite easy to even handle a full 10K and can be expected.
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