Wall Street Prep Questions and answers
Assets - correct answer-resources a company uses to operate its business
includes cash, A/R, PP&E
Liabilities - correct answer-represents the company's contractual obligations and includes
A/P, debt, accrued expenses
Shareholder's equity - correct answer-is the residual
the value of the business available to the owners (shareholders) after debts have been paid
off
Income statement - correct answer-illustrates the profitability of the company over a
specified period of time
broad sense: shows revenue-expenses
Balance sheet - correct answer-snapshot of the company economic resources and funding
for those resources at a given point in time (A = L + SE)
Revenue - correct answer-"top-line"
represents the sale of goods and services
it is recorded when earned (even though cash might not have been received at the time of
transaction)
Expenses - correct answer-netted against revenue to arrive at net income
COGS (directly associate with good production), SG&A (indirectly associated with
production), interest expense (expense related to paying debt holders periodic payments),
taxes, depreciation expense (non-cash expense accounting for the use of PP&E, often
imbedded within COGS and SG&A)
Net income - correct answer-"bottom-line"
revenue-expenses
the profitability available to common shareholder's after debt payments have been made
(interest expense)
EPS (earnings per share) - correct answer-portion of a company's profit allocated to each
outstanding share of common stock
, EPS = (net income - dividends on preferred stock)/weighted average shares outstanding
Cash flow statement - correct answer-While cash is not necessarily received when a sale
occurs, the income statement still records the sale. As a result, the income statement
captures all the economic transactions of the business.
The cash flow statement is needed because the income statement uses what is called
accrual accounting. In accrual accounting, revenues are recorded when earned regardless
of when cash is received (revenue includes sales using cash and made on credit A/R)
Since we also want to have a clear understanding of the cash position of a company, we
need the statement of cash flows to reconcile the income statement to cash inflows and
outflows.
"cash position of the company"
cash from operating activities, cash from investing activities, and cash from financing
activities
Cash from operating activities - correct answer-mostly indirect method
starts with net income and includes the cash effects of transactions involved in calculating
net income. reconciliation of net income.
Net income (income statement)
+ non-cash expenses
- non-cash gains
- period on period increases in working capital assets
+ period on period increases in working capital liability
= CF from operations
*for stable, mature, plain vanilla companies, a positive cash flow from operating activities is
desirable
Cash from investing activities - correct answer-cash related to investments in the business
(additional capex or sales of assets)
for stable, mature, plain vanilla a negative cash flow from investing activities is desirable as
this indicates that the company is trying to grow by buying assets
Cash from financing activities - correct answer-cash related to capital raising and payment of
dividends
if the company issues more preferred stock, we will see such an increase in cash in this
section
if the company pays out dividends, we will see a cash outflow
Assets - correct answer-resources a company uses to operate its business
includes cash, A/R, PP&E
Liabilities - correct answer-represents the company's contractual obligations and includes
A/P, debt, accrued expenses
Shareholder's equity - correct answer-is the residual
the value of the business available to the owners (shareholders) after debts have been paid
off
Income statement - correct answer-illustrates the profitability of the company over a
specified period of time
broad sense: shows revenue-expenses
Balance sheet - correct answer-snapshot of the company economic resources and funding
for those resources at a given point in time (A = L + SE)
Revenue - correct answer-"top-line"
represents the sale of goods and services
it is recorded when earned (even though cash might not have been received at the time of
transaction)
Expenses - correct answer-netted against revenue to arrive at net income
COGS (directly associate with good production), SG&A (indirectly associated with
production), interest expense (expense related to paying debt holders periodic payments),
taxes, depreciation expense (non-cash expense accounting for the use of PP&E, often
imbedded within COGS and SG&A)
Net income - correct answer-"bottom-line"
revenue-expenses
the profitability available to common shareholder's after debt payments have been made
(interest expense)
EPS (earnings per share) - correct answer-portion of a company's profit allocated to each
outstanding share of common stock
, EPS = (net income - dividends on preferred stock)/weighted average shares outstanding
Cash flow statement - correct answer-While cash is not necessarily received when a sale
occurs, the income statement still records the sale. As a result, the income statement
captures all the economic transactions of the business.
The cash flow statement is needed because the income statement uses what is called
accrual accounting. In accrual accounting, revenues are recorded when earned regardless
of when cash is received (revenue includes sales using cash and made on credit A/R)
Since we also want to have a clear understanding of the cash position of a company, we
need the statement of cash flows to reconcile the income statement to cash inflows and
outflows.
"cash position of the company"
cash from operating activities, cash from investing activities, and cash from financing
activities
Cash from operating activities - correct answer-mostly indirect method
starts with net income and includes the cash effects of transactions involved in calculating
net income. reconciliation of net income.
Net income (income statement)
+ non-cash expenses
- non-cash gains
- period on period increases in working capital assets
+ period on period increases in working capital liability
= CF from operations
*for stable, mature, plain vanilla companies, a positive cash flow from operating activities is
desirable
Cash from investing activities - correct answer-cash related to investments in the business
(additional capex or sales of assets)
for stable, mature, plain vanilla a negative cash flow from investing activities is desirable as
this indicates that the company is trying to grow by buying assets
Cash from financing activities - correct answer-cash related to capital raising and payment of
dividends
if the company issues more preferred stock, we will see such an increase in cash in this
section
if the company pays out dividends, we will see a cash outflow
