BREAKING INTO WALL STREET 400 GUIDE 2026/2027 | COMPLETE BIWS 400 INTERVIEW
GUIDE, FINANCIAL MODELING, VALUATION & INVESTMENT BANKING PREP
Walk me through the three financial statements - ANS ✔✔Income Statement, Balance Sheet,
Cash Flow Statement
Income Statement: Details the company's revenue and expenses to arrive to net income
Balance Sheet: Details the distribution of a company's assets, liabilities, and shareholder's
equity. Assets must equal liabilities plus shareholders equity.
Cash Flow Statement: Starts with net income and adjusts for cash inflows and outflows of
operating, investing, and financing activities to arrive at the company's net change in cash.
Major line items on income statement - ANS ✔✔Revenue, COGS, SG&A, Operating Income,
Pretax Income, Net Income
Major line items on balance sheet - ANS ✔✔Cash, Accounts Receivable, Inventory, PP&E,
Accounts Payable, Accrued Expenses, Debt, Shareholders Equity
major line items on cash flow statement - ANS ✔✔Cash Flow from Operations, Cash Flows from
Investing, Cash Flow from Financing:
Net Income, Depreciation & Amortization, Changes in Operating Assets & Liabilities, Capital
Expenditures, Sale/Purchase of Securities; Dividends Issued
How do the three statements link together? - ANS ✔✔To tie the statements together...
- Net Income from the Income Statement is reflected on the first line of the Cash Flow
Statement.
- Net change in Cash Flows on the Cash Flow Statement is reflected in assets of the Balance
Sheet
- Investing and Financing activities on the Cash Flow Statement affect Balance Sheet items such
as PP&E, Debt, and Shareholders' Equity
,- Retained Earnings in Shareholders' Equity on the Balance Sheet comes from net income on the
Income Statement
If I were stranded on a desert island and only had one financial statement and I wanted to
review the overall health of a company, which statement would I use and why? - ANS ✔✔Cash
Flow Statement
CFS gives the true picture of how much cash the company is actually generating, independent of
all the non-cash expenses you might have. And cash flow is #1 thing you care about in analyzing
financial health of a business.
If you could look at 2 statements, which two would you use and why? - ANS ✔✔Income
Statement and Balance Sheet
The income statement and balance sheet can be combined to create the CFS (assuming you
have "before" and "after" versions of balance sheet corresponding to period income statement
tracks)
Walk me through how depreciation going up by $10 would affect the statements? - ANS ✔✔IS:
Pre-Tax income would decline by $10, and assuming a 40% tax rate, net income would go down
by $6 because of reduced tax expense
CFS: at the top, net income goes down by $6, but after accounting for the $10 depreciation,
which is a non-cash expense that gets added back, overall cash flow from operations goes up by
$4. There are no changes elsewhere, so the overall net change in cash goes up by $4.
BS: Cash is up by $4 from changes on CFS. PP&E goes down by $10 in assets because of
depreciation. Since net income fell by $6, shareholders' equity is also down by $6.
Since assets = liabilities + shareholders' equity, the balance sheet balances
*Remember that an asset going up decreases your cash flow, whereas a liability going up
increases your cash flow
,If Depreciation is a non-cash expense, why does it affect the cash balance? - ANS ✔✔Because it
is tax-deductibale. Since taxes are a cash expense, depreciation affects cash by reducing taxes.
Where does depreciation usually show up on the income statement? - ANS ✔✔Every company
reports depreciation differently
It could be in a separate line item, or it could be embedded in COGS or operating expenses
*End result for accounting questions is the same: depreciation always reduces pre-tax income
What happens when accrued compensation goes up by $10? - ANS ✔✔Operating expenses on
the income statement go up by $10, pre-tax income falls by $10, and net income falls by $6
(assuming a 40% tax rate).
On CFS, net income is down by $6, accrued compensation will increase cash flow by $10, so
overall cash flow from operations is up by $4 and net change in cash at the bottom is up by $4.
