3 Statement Model Questions
Accrued exp: expense on IS but you've not paid it out in cash yet - think salary IS exp +100, NI -60, CFO +100, Net cash +40 BS - Cash +40, Liab +100, RE-60
Accrued Expenses - Shows up on IS, & is recognized on the BS, but is not yet paid out in cash (i.e. cash on BS goes up) When it is paid out Accrued Liability goes down & Cash goes down ↑$100 When you write Accrued Liability on BS, Operating expenses on IS go up, NI goes down by $60, CFO - Accrued Liab. up means more cash $100, net cash position +$40 BS: cash +40, Accrued liability +100, RE -60
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After it gets recognized IS - Rev +100, Pretax Income +100, NI +60 CFO: Liab down -100, Net cash position -40 BS: Cash -40, Liab -100, RE +60
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Always start with IS, then the CS, then the BS
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Deferred Income Tax = record tax amount but don't pay it out in cash is a not cash item, and unlike D&A, Stock based comp it does not show up on IS CFS: Show up as non-cash item that is added back to NI +100, since you didn't pay it in cash ∴ CFO +100, Net cash position +100 BS: Cash +100, Liab -100
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Deferred Revenue: you've been paid upfront 24 mth for a service you will perform - $ goes into deferred revenue, and as each month goes by you write off some portion of the deferred revenue as it turns into real revenue No change in IS CFO - liability goes up ∴ +100, Net cash +100 BS - Cash +100, Deferred Rev +100
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Dividend Declared Does not show up on IS, it is not an expense for ongoing business; not an operating or investing activity but is a FINANCING ACTIVITY but not until ISSUED IS - No Change CFS- No Change BS- Entry created in the LIABILITIES section Dividend Declared +100, and RE goes down -100
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Dividend Issued Does not show up on IS, it is not an expense for ongoing business; not an operating or investing activity but is a FINANCING ACTIVITY but not until ISSUED IS - No Change CFS- Have to record now under CFF since cash is being used to payout the liability: Dividends Issued -100, Net cash position -100 BS- Cash -100, liabilities section Dividend Declared -100
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Dividend= payment to individual shareholder Dividend Declared & Dividend Issued
If cost are increasing - LIFO will have higher cogs ∴ lower NI FIO will have higher ending inventory
Ending Inventory = Beg. Inv + Inventory Purchases - COGS If cost of inventory is rising LIFO - COGS will be higher than FIFO ∴ Pre-tax Income is lower & NI is lower FIFO - will have higher ending inventory on BS since COGS was lower
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Equity Bail-out: usually company is low on cash they need infusion on liabilities side Always ask the interviewr what type of bailout it is debt (what type of debt), equity (what stock price? usually a bargain stock price, company gets the same amount of cash but the investor gets a bigger pie of the company) IS - No change CFF - since it is a financing activity - Bailout +100, Net cash +100 BS- Cash +100, SHE +100
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Goodwill Impairment or PPE write down IS- show below operating income but before pre-tax income expense +100, Pretax income down -100, NI down -60 CFS - NI down -60 , add back non-cash exp +100, Net cash position +40 BS - Cash +40, GW -100 = Net -60 , RE -60
Dep goes up +$100 NI goes down -$60 ($40 is tax saving) CFS - NI down -60, Dep up +100, net cash +40 BS - Cash +40, PP&E -100 Net Assets -60, RE -60
IS: Dep ↑ $100 /Pretax Income ↓$100/ NI ↓$60 (100*(1-40%) = 100*(60%) CFS: NI ↓$60/Dep ↑ $100/CFO: Dep ↑ $40 BS: Cash ↑40 / PP&E ↓100 / RE ↓60
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Issuing Share - firm needs money, repaying investors Repurchasing Share - company has a excess cash balance & don't know what to do with it, also if they believe stock price will go up over time - they will repurchase shares
