7/29/2019 UR Entrepreneurs February Newsletter: Things to Know for Your Next Finance Interview

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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!

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7/29/2019 UR Entrepreneurs February Newsletter: Things to Know for Your Next Finance Interview

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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

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