I'm a little confused because I read and understand that: -principal shows up in CF from financing -BUT interest paid back on loans shows up in CF from operations So then why is it that when there's, say, a $10 interest expense it shows up in the IS but not the CFS? Or maybe (beginner here) I'm just not understanding the terms properly? I mean I understand that i expense is an expense which would logically show up as an expense on the IS (duh). But why not the CFS as well..
29 Oct 2015
Okay, so I get confused on when to add or subtract. Here's an example: Balance Sheet 2012 2011 Inventory $ 2000 $ 1600 Accounts Payable $ 5800 $ 4000 Income Statement COGS $13500 Cash Payments to Suppliers = COGS + Increase in Inventory - Decrease in AP = $13500 + $400 - $1800 = $12100 Both Inventory and AP increased from 2011 to 2012. So why is there a "+" for increase in inventory and "-" for decrease in AP? Is there a Rule for when to add or subtract? I really appreciate it Thanks Monkeys!
04 Sep 2012
Hey everyone! Very long time reader but first time poster. Looking for some clarification regarding the concept of non-cash items (gains/losses on disposals etc.) and their overall impacts on CFS/BS. I'm aware that the cash flow statement is essentially a breakdown of all P&L/BS movements in terms of cash and can build out a CFS given P&L and BS without too much trouble, but just a bit curious about this one point. If all BS A/L movements are accounted for in the indirect CFS and net income (incl. non-cash items) is included in the BS through RE in equity - how are the non-cash addbacks
27 Dec 2020
As many monkeys here know, the technical side of the investment banking interview is often comprised of valuation questions, capital markets questions, and accounting questions. In the coming weeks and months, we will dissect many of the questions that typically appear in these interviews, which I hope some of you going through the interview process will find helpful. Today, let's focus on accounting. A favorite interview topic is the relationship between cash flows and net income. It is almost inevitable that a candidate will encounter questions like these (answers at bottom of the post):
09 Dec 2011
Theoretically this seems like a simple question, but my colleagues can't agree on the answer. A company acquires fixed assets (let's say a building worth $100) in a non-cash transaction: it issues $50 in new shares to the building's owner and takes on $50 in debt attached to the building. It's clear enough what happens on the balance sheet, but what about the cash flow statement? Effectively no cash changes hands. So is the transaction "invisible" here, or do we simulate the skipped steps (e.g. the company raises $50 in debt and $50 from equity issuance, and then sees $100 outflow for capex)?
21 Mar 2016
HI all, Would really appreciate your insight. So the firm has $1800 depreciation on I/S and $2600 on C/F. What is the difference? Which one would you use for DCF? Thank you
25 Nov 2010
A day ago I had an interview for an IB position and was asked the following question, which in general is simple, but some details got me confused: A piece of equipment was bought 5 years ago for 100k. Annual depreciation is 10k. In the middle of this fiscal year the equipment was sold for 20k. How does this sale impact the three statements. Now, if it was sold, at the end of the year, it would be an easy question (I'll provide my answer below), but in this case the interviewer specifically pointed out, that it was sold in the middle of the fiscal year. So, the Accumulated Depreciation of the Equipment is 55k (50k from the previous 5 years and 5k for the half of this year), thus the BV of the Asset is 45k. INCOME STATEMENT
01 Nov 2014
Can someone please help me with this question, I would really appreciate it. When building a financial statement model, the total cash balance calculated on the cash flow statement (cash from operating + financing + investing activities): 1. Must equal cash flow balances inputted on the balance sheet 2. Will always exceed cash flow balances inputted on the balance sheet by cash from operating activities 3. Will always trail cash flow balances inputted on the balance sheet by cash from operating activities 4. None of the above Thanks!
03 Jan 2013
Random question Using a balance sheet for 2008. Using another balance sheet (from a different source) for 2009. Both balance sheets are from different sources, with numbers that are slightly different. Will the SCF balance (the cashflow) w the change in the 2 balance sheets?
09 Feb 2010
Hi, I am currently trying to figure out how to account in the Balance Sheet, Cash Flow Statement, and Income Statement for the following transaction. I buy 10 futures on inventory purchases today, to receive the inventory one year from now in the next accounting period. Contracted Futures price $1 Inventory Price (in year 2) $1.2 Today (year 1) I pay the broker deposit (%10): $1 --> Assets: Cash down $1, Broker deposit up $1. In the next accounting period I close the broker account. Cash +$1 (closed Deposit), Assets -$1 Inventory up by $10 (futures price times quantity 10x$1) How do I account
20 Apr 2017
Hi WSO, I'm currently having to "reformulate" my financial statements (Anyone who has come across Penman's Financial Statement Analysis will understand) for Whitbread plc and one of my tasks is to rearrange the cash flow statement. I'm currently trying to find FCF. However I was wondering if people could tell me which "finance/interest" expense I keep in the "Cash Generated from Operations" part of my cash flow statement, and which "finance/interest expense" I move to "Net Financing Cash flows". As you'll see on page 92 of the accounts, there is a charge of £44.5M for a "Net Finance Cost" in Cash Generated from Operations Before W/C charges, and then a line item of "Interest Paid" for £19.8M.
02 Jan 2015
Hi everyone, I have a question. Could anyone share some resources for gaining more in-depth knowledge of Cash Flow statement? To give more detailed explanation - I know how to create basic indirect CF that is used in models as a balancing figure but would like to gain further understanding of CF. I would like to learn more about meaning of Cash Flow item changes, interpretation of CF ratios and movements, Cash Flow forecasting, etc. So far I read books regarding financial and managerial accounting that I could find in my University library but they revolve around making direct Cash Flow statement.
23 Jun 2014
Thank you to our friends over at Wall Street Prep, here is a bit more detail on how to build a Cash Flow Statement knowing the income statement and balance sheet. (remember, as part of the WSO Modeling Series you can get $100 off the Premium Financial Modeling Package or 20% off any of the self-study courses...you won't find this deal anywhere else and it does end soon after the modeling series is over, so don't wait!):
20 Apr 2013
The technical side of the investment banking interview is often comprised of valuation questions, capital markets questions, and accounting questions. When it comes to accounting, a favorite interview topic is the relationship between cash flows and net income.
09 Dec 2011
The Cash Flow Statement is one of the three financial statements that are used to value a company and it shows actual inflows and outflows of cash. The Cash Flow Statement is constructed using the Balance Sheet and Income Statement and other relevant data. It usually starts with Net Income and adjusts that value to find Cash & Cash Equivalents. Net Income needs to be adjusted in the Cash Flow Statement because it includes factors which either have not been paid / received yet (such as Accrued Expenses and Accounts Receivable) or which are not actually measured in cash (Depreciation, Amortization etc).
29 Sep 2011