WALL STREET PREP FINANCIAL
STATEMENT MODELING UPDATED
ACTUAL EXAM QUESTIONS CORRECT
ANSWERS
⩥ What are the main sections of a 10-K? Answer: In a 10-K, you'll find
the three core financial statements, which are the income statement, cash
flow statement, and balance sheet. There'll also be a statement of
shareholders' equity, a statement of comprehensive income, and
supplementary data and disclosures to accompany the financials.
Business Overview, MD&A, FS, Notes
⩥ What is the difference between the 10-K and 10-Q? Answer: 10-K: A
10-K is the annual report required to be filed with the SEC for any
public company in the U.S. The report is comprehensive and includes a
full overview of the business operations, commentary on recent
performance by management, risk factors, disclosures on changes in
accounting policies - and most importantly, the three core financial
statements with supplementary data.
10-Q: A 10-Q refers to the quarterly report required to be filed with the
SEC. Compared to the 10-K, this report is far more condensed in length
and depth, with the focus being on the quarterly financials with brief
sections for MD&A and supplementary disclosures.
,Additional Differences: A few more differences are 10-Ks are required
to be audited by an independent accounting firm, but 10-Qs are only
reviewed by CPAs and left unaudited. 10-Ks must also be filed ~60-90
days after the fiscal year ends, whereas 10-Qs must be submitted ~40-45
days after the quarter ends.
⩥ Walk me through the three financial statements. Answer: Income
Statement ("IS"): The income statement shows a company's profitability
over a specified period, typically quarterly and annually. The beginning
line item is revenue and upon deducting various costs and expenses, the
ending line item is net income.
2. Balance Sheet ("BS"): The balance sheet is a snapshot of a company's
resources (assets) and sources of funding (liabilities and shareholders'
equity) at a specific point in time, such as the end of a quarter or fiscal
year.
3. Cash Flow Statement ("CFS"): Under the indirect approach, the
starting line item is net income, which will be adjusted for non-cash
items such as D&A and changes in working capital to arrive at cash from
operations. Cash from investing and financing activities are then added
to cash from operations to arrive at the net change in cash, which
represents the actual cash inflows/(outflows) in a given period.
⩥ Walk me through the income statement. Answer: The income
statement shows a company's accrual-based profitability over a specified
,time period and facilitates the analysis of its historical growth and
operational performance.
Net Rev - COGS = GROSS PROFIT
-SG&A, - R&D- D&A = EBIT
-INT EXP
Pre-tax EBIT
-Tax EXP
=NI
⩥ Walk me through the balance sheet. Answer: The balance sheet shows
a company's assets, liabilities, and equity sections at a specific point in
time. The fundamental accounting equation is: Assets = Liabilities +
Shareholders' Equity.
The assets belonging to a company must have been funded somehow, so
assets will always be equal to the sum of liabilities and equity.
Assets are organized in the order of liquidity, with "Current Assets"
being assets that can be converted into cash within a year, such as cash
itself, along with marketable securities, accounts receivable, prepaid
expenses, and inventories. "Long-Term Assets" include property, plant,
, and equipment (PP&E), intangible assets, goodwill, and long-term
investments.
Liabilities Section: Liabilities are listed in the order of how close they're
to coming due. "Current Liabilities" include accounts payable, accrued
expenses, and short-term debt, while "Long-Term Liabilities" include
items such as long-term debt, deferred revenue, and deferred income
taxes.
Shareholders' Equity Section: The equity section consists of common
stock, additional paid-in capital (APIC), treasury stock, and retained
earnings.
⩥ Could you give further context on what assets, liabilities, and equity
each represent? Answer: Assets: Assets are resources with economic
value that can be sold for money or bring positive monetary benefits in
the future. For example, cash and marketable securities are a store of
monetary value that can be invested to earn interest/returns, accounts
receivable are payments due from customers, and PP&E is used to
generate cash flows in the future - all representing inflows of cash.
Liabilities: Liabilities are unsettled obligations to another party in the
future and represent the external sources of capital from third-parties,
which help fund the company's assets (e.g., debt capital, payments owed
to suppliers/vendors). Unlike assets, liabilities represent future outflows
of cash.
