Breaking into Wall Street 400 Guide
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1. Walk me through the three financial state- Income Statement, Balance Sheet,
ments Cash Flow Statement
Income Statement: Details the com-
pany's revenue and expenses to ar-
rive to net income
Balance Sheet: Details the distri-
bution of a company's assets, li-
abilities, 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.
2. Major line items on income statement Revenue, COGS, SG&A, Operating
Income, Pretax Income, Net Income
3. Major line items on balance sheet Cash, Accounts Receivable, Invento-
ry, PP&E, Accounts Payable, Accrued
Expenses, Debt, Shareholders Equi-
ty
4. major line items on cash flow statement Cash Flow from Operations, Cash
Flows from Investing, Cash Flow
from Financing:
Net Income, Depreciation & Amor-
tization, Changes in Operating As-
sets & Liabilities, Capital Expendi-
tures, Sale/Purchase of Securities;
Dividends Issued
, Breaking into Wall Street 400 Guide
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5. How do the three statements link together? To tie the statements together...
- Net Income from the Income State-
ment 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 Sharehold-
ers' Equity on the Balance Sheet
comes from net income on the In-
come Statement
6. If I were stranded on a desert island and only Cash Flow Statement
had one financial statement and I wanted to CFS gives the true picture of how
review the overall health of a company, which much cash the company is actually
statement would I use and why? 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.
7. If you could look at 2 statements, which two Income Statement and Balance
would you use and why? Sheet
The income statement and balance
sheet can be combined to create
the CFS (assuming you have "be-
fore" and "after" versions of balance
, Breaking into Wall Street 400 Guide
Study online at https://quizlet.com/_eiqdf0
sheet corresponding to period in-
come statement tracks)
8. Walk me through how depreciation going up by IS: Pre-Tax income would decline by
$10 would affect the statements? $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 opera-
tions 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, share-
holders' equity is also down by $6.
Since assets = liabilities + share-
holders' equity, the balance sheet
balances
*Remember that an asset going up
decreases your cash flow, whereas
a liability going up increases your
cash flow
9.
, Breaking into Wall Street 400 Guide
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If Depreciation is a non-cash expense, why does Because it is tax-deductibale. Since
it affect the cash balance? taxes are a cash expense, deprecia-
tion affects cash by reducing taxes.
10. Where does depreciation usually show up on Every company reports depreciation
the income statement? 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 re-
duces pre-tax income
11. What happens when accrued compensation Operating expenses on the income
goes up by $10? statement go up by $10, pre-tax in-
come 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
Study online at https://quizlet.com/_eiqdf0
1. Walk me through the three financial state- Income Statement, Balance Sheet,
ments Cash Flow Statement
Income Statement: Details the com-
pany's revenue and expenses to ar-
rive to net income
Balance Sheet: Details the distri-
bution of a company's assets, li-
abilities, 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.
2. Major line items on income statement Revenue, COGS, SG&A, Operating
Income, Pretax Income, Net Income
3. Major line items on balance sheet Cash, Accounts Receivable, Invento-
ry, PP&E, Accounts Payable, Accrued
Expenses, Debt, Shareholders Equi-
ty
4. major line items on cash flow statement Cash Flow from Operations, Cash
Flows from Investing, Cash Flow
from Financing:
Net Income, Depreciation & Amor-
tization, Changes in Operating As-
sets & Liabilities, Capital Expendi-
tures, Sale/Purchase of Securities;
Dividends Issued
, Breaking into Wall Street 400 Guide
Study online at https://quizlet.com/_eiqdf0
5. How do the three statements link together? To tie the statements together...
- Net Income from the Income State-
ment 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 Sharehold-
ers' Equity on the Balance Sheet
comes from net income on the In-
come Statement
6. If I were stranded on a desert island and only Cash Flow Statement
had one financial statement and I wanted to CFS gives the true picture of how
review the overall health of a company, which much cash the company is actually
statement would I use and why? 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.
7. If you could look at 2 statements, which two Income Statement and Balance
would you use and why? Sheet
The income statement and balance
sheet can be combined to create
the CFS (assuming you have "be-
fore" and "after" versions of balance
, Breaking into Wall Street 400 Guide
Study online at https://quizlet.com/_eiqdf0
sheet corresponding to period in-
come statement tracks)
8. Walk me through how depreciation going up by IS: Pre-Tax income would decline by
$10 would affect the statements? $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 opera-
tions 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, share-
holders' equity is also down by $6.
Since assets = liabilities + share-
holders' equity, the balance sheet
balances
*Remember that an asset going up
decreases your cash flow, whereas
a liability going up increases your
cash flow
9.
, Breaking into Wall Street 400 Guide
Study online at https://quizlet.com/_eiqdf0
If Depreciation is a non-cash expense, why does Because it is tax-deductibale. Since
it affect the cash balance? taxes are a cash expense, deprecia-
tion affects cash by reducing taxes.
10. Where does depreciation usually show up on Every company reports depreciation
the income statement? 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 re-
duces pre-tax income
11. What happens when accrued compensation Operating expenses on the income
goes up by $10? statement go up by $10, pre-tax in-
come 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
