M&I 400 Exam Questions with 100% Verified Correct Answers
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Course
M&I 400
Institution
M&I 400
M&I 400 Exam Questions with 100% Verified Correct Answers
Walk me through the 3 financial statements. - Correct Answer The 3 major financial statements are the
1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
The Income Statement gives the company's revenue and expenses, and goes...
M&I 400 Exam Questions with 100% Verified
Correct Answers
Walk me through the 3 financial statements. - Correct Answer The 3 major financial statements are
the
1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
The Income Statement gives the company's revenue and expenses, and goes down to Net Income.
The Balance Sheet shows the company's Assets- it's resources- such as Cash, Inventory and PP&E,
as well as its Liabilities- such as Debt and Accounts Payable-
and Shareholders' Equity.
Assets= Liabilities+Shareholders' Equity
The Cash Flow Statement begins with Net Income, adjusts for non-cash expenses and working capital
changes, and then lists cash flow from investing and financing activities; at the end, you see the
company's net change in cash.
Can you give examples of major line items on each of the financial statements? - Correct Answer
Income Statement:
Cash and Cash Equivalents, beginning of the year (from B.S.)
Operating Activities-
Net income
Non-cash expense
1. D&A (A)
2. Stock-based compensation expense
3. Provision for deferred income taxes
,4. Loss on disposition of PP&E
Changes in operating assets and liabilities-
1. Accounts Receivable
2. Inventories
3. Other current assets
4. Other assets
5. Accounts payable
6. Deferred revenue
7. Other liabilities
CASH FLOW FROM OPERATIONS
Investing Activities (CAPITAL EXPENDITURES)-
1. Purchases of short-term investments
2. Proceeds from maturities of short-term investments
3. Proceeds from sale of short-term investments
4. Purchases of long-term investments
5. Payments made in connection with business acquisitions
6. Payment for acquisition of PP&E
7. Payment for acquisition of intangible assets
CASH FLOW FROM INVESTING
