ur entrepreneurs february newsletter: things to know for your next finance interview
TRANSCRIPT
-
7/29/2019 UR Entrepreneurs February Newsletter: Things to Know for Your Next Finance Interview
1/2
A lot of people may wonder what it takes to do
well in a finance interview. What kind of things do we
have to know anyways? One of the fundamental things
that each finance or non-finance majors are expected to
know is how to analyze financial statements. These
three statements allow investors to extrapolate and
judge the financial standing of the company that they
may be interested in investing with. Each of thesefinancial statements are very detailed, and for the first
edition of our monthly newsletter, I will walk you
through the analysis of the Balance Sheet.
You may all be wondering, what is a balance
sheet? It is a financial statement that provides a
snapshot of a companys financial health at a specified
date! I can guarantee you that if you take a snapshot of
yourself today and another one sixty years from now,
you will look very different. That is why if you were to
compare the balance sheet of different companies, you
need to select balance sheets that come from the same
time frame; otherwise your conclusions will not berelevant.
So what goes into a balance sheet? Balance
sheets in general outline how much assets, liabilities,
and shareholder equity a company has. Dont be scared
and discouraged by the technical terms. Assets in
general are what the company owns. Think about
yourself. Yours assets will be how much money you
have, the number of shoes you own, or your jewelry
collection. For businesses, its the same way. Assets
for companies normally take the form of cash,
property, inventory, etc. Liabilities are what the
Things to Know for Your Next Finance Interview
-Oranich Aimcharoen 14
company owes. For you, it would the loan that you
have to pay back mom and dad for your college
education. Companies do the same thing. Some of
them choose to borrow and take out loans from banks.
Companies also purchase inventories (the stuff that
goes into production) from suppliers so they may also
owe suppliers. Shareholders equity is essentially the
net worth of the business.
Before you even begin analyzing the balance sheet,
simply remember the fundamental rule
Asset= Liabilities+ Shareholders Equity
At this point, you all are probably baffled at
what I am talking about. How is it useful for someone
to know how much assets, liabilities, and shareholders
equity a company has? Believe me, it is extremely
important. If we look at the break down of these three
categories, you will start to understand why.What goes under asset? Too many things. But
the important ones that you are expected to know fall
under the sub-categories of current assets and long-tern
assets. The differences between these three categories
are that current assets can be easily converted into cash
within one year. The typically line items that you will
see are cash, accounts receivable, inventory, etc.
Long-term assets are a little different. They are
typically assets that are owned for a long time and
contribute to the companys operations. Think about
lant ro ert and e ui ment. The factories!
UREntrepreneursMonthlyArticle
-
7/29/2019 UR Entrepreneurs February Newsletter: Things to Know for Your Next Finance Interview
2/2
Liabilities operate in a similar manner. Liabilities can be split into current
liabilities and long-term liabilities. The key factor that separates these two categories is
the time period of payment. Current liabilities are expected to be paid within one fiscal
year while the latter is greater than one year. So what are some of the liabilities that we
should be familiar with, especially for interviews? Debt is always number one! Accounts
payable is also very common.
Shareholder equity as we had discussed is the companys net worth. Always
remember the general formula
Asset= Liabilities+ Shareholders Equity
Shareholders Equity = Asset - Liabilities
So if we re-arrange it, you will see that shareholders equity is just the difference between
assets and liabilities. Thats the balance sheet!
RememberthetimewhenLehmanBrothersHoldingfiledforbankruptcy?WhataboutwhenBearStearnshadnooptionbuttoengageinemergencysales?Fiveyearsago,itwouldbehardtoimaginethathappeningtothebulgebrackets.Today,itisnolongerthecase.BothGoldmanSachsandMorganStanleyareregardedasrespectableandstableinvestmentbanks.However,afterthefinancialpanicthattookplace,therehavebeentalksaboutGoldmannolongerbeingthe
goldeneggandthatMorganStanleywillnotbeabletopreserveitscurrentstandingasanindependentinvestmentbank.TheCEOofMorganStanley,JackMack,inanattempttocountercriticsclaims,said,"[Thefirmhas]strongearningsand$179billioninliquidity-thereisnorationalbasisforthemovementsinourstockorcreditdefaultspreads."Althoughtheheadsofbothcompaniesemphasizedthattheyarefinanciallycapableofmaintainingtheirstatusquo,externalanalystsseemtodisagree.Lookingatthenumbers,bothGoldmanandMorganStanleyarenotinsuchsoundpositions.Recently,sharepriceshaveplungedwhichreflectedinvestorsfearonthebanksstability.Goldmanexperiencedadropof14%whileMorganStanleysawtheirpricesfallby24%.Asthefinancialcrisiscontinues,thesetwofirmsmaybeforcedtosellthemselvestocommercialbanksthatcanprovidethemwithreliablestreamsoffunds.Further
fearofcreditdefaultswithinthegeneralinvestmentmarkethasfurthercreatedanadverseatmosphereforGoldmanandMorganStanleyasanxiousinvestorsbiduppricesofinsuranceondebtissued.Withthecurrenteconomicenvironment,itishardtodeterminewhichwaythependulumwouldswing,butbothcompaniesvowedtomaintaintheirpositionastraditionalinvestmentbanks.
ABasketofBrokenEggs
HowtoAn
alyzeFinancialStatements(BalanceSheet)
-OranichAimcha
roen14