1 Corporate Finance Interview Prep - Accounting Mark Pacyna / Manoj Ramnani VP’s for Corporate Finance Ross Business School Finance Club

2 Corporate Finance Intern Recruiting Roadmap  Company Presentations and Events  Beginning September 20  OCD Resume Reviews / Career Counseling  September & October  Meet The Interns  November  Corporate Finance Forum  November 5 OCD Mock Interviews / Interview Preparation OCD Mock Interviews / Interview Preparation October through early December – Start EARLY! October through early December – Start EARLY! Finance Club Mock Interviews Finance Club Mock Interviews Early January Early January Internship Interviews Internship Interviews Beginning mid-January Beginning mid-January

3 Interviewing Basics - Accounting Use this ONLY as a guideline Use this ONLY as a guideline This is provided to set expectations for technical Interviews This is provided to set expectations for technical Interviews Will not go into details of accounting and finance Will not go into details of accounting and finance Follow Accounting and Finance classes for best results Follow Accounting and Finance classes for best results Refer to Wet Feet, Vault guides for detailed technical questions Refer to Wet Feet, Vault guides for detailed technical questions

4 Ratio Analysis – Liquidity Ratios Current Ratio: Current Ratio: Ability to meet short term financial obligations: Current Assets Ability to meet short term financial obligations: Current Assets Current Liabilities Current Liabilities Quick Ratio: Quick Ratio: Relatively Liquid Securities: Cash + Marketable Securities + Receivables Relatively Liquid Securities: Cash + Marketable Securities + Receivables Current Liabilities Current Liabilities Cash Ratio: Cash Ratio: Most Conservative Cash Ratio: Cash + Marketable Securities Most Conservative Cash Ratio: Cash + Marketable Securities Current Liabilities Current Liabilities

5 Ratio Analysis – Turnover Ratios Receivables Turnover: Annual Sales. Receivables Turnover: Annual Sales. Average Receivables Average Receivables Receivables Collection Period: 365. Receivables Collection Period: 365. Receivables Turnover Receivables Turnover Payables Turnover: COGS. Payables Turnover: COGS. Average Payables Average Payables Payables Collection Period: 365. Payables Collection Period: 365. Payables Turnover Payables Turnover Inventory Turnover: COGS. Inventory Turnover: COGS. Average Inventory Average Inventory Inventory processing Period: 365. Inventory processing Period: 365. Inventory Turnover Inventory Turnover

6 Ratio Analysis – Risk Ratios Debt-Equity: Debt-Equity: Total Long Term Debt Total Long Term Debt Total Equity Total Equity Interest Coverage: Interest Coverage: EBIT (Net Income + Interest + Taxes) EBIT (Net Income + Interest + Taxes) Interest Expense Interest Expense Cash Flow/Long Term Debt: Cash Flow/Long Term Debt: Net Income + Depr. + Change in Deferred Tax Book Value of LT Debt Net Income + Depr. + Change in Deferred Tax Book Value of LT Debt

7 Ratio Analysis – Operating Ratios Total Asset Turnover: Net Sales Total Asset Turnover: Net Sales Average Total Assets Average Total Assets Net Fixed Asset Turnover: Net Sales Net Fixed Asset Turnover: Net Sales Average Fixed Assets Average Fixed Assets Equity Turnover: Net Sales Equity Turnover: Net Sales Average Equity Average Equity Average Equity: Average Equity: Includes Includes + Common Stock + Preferred Stock + Retained Earnings

8 Ratio Analysis – Profitability Ratios Gross Profit Margin: Gross Profit (Sales – COGS) Gross Profit Margin: Gross Profit (Sales – COGS) Sales Sales Operating Profit Margin: Operating Profit (EBIT) Operating Profit Margin: Operating Profit (EBIT) Sales Sales Net Profit Margin: Net Profit Net Profit Margin: Net Profit Sales Sales ROE: Net Income ROE: Net Income Average Total Equity Average Total Equity Return on Owners Equity: Net Income – Preferred Dividend Return on Owners Equity: Net Income – Preferred Dividend Average Common Equity Average Common Equity ROE: Net Income ROE: Net Income Average Common Equity Average Common Equity Net Income X Net Sales X Total Assets Net Income X Net Sales X Total Assets Net SalesTotal AssetsCommon Equity Net SalesTotal AssetsCommon Equity Profitability X Asset Turnover X Leverage Profitability X Asset Turnover X Leverage

9 Ratio Analysis – Limitations Only useful when compared to other firms or for the company's historical performance Only useful when compared to other firms or for the company's historical performance Difficult to find comparable industry ratios when analyzing companies that operate in multiple industries Difficult to find comparable industry ratios when analyzing companies that operate in multiple industries Must be viewed relative to one another Must be viewed relative to one another Best analyzed using a range of acceptable values Best analyzed using a range of acceptable values

10 Income Statement Sales (Net) - Cost of Goods Sold = Gross Profit -R&D Expense -SG&A Expense =EBITDA -Depreciation & Amortization =EBIT -Interest Expense +Non-Operating Income (Loss) =EBT -Income Taxes -Minority Interest in Earnings +Other Income (Loss) =Net Income Before Ext. Items -Ext. Items & Disc. Ops. -Preferred Dividends =Net Income (available to common)

11 Balance Sheet - Assets + Operating Cash and Market. Sec. +Receivables +Inventories + Other Current Assets =Total Current Assets +PP&E (Net) +Investments +Intangibles +Other Assets =Total Assets

12 Balance Sheet - Liabilities + Current Debt +Accounts Payable +Income Taxes Payable +Other Current Liabilities =Total Current Liabilities +Long-Term Debt +Other Liabilities +Deferred Taxes +Minority Interest =Total Liabilities +Preferred Stock +Paid in Common Capital (Net) +Retained Earnings =Total Common Equity

13 Other Questions Statement of Cash Flows Statement of Cash Flows Statement of Shareholders Equity Statement of Shareholders Equity Operating Leases, Capital Leases Operating Leases, Capital Leases Advantages, Disadvantages Advantages, Disadvantages Depreciation Depreciation Taxation Taxation Elective Classes Elective Classes ACC 564, ACC 712 ACC 564, ACC 712