Investment Banking - Accounting Questions and Answers | Latest Version | 2025/2026 | Correct & Verified

Investment Banking - Accounting Questions and Answers | Latest Version | 2025/2026 | Correct & Verified What is the main purpose of financial accounting in investment banking? To provide accurate financial information for valuation and decision-making What does the income statement show? A company’s profitability over a specific period What does the balance sheet represent? A company’s financial position at a specific point in time What does the cash flow statement track? Actual cash inflows and outflows What are the three main financial statements? Income statement, balance sheet, and cash flow statement What does revenue represent? Total income from core business activities What is gross profit? 2 Revenue minus cost of goods sold What is operating income? Profit from operations before interest and taxes What is EBITDA? Earnings before interest, taxes, depreciation, and amortization Why is EBITDA important in investment banking? It approximates operating cash flow and enables comparisons What does net income represent? Profit after all expenses and taxes What is depreciation? Allocation of an asset’s cost over its useful life What is amortization? Expense allocation for intangible assets Why is depreciation added back in cash flow analysis? Because it is a non-cash expense 3 What are current assets? Assets expected to be converted to cash within one year What are current liabilities? Obligations due within one year What does working capital measure? Short-term liquidity How is working capital calculated? Current assets minus current liabilities Why is working capital important in valuation? It affects free cash flow What is free cash flow? Cash available after operating expenses and capital expenditures Why do bankers focus on free cash flow? It shows cash available to investors 4 What are capital expenditures? Spending on long-term assets Where do capital expenditures appear on financial statements? Cash flow from investing activities What is goodwill? Excess purchase price over fair value in an acquisition When is goodwill created? During acquisitions Does goodwill get amortized? No, it is tested for impairment What is impairment? Reduction in asset value