Accounting

Question 1

What’s the Income statement

Answer 1

Records revenue and expenses (over a period of time)

Question 2

What’s the Cash Flow Statement

Answer 2

Determines the net impact on cash over a period of time by totalling all cash inflows and outflows

Question 3

What’s the Balance Sheet

Answer 3

Snapshot of company’s Assets, Liabilities and equity at a specific point in time

Question 4

Revenue - COGS = ?

Answer 4

Gross Profit

Question 5

What are COGS

Answer 5

Direct costs of producing goods/services - Materials & labour

Question 6

Revenue - COGS - OpEx =?

Answer 6

EBITDA

Question 7

What’s EBITDA

Answer 7

Earnings before Interest Taxes and D&A

Question 8

EBITDA - D&A - Interest - Tax

Answer 8

Net income (the accounting definition of profit)

Question 9

Why is CapEx not on the income statement

Answer 9

Capital Expenditure is not taxable - it appears as D&A over time (revenue matching principle)

Question 10

What are OpEx

Answer 10

All other expenses such as Sales and Marketing, General and Administrative and Research and Development

Question 11

What is EBIT also know for

Answer 11

Operating Income

Question 12

EBTIDA - D&A = ?

Answer 12

EBIT or operating income

Question 13

Why does EBIT come before EBT?

Answer 13

Because interest here is an expense that is tax deductible

Question 14

What would Stock based compensation be classified under in the IS?

Answer 14

Operating Expense

Question 15

Why do we use EBITDA

Answer 15

-easy standardisable cash flow metric
-applies to both debt&equity holders
-interest can vary a lot depending on capital structure
-tax can vary
-D&A are non-cash expenses

Question 16

What’s the difference of EBITDA to Net Income

Answer 16

Net income only applies to equity holders, EBITDA to both (debt/equity)

Question 17

What’s the Cash Flow Statement

Answer 17

accounts for all cash in- and out-flows in order to get the company’s true picture of cash

Question 18

What are the three sections of the CFS

Answer 18

Operating Activities
Investing Activities
Financing Activities

Question 19

Why’s the CFS better than the IS in reflecting cash?

Answer 19

D&A and SBC are non-cash and have to be added back

Question 20

What are the non-cash expenses we add back to Net Income in the operating part of the CFS?

Answer 20

+ D&A
+ SBC
+/- change in NWC

Question 21

What other factors affect operating cash flow other than non-cash expenses?

Answer 21

Accounts Receivable
Inventory
Prepaid expenses
Accounts Payable
Accrued Liabilities
Deferred RevenuE

Question 22

What does Operating Cash Flow show?

Answer 22

How much cash the core business operations generate

Question 23

What do we mean by Change in NWC

Answer 23

Spending on currents assets and liabilities

Question 24

Why is the Change in NWC on the Cash Flow Statement

Answer 24

Because the real cash inflow/outflow is not included on the income statement

Question 25

What's the effect of a decrease in change in NWC

Answer 25

Source of Cash (+)

Question 26

What's the effect of an increase in change in NWC

Answer 26

Use of cash (-)

Question 27

What's subtracted from CF-operations to get to CF-investing?

Answer 27

Capital expenditures Acquisitions Proceeds from PP&E sale Sale of investments

Question 28

Why are acquisitions accounted for in the CFS (investing)?

Answer 28

Real cash outflow not included on income statement

Question 29

What brings us from Cash Flow from Investing to Cash Flow from Financing?

Answer 29

CF from Investing +Issuance of Long-Term debt -Paydown of Long-Term debt

Question 30

What is Free Cash Flow?

Answer 30

The true "operating" cash flow that a company generates

Question 31

Formula for unlevered FCF

Answer 31

EBITDA - Cash Taxes - CapEx - Increase in NWC =Unlevered Free Cash Flow

Question 32

What is unlevered free cash flow?

Answer 32

The cash available to the entire business, both debt and equity holders Leverage = debt, so unlevered refers to financials before we service debt

Question 33

Why are we interested in unlevered cash flow?

Answer 33

Because it does not include the burden on cash - capital structure neutral

Question 34

What's the golden Balance Sheet Rule

Answer 34

Assets - Liabilities = Equity

Question 35

What's an asset?

Answer 35

An asset is an item that will generate cash in the future

Question 36

What's a liability?

Answer 36

YOU, no joking. A liability is an item that will reduce cash in the future.

Question 37

What's equity?

Answer 37

Represents ongoing net income accumulated in the business

Question 38

Name current assets on the BS

Answer 38

Cash Short Term Investments Accounts Receivable Inventory Prepaid Expenses

Question 39

Name non-current assets on the BS

Answer 39

PP&E (Property, Plant & Equipment) Intangible Assets Long-Term Investments Goodwill

Question 40

Name current-liabilities

Answer 40

Revolver Accounts payable Accrued liabilities Deferred revenue (can be long term too)

Question 41

Name non-current liabilities

Answer 41

Deferred revenue Long-Term debt Other Long term liabilities

Question 42

Name Equity items

Answer 42

Common stock, preferred stock, retained earnings