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Issuing Shares - +100 IS No change - except for the shares outstanding # increasing CFF - Issue Shares +100, net cash balance +100 BS - Cash +100, Shareholder's equity +100 Detail BS: CS = #shares * par value (usually some small #) APIC = #shares * (Share price - Par Value)
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Multi-Step Scenario When apple buys factories and finances with debt CapEx goes up by +100, LT Debt goes up +100 ← moment of impact IS: No change CFS: No change to CFO, these are not operating activities, CFI: Cap Ex goes down -100 since cash outflow CFF: LT Debt goes up +100, Net Cash Position "0" BS: PP&E + 100, LTD +100
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Multi-Step Scenario When apple buys factories and finances with debt Interest Exp & Depreciation ← after 2 yr we repay loan, and write-down debt PP&E Write down - PP&A after 2 year after D&A = 80 left, and you assume all will be written off Also you've to repay all of the debt 1st Step - IS: D&A up by $+20 (10 1st year + 10 2nd year), Interest exp up by $+20, + PP&E Write down of $80, Pretax Income down by -$120, NI down by -72 (120*60%) CFS: NI down -72, D&A + 20, PPE +80 CFO down -2, Net +28 , No change in CFI or CFO, CFF repaying debt -100, Net Cash Position -72 BS: Cash down -72, PP&E down -100 (80 PPE + 20 D&A), LTD -100, SHE -72
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Multi-Step Scenario When apple buys factories and finances with debt Interest Exp & Depreciation ← after Yr 1 What is the interest rate on debt? & what is the dep/yr ($10) IS: Dep up by $+10, Interest exp up by $+10, Pretax income down by $-20 NI down by -12 CFS: NI down -12, D&A up by +10, CFO down -2, Net Cash Position -2 BS: Cash down -2, PP&E down -10, SHE -12
Cash Inv purchase $100 IS no change CFO - Inv -100, Net Cash -100 BS- Cash -100, Inv +100
Purchase of Inventory - Cash ($100 purchase) NB: 1st question you ask is how are you paying for it cash vs. debt IS: No change - until after it is sold CFS: Change in inventory in operating assets inventory ↓$100 ∴ending cash balance ↓$100 BS: Cash ↓$100 / Inventory ↑$100
Debt Inv $100 IS no change CFO - Inv -$100, CFF LT Debt +100, Net cash position 0 BS - Inv +100, LT Debt +100
Purchase of Inventory - Debt ($100 purchase) NB: 1st question you ask is how are you paying for it cash vs. debt IS: No change - until after it is sold CFS: Change in inventory in operating assets inventory ↓$100 / CFF LT Debt ↑$100 ∴ending cash balance: No change BS: Inventory ↑$100 / LT Debt Cash ↑$100
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Raising & Paying Off Debt Immediately After Debt up +100 IS - No change CFF - Debt Issue +100, Net cash position +100 BS - Cash +100, Debt +100
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Raising & Paying Off Debt Immediately After Debt down -100 IS - No change CFF - Debt Payoff -100, Net cash position -100 BS - Cash -100, Debt -100
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Repurchasing Stock - Treasury Stock CFF - Treasury Stock use up of cash -100, net cash position -100 BS- Cash -100, Treasury Stock -100
When Accrued Paid No change IS CFO: -100, Net cash -100 BS: cash -100, liab -100
When Accrued Expense is Paid IS - No change CFO - Accrued Liab is down ∴ cash ouflow of $100, net cash down by $100 BS - Cash down by $100, Accrued Liab down by $100
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Writing down Bad Debt Opposite of GW write down since it is a liability vs. an asset, & it helps the company in some ways IS - Pre-tax Income goes up ↑ by $100, (when you have an asset write down Pre-tax income goes down), NI + 60 CFS - NI +60, subtract Debt write down -100, since we are not really receiving any cash, CFF no change, will only change if we issue or payoff debt, Net cash position -40 BS: Cash -40, LT Debt -100, NI +60 (Net -40)
