Financial Modeling Self Study Program

Welcome to IBankingFAQ

I am excited to say that I’ve finished work on my book, How to Be an Investment Banker: Recruiting, Interviewing, and Landing the Job + Website (Wiley Finance) which will be released on April 1, 2013. It was a lot of work but I hope many of you find it useful for the investment banking recruiting process. Basically, the book is an extension of this site covering in greater detail information about investment banking and lifestyle, recruiting and interviewing and the technical stuff that you need to know, including an overview of accounting, finance, financial statement analysis, valuation, modeling, M&A and LBOs.

I’ve also recently launched a website called igokids. This has nothing to do with finance or investment banking but it is my full-time gig so feel free to check it out. igokids is local search and discovery site for everything kid related in New York City (in a nutshell, “Yelp for parents”). I’m proud to say that I developed it from scratch myself, being a totally self-taught programmer. See all the exit opportunities that investment banking can lead to?

I also want to remind you about my financial modeling self study program, which costs only $49. You can learn how to build a financial model in the comfort of your own home or office. Knowing how to build an integrated cash flow model will definitely help you in your interviews plus it is a great way to prep for those dreaded technical interview questions. Click to view more information about the financial modeling self study program.

As always, I look forward to your comments/suggestions/questions and emails (andrew [at] ibankingfaq.com).

How to be an Investment Banker

Random FAQ: A company makes a $100 cash purchase of equipment on Dec. 31. How does this impact the three statements this year and next year?

First Year:  Let’s assume that the company’s fiscal year ends Dec. 31.  The relevance of the purchase date is that we will assume no depreciation the first year.  Income Statement:  A purchase of equipment is considered a capital expenditure which does not impact earnings.  Further, since we are assuming no depreciation, there is no impact to net income, thus no impact to the income statement.  Cash Flow Statement:  No change to net income so no change to cash flow from operations.  However we’ve got a $100 increase in capex so there is a $100 use of cash in cash flow from investing activities.  No change in cash flow from financing (since this is a cash purchase) so the net effect is a use of cash of $100.  Balance Sheet:  Cash (asset) down $100 and PP&E (asset) up $100 so no net change to the left side of the balance sheet and no change to the right side.  We are balanced.

Second Year:  Here let’s assume straightline depreciation over 5 years and a 40% tax rate.  Income Statement:  Just like the previous question:  $20 of depreciation, which results in a $12 reduction to net income.  Cash Flow Statement:  Net income down $12 and depreciation up $20.  No change to cash flow from investing or financing activities.  Net effect is cash up $8.  Balance Sheet:  Cash (asset) up $8 and PP&E (asset) down $20 so left side of balance sheet doen $12.  Retained earnings (shareholders’ equity) down $12 and again, we are balanced.

View more frequently asked questions about: Accounting and Financial Statements.