Today, I had an investment banking interview for an analyst position. One of the questions I have never been asked before and I thought it was very challenging. The question was "walk me through what happens to the financial statement if you are given $10 of depreciation?". The interviewer explained the answer afterward but I still didn't understand.
Also, another question was "what financial statement is the best for understanding the health of a company?" I said the income statement but the interviewer said cashflow statement. Can someone please explain why?
Will be interesting to see other responses, but I would look at the question about which is "the best" financial statement as kind of a free form question to ascertain what a candidate knows.
Edit: This topic is played out.
a balance sheet won't tell you the cost of what it takes for a company to keep its lights on i.e. normal capex. what is your reasoning for saying the balance sheet is more important for the health of a company?
I don’t think any one statement is “the most important”. You need all three. Cash Flow doesn’t tell you leverage, sales, total cash on hand.
He’s right they all tell different stories.
What if a company is loaded with debt or has liabilities that ruin value - maybe pension liabilities or if it’s an industrial a major environmental thing.
They all tell a different story.
Keeping the lights on would be Utility or Repair expenses which would be OpEx. Maintenance CapEx could be replacing light fixtures rather than keeping the bulbs lit.
are you
serious? These are the most obvious questions and I thought everyone knows answers for them...
How do people get this far in life?
Like I'm genuinely curious how he doesnt know the answers to these questions
obvious troll
Flow through the financial statements to address the impact of depreciation:
Income Statement 1. Depreciation is expensed so a $10 increase in depreciation yields a $10 decrease in EBIT
FCF 1. Assume some tax rate (let's use 30%) which means net income decreased by $7 but depreciation increased by $10 which nets to a FCFO increase of $3
Balance Sheet 1. Cum Dep. increased $10 which means net PP&E decreased $10. From FCF above we know Cash increase $3 and the $7 decrease of net income from IS caused Retained Earnings to decrease by $7.
You can check because the BS ties, Assets decrease $7, RE decreased $7 as well.
These are very basic interview prep questions that, if you aren't trolling, you should really become familiarized with.
This has to be a troll
in fair play to you, the interviewer made a mistake in the second question. the best statement to look at when trying to gauge the financial health of a company is actually the statement of retained earnings.
i also wouldn't worry about the $10 depreciation question. more difficult questions such as that are typically reserved for PE associate recruiting technical grill-fests. your interviewer was most likely having a bad day and chose to take it out on you.
I for one do not understand the monkey shits thrown at you. SB'd.
yo PE recruiting are getting more and more competitive these days, I heard some MF PEs asked to walk through $10 amortization instead.
Anyone worth their salt in IB will know these questions. As someone who performed interviews for PE, I can tell you that we used to laugh when kids couldnt get these. Our rule was you need to be swinging around 80% on those for a follow up interview and i think we were nice compared to some other pe tests i saw. A new trend ive seen is making people model a transaction completely outside of their background - including some firms that have dramatically ramped up their hires from college. If you dont know how basic accounting works, you have no chance of breaking into a good ib or pe.
Dude I think you really need to learn the basics.
Is your avi really the goldman sachs logo
Yes, it is.
I remember reading in one of the IBD interview guides that the cash flow statement is the best statement to have if you only get one statement because you can essentially back out a rudimentary balance sheet and P&L from that one statement, giving you the best overall view of a company from one statement only.
That's what I've been told for this question as well.
Not sure why this is getting monkey shit, this is what the guides say as well
WallStreetOasis.com doesn't want me giving away secrets from the guide, I've single handedly dragged sales down already by 5% with that comment
Hes getting shit because this is finance 101 and he sounds confused.
following
I think you probably should have looked at any IB guide before you interviewed...
deleted
Bruh u stupid
How come they asked you such questions for an analyst position? You must have messed something beforehand, and the interviewer felt it incumbent upon him or her to confirm you were sitting there by mistake.
Do people really not prepare accordingly, bomb the interview, and then come on a forum to ask simple interview questions instead of googling? I understand utilizing your resources but c'mon dude... you're adding no value to WSO and leaving a bad impression on yourself
Sometimes its better to get an answer in layman terms
I will also add this was a real estate IB interview so the depreciation question caught me off guard. I spoke more to the fact that depreciation is added for real estate on the income statement.
trolling at the highest level right here...no way someone wouldn't know the answer to the depreciation question...easiest question possible!
Hahaha how do you guys not realize this is a troll. honestly I laughed reading it, 10/10, but laughed more about people thinking the balance sheet is the financial statement most telling of the company's financial health
Unlucky man, the interviewer had it out for you with those hard questions.
OP is probably trolling he's never been asked "walk me through what happens to the financial statements if you are give $10 of depreciation?" This is the most cliche and common interview question in IB. The second question is much more challenging since there's no right answer.
Unborn monkeys know these questions
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