On BS, cash is up by $4, so assets are up by $4. Accrued compensation is a liability so liabilities
are up by 10 and retained earnings are down by $6 due to the net income, so liabilities +
shareholders' equity = 4, and the balance sheet balances.
What happens when inventory goes up by $10, assuming you pay for it with cash? - ANS ✔✔No
changes to IS.
On cash flow statement, inventory is an asset so that decreases your cash flow from operations,
which goes down by $10, as does net change in cash at the bottom.
, On balance sheet under assets, inventory up by $10 but cash is down by $10, so changes cancel
out and assets still equals liabilities & shareholders' equity.
Why is the income statement not affected by changes in inventory? - ANS ✔✔*working capital
changes do not show up on the income statement*
Inventory expense is only recorded when the goods associated with it are sold. So if it's just
sitting in a warehouse, it does not count as a cost of goods sold or operating expense until the
company manufactures it into a product and sells it.
Let's say Apple is buying $100 worth of new ipod factories with debt. How are all 3 statements
affected at the start of Year 1, before anything else happens? - ANS ✔✔No changes yet to IS at
start of year 1.
On CFS, additional investment in factories would show up under cash flow from investing as a
net reduction in cash flow of $100 so far. But the additional $100 worth of debt raised would
show up as an addition to cash flow, canceling out investment activity. So cash number stays the
same.
On BS there is now $100 worth of factories in PP&E, so assets is up by $100. On the other side,
debt is up by $100 as well so both sides balance
Now going out 1 year to start of year 2. Assume debt is high yield so no principal is paid off, and
assume an interest rate of 10%. Also assume factories depreciate at a rate of 10% per year.
What happens? - ANS ✔✔Apple must pay interest expense and must record the depreciation.
Pre-Tax income decreased by $20: $10 from 10% depreciation and $10 in interest expense
Assuming 40% tax rate, net income would fall by $12 (20-20*.4)
On CFS, net income has decreased by $12. Depreciation is a non-cash expense, and cash flow
from operations is down by $2
GUIDE, FINANCIAL MODELING, VALUATION & INVESTMENT BANKING PREP
Walk me through the three financial statements - ANS ✔✔Income Statement, Balance Sheet,
Cash Flow Statement
Income Statement: Details the company's revenue and expenses to arrive to net income
Balance Sheet: Details the distribution of a company's assets, liabilities, and shareholder's
equity. Assets must equal liabilities plus shareholders equity.
Cash Flow Statement: Starts with net income and adjusts for cash inflows and outflows of
operating, investing, and financing activities to arrive at the company's net change in cash.
Major line items on income statement - ANS ✔✔Revenue, COGS, SG&A, Operating Income,
Pretax Income, Net Income
Major line items on balance sheet - ANS ✔✔Cash, Accounts Receivable, Inventory, PP&E,
Accounts Payable, Accrued Expenses, Debt, Shareholders Equity
major line items on cash flow statement - ANS ✔✔Cash Flow from Operations, Cash Flows from
Investing, Cash Flow from Financing:
Net Income, Depreciation & Amortization, Changes in Operating Assets & Liabilities, Capital
Expenditures, Sale/Purchase of Securities; Dividends Issued
How do the three statements link together? - ANS ✔✔To tie the statements together...
- Net Income from the Income Statement is reflected on the first line of the Cash Flow
Statement.
- Net change in Cash Flows on the Cash Flow Statement is reflected in assets of the Balance
Sheet
- Investing and Financing activities on the Cash Flow Statement affect Balance Sheet items such
as PP&E, Debt, and Shareholders' Equity
,- Retained Earnings in Shareholders' Equity on the Balance Sheet comes from net income on the
Income Statement
If I were stranded on a desert island and only had one financial statement and I wanted to
review the overall health of a company, which statement would I use and why? - ANS ✔✔Cash
Flow Statement
CFS gives the true picture of how much cash the company is actually generating, independent of
all the non-cash expenses you might have. And cash flow is #1 thing you care about in analyzing
financial health of a business.
