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How does financing an acquisition with debt versus equity impact the income statement, balance sheet and cash flow statement?
This is so easy mate. I can do it in my sleep Is - interest on debt in case of debt. When equity, Number of shares increases and potentially dividends? Cf - within, financing sec. replace issuance / pay of debt with equity instead. Bs - credit sh equity when equity and credit debt when debt.
...Shares and dividends aren't on the income statement...
You typically won't get too many accounting questions during face-to-face interviews, but you may get some on valuation methodologies and benchmarks for your industry and return expectations/discount rates calculations, and they will definitely test you during the modelling test/case study. You just need to convince them that you can build or review a financial model on your own without supervision.
Accounting-wise, you need to show that you understand the relationship between all the three financial statements for the most common financial operations (e.g. increase in capex, debt refinancing, capital increase, increase in pension liabilities for DB schemes). For a specific company/industry, you can get questions on how the different types of contracts you have with your suppliers or your clients can affect cash flow generation. Some structuring too, e.g. how do you create distributable reserves in a company to upstream dividends
Could you please provide quick answers for the accounting questions you listed? Thank you!
Most common accounting questions I got: 1) How does it affect the 3 statements if debt is PIK vs cash? 2) If capex goes up unexpectedly by $10, how does it affect all 3 statements? (don't forget about the tax shield) 3) What is the free cash flow of a company if revenue is $100m, EBIT margins are 15%, tax rate is 35%, capex is 5% of revenue etc (may give you pen and paper for this) 4) You buy this same company at 5x EBITDA and sell it for 6x EBITDA in 2 years, growth rate is 20% and all cash is swept to debt..what is your return? (def need to give you pen and paper for this)
Could you provide short answers? Thank you!
Could you provide short answers? Thank you!
Learn to build a few 3 statement models and do simple arithmetic and you should be able to handle these no problem
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