Hedge fund accountings

Question 1

EBITDA?

Answer 1

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
It is a measure of a company’s operating performance, excluding the impact of non-operating items like interest, taxes, and certain non-cash expenses (depreciation and amortization).
EBITDA is often used to assess a company’s profitability and operational efficiency.

Question 2

Cash Flow Statement Line Items:

Answer 2

Operating Activities:
Cash generated or used in the core business operations.
Investing Activities:
Cash used for or generated from investments in assets.
Financing Activities:
Cash transactions with the company’s owners and creditors.

Question 3

Calculating Cash Flows from Net Income:

Answer 3

Add back non-cash expenses (like depreciation and amortization).
Adjust for changes in working capital.
Consider cash spent or received from investing and financing activities.

Question 4

Balance Sheet vs. Income Statement:

Answer 4

Balance Sheet:
Snapshot of a company’s financial position at a specific point in time.
Assets, liabilities, and equity are reported.
Income Statement:
Reports a company’s financial performance over a period.
Revenues, expenses, and net income are disclosed.

Question 5

Goodwill?

Answer 5

Basic Answer:
Goodwill is an intangible asset representing the premium a company paid for an acquisition over the acquired company’s net assets.
Complex Answer:
Goodwill can be impaired, leading to a decrease in its value and impacting net income. Impairment occurs when the fair value of the reporting unit is less than its carrying amount.

Question 7

Purchase vs. Pooling Accounting:

Answer 7

Purchase:
Records acquired assets at fair market value.
More common; used under current accounting standards.
Pooling:
Combines the book values of assets in a merger.
Rare due to changes in accounting rules making it obsolete.

Question 8

Deferred Taxes:

Answer 8

Taxes that are not paid or received immediately but will be paid or received in the future.
Arise from temporary differences between book and tax accounting.

Question 9

Working Capital:

Answer 9

The difference between a company’s current assets and current liabilities.
Calculated as Current Assets - Current Liabilities.