QUESTION: If you add $100 of depreciation expense in the income statement with a 40% tax rate, how does that affect the income statement and how does the balance sheet balance?

INTERVIEWING FOR WALL STREET

COMPREHENSIVE BEHAVIORAL AND TECHNICAL QUESTIONS FOR FINANCE INTERVIEW PREPARATION

ASHISH KOHLI

Investment Banker; Visiting Professor, Indian School of Business;
Career Advisor, Richard Ivey School of Business

MBA, Kellogg Graduate School of Management; Chartered Accountant

First Edition

TABLE OF CONTENTS

Introduction.. 1

COMPREHENSIVE BEHAVIORAL.. 3

EXPECTED INTERVIEW QUESTIONS. 4

BEHAVIORAL INTERVIEW QUESTIONS. 9

COMPREHENSIVE TECHNICAL INTERVIEW... 19

ACCOUNTING QUESTIONS. 20

FINANCIAL MODELING QUESTIONS. 30

VALUATION QUESTIONS. 34

MERGERS AND ACQUISITIONS. 43

LEVERAGED BUYOUT ANALYSIS. 53

DISTRESSED AND RESTRUCTURING QUESTIONS. 59

OTHER QUESTIONS. 62

MARKETS QUESTIONS. 64

BRAINTEASERS AND GUESSTIMATES. 69

INDUSTRY-RELATED QUESTIONS. 72

INVESTMENT BANKING PRODUCTS AND PROCESS. 75

VALUATION OF COMPANIES IN DIFFERENT INDUSTRIES. 79

APPENDICES. 88

APPENDIX 1: FIVE STEPS TO LANDING YOUR DREAM FINANCE JOB.. 89

APPENDIX 2: WHAT ARE THE DIFFERENT JOBS IN FINANCE.. 90

APPENDIX 3: 10 IMPORTANT RESUME POINTS. 100

APPENDIX 4: DETAILED TIPS FOR CREATING YOUR RESUMES. 102

APPENDIX 5: TOP 10 RULES FOR SUCCESSFUL INTERVIEWING.. 104

QUESTION: Mention some of the links between the income statement, balance sheet and cash flow statement.

· Net income from the income statement goes to the cash flow statement and net income minus dividends paid flows from income statement to the retained earnings in the balance sheet

· Ending cash from the cash flow statement goes to the balance sheet

· Depreciation is an expense in the income statement. It is calculated based on property, plant and equipment on the balance sheet. Depreciation expense is added back in the cash flow statement and also added to the accumulated depreciation section of the balance sheet which reduces net property plant and equipment

· Changes in working capital on the cash flow statement are calculated from changes in current assets and current liabilities on the balance sheet

· If the company takes on additional debt, it affects the financing activities section of the cash flow statement, increases the debt on the balance sheet and increases the interest expense in the income statement

QUESTION: If you add $100 of depreciation expense in the income statement with a 40% tax rate, how does that affect the income statement and how does the balance sheet balance?

· This is an excellent interview question that shows how the three financial statements (income statement, balance sheet and cash flow statements) are related to each other

· Income Statement

o Depreciation is an expense so operating income or EBIT declines by $100. Assuming a tax rate of 40%, net income declines by $60

· Cash flow statement

o Net income decreases by $60 so cash flow, which starts with net income, decreases by $60

o $100 of depreciation, a non - cash expense, is added back to the cash flow statement so cash flow from operations increases by $40

o The ending cash balance increases by $40 as a result of cash flow from operations increasing by $40. This then goes to the balance sheet

· Balance Sheet

o The $60 reduction in net income causes retained earnings to decrease by $60

o Cumulative depreciation increases by $100 so Net PP&E decreases by $100

o PP&E will decrease by $100 and cash goes up by $40 as described earlier from the cash flow statement so assets decrease by $60. Since assets = liabilities + shareholder equity, the balance sheet balances as assets and liability + shareholder equity both decrease by $60

Дата добавления: 2015-10-29