STATEMENT MODELING UPDATED
ACTUAL EXAM QUESTIONS CORRECT
ANSWERS
⩥ What are the main sections of a 10-K? Answer: In a 10-K, you'll find
the three core financial statements, which are the income statement, cash
flow statement, and balance sheet. There'll also be a statement of
shareholders' equity, a statement of comprehensive income, and
supplementary data and disclosures to accompany the financials.
Business Overview, MD&A, FS, Notes
⩥ What is the difference between the 10-K and 10-Q? Answer: 10-K: A
10-K is the annual report required to be filed with the SEC for any
public company in the U.S. The report is comprehensive and includes a
full overview of the business operations, commentary on recent
performance by management, risk factors, disclosures on changes in
accounting policies - and most importantly, the three core financial
statements with supplementary data.
10-Q: A 10-Q refers to the quarterly report required to be filed with the
SEC. Compared to the 10-K, this report is far more condensed in length
and depth, with the focus being on the quarterly financials with brief
sections for MD&A and supplementary disclosures.
,Additional Differences: A few more differences are 10-Ks are required
to be audited by an independent accounting firm, but 10-Qs are only
reviewed by CPAs and left unaudited. 10-Ks must also be filed ~60-90
days after the fiscal year ends, whereas 10-Qs must be submitted ~40-45
days after the quarter ends.
⩥ Walk me through the three financial statements. Answer: Income
Statement ("IS"): The income statement shows a company's profitability
over a specified period, typically quarterly and annually. The beginning
line item is revenue and upon deducting various costs and expenses, the
ending line item is net income.
2. Balance Sheet ("BS"): The balance sheet is a snapshot of a company's
resources (assets) and sources of funding (liabilities and shareholders'
equity) at a specific point in time, such as the end of a quarter or fiscal
year.
3. Cash Flow Statement ("CFS"): Under the indirect approach, the
starting line item is net income, which will be adjusted for non-cash
items such as D&A and changes in working capital to arrive at cash from
operations. Cash from investing and financing activities are then added
to cash from operations to arrive at the net change in cash, which
represents the actual cash inflows/(outflows) in a given period.
⩥ Walk me through the income statement. Answer: The income
statement shows a company's accrual-based profitability over a specified
,time period and facilitates the analysis of its historical growth and
operational performance.
Net Rev - COGS = GROSS PROFIT
-SG&A, - R&D- D&A = EBIT
-INT EXP
Pre-tax EBIT
-Tax EXP
=NI
⩥ Walk me through the balance sheet. Answer: The balance sheet shows
a company's assets, liabilities, and equity sections at a specific point in
time. The fundamental accounting equation is: Assets = Liabilities +
Shareholders' Equity.
The assets belonging to a company must have been funded somehow, so
assets will always be equal to the sum of liabilities and equity.
Assets are organized in the order of liquidity, with "Current Assets"
being assets that can be converted into cash within a year, such as cash
itself, along with marketable securities, accounts receivable, prepaid
expenses, and inventories. "Long-Term Assets" include property, plant,
, and equipment (PP&E), intangible assets, goodwill, and long-term
investments.
Liabilities Section: Liabilities are listed in the order of how close they're
to coming due. "Current Liabilities" include accounts payable, accrued
expenses, and short-term debt, while "Long-Term Liabilities" include
items such as long-term debt, deferred revenue, and deferred income
taxes.
Shareholders' Equity Section: The equity section consists of common
stock, additional paid-in capital (APIC), treasury stock, and retained
earnings.
⩥ Could you give further context on what assets, liabilities, and equity
each represent? Answer: Assets: Assets are resources with economic
value that can be sold for money or bring positive monetary benefits in
the future. For example, cash and marketable securities are a store of
monetary value that can be invested to earn interest/returns, accounts
receivable are payments due from customers, and PP&E is used to
generate cash flows in the future - all representing inflows of cash.
Liabilities: Liabilities are unsettled obligations to another party in the
future and represent the external sources of capital from third-parties,
which help fund the company's assets (e.g., debt capital, payments owed
to suppliers/vendors). Unlike assets, liabilities represent future outflows
of cash.
