Interview Question - Balance sheet
Hello,
my friend was interviewed at the same PE I have interview with this Monday. The partner brought a balance sheet without the name of the company and asked him to tell him what sector is the company from.
What would you look at and what conclusions can be drawn?
Thanks,
M.
Well if it has $16 billion of cash, it's probably Apple.
Probably more of a thought exercise than 'guess the industry right or fail' question.
Retails/grocery will have low AR relative to all else - their sales are all on cash/short credit - might see negative working capital. Large inventory would also indicate a retailer.
PP&E - high capital intensity might be a mfg of some sort - if growing, likely expanding
Look at retained earnings balance change YOY to get an idea of what net income is like - also see if there is a dividends payable line. Look at cash balance YOY as well.
Intangibles - will be bigger in research/science/tech. type industries
Goodwill - higher in a company that has grown by acquisition - think of what types of industries do this.
High debt level - assuming company not distressed (check equity/APIC) - might indicate a stable, good cash flow generating business but not necessarily conclusive.
Just some initial thoughts. Curious what others come up with.
I would agree with the above posters. Maybe a couple of other things:
Large prepaid rent balances might signal retail.
Large prepaid commissions are common in business services companies.
Industrials and airlines often have large capital lease balances.
Banks, leasing (high capex, retained earnings growing with assets), insurance companies should be obvious due to the balance sheet accounts. Answers above mine are good guidelines.
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