If you could look at 2 statements, which two would you use and why? - ANS ✔✔Income
Statement and Balance Sheet
The income statement and balance sheet can be combined to create the CFS (assuming you
have "before" and "after" versions of balance sheet corresponding to period income statement
tracks)
Walk me through how depreciation going up by $10 would affect the statements? - ANS ✔✔IS:
Pre-Tax income would decline by $10, and assuming a 40% tax rate, net income would go down
by $6 because of reduced tax expense
CFS: at the top, net income goes down by $6, but after accounting for the $10 depreciation,
which is a non-cash expense that gets added back, overall cash flow from operations goes up by
$4. There are no changes elsewhere, so the overall net change in cash goes up by $4.
BS: Cash is up by $4 from changes on CFS. PP&E goes down by $10 in assets because of
depreciation. Since net income fell by $6, shareholders' equity is also down by $6.
Since assets = liabilities + shareholders' equity, the balance sheet balances
*Remember that an asset going up decreases your cash flow, whereas a liability going up
increases your cash flow
,If Depreciation is a non-cash expense, why does it affect the cash balance? - ANS ✔✔Because it
is tax-deductibale. Since taxes are a cash expense, depreciation affects cash by reducing taxes.
Where does depreciation usually show up on the income statement? - ANS ✔✔Every company
reports depreciation differently
It could be in a separate line item, or it could be embedded in COGS or operating expenses
*End result for accounting questions is the same: depreciation always reduces pre-tax income
What happens when accrued compensation goes up by $10? - ANS ✔✔Operating expenses on
the income statement go up by $10, pre-tax income falls by $10, and net income falls by $6
(assuming a 40% tax rate).
On CFS, net income is down by $6, accrued compensation will increase cash flow by $10, so
overall cash flow from operations is up by $4 and net change in cash at the bottom is up by $4.
On BS, cash is up by $4, so assets are up by $4. Accrued compensation is a liability so liabilities
are up by 10 and retained earnings are down by $6 due to the net income, so liabilities +
shareholders' equity = 4, and the balance sheet balances.
What happens when inventory goes up by $10, assuming you pay for it with cash? - ANS ✔✔No
changes to IS.
On cash flow statement, inventory is an asset so that decreases your cash flow from operations,
which goes down by $10, as does net change in cash at the bottom.
, On balance sheet under assets, inventory up by $10 but cash is down by $10, so changes cancel
out and assets still equals liabilities & shareholders' equity.
Why is the income statement not affected by changes in inventory? - ANS ✔✔*working capital
changes do not show up on the income statement*
Inventory expense is only recorded when the goods associated with it are sold. So if it's just
sitting in a warehouse, it does not count as a cost of goods sold or operating expense until the
company manufactures it into a product and sells it.
Let's say Apple is buying $100 worth of new ipod factories with debt. How are all 3 statements
affected at the start of Year 1, before anything else happens? - ANS ✔✔No changes yet to IS at
start of year 1.
On CFS, additional investment in factories would show up under cash flow from investing as a
net reduction in cash flow of $100 so far. But the additional $100 worth of debt raised would
show up as an addition to cash flow, canceling out investment activity. So cash number stays the
same.
On BS there is now $100 worth of factories in PP&E, so assets is up by $100. On the other side,
debt is up by $100 as well so both sides balance
Now going out 1 year to start of year 2. Assume debt is high yield so no principal is paid off, and
assume an interest rate of 10%. Also assume factories depreciate at a rate of 10% per year.
What happens? - ANS ✔✔Apple must pay interest expense and must record the depreciation.
Pre-Tax income decreased by $20: $10 from 10% depreciation and $10 in interest expense
Assuming 40% tax rate, net income would fall by $12 (20-20*.4)
On CFS, net income has decreased by $12. Depreciation is a non-cash expense, and cash flow
from operations is down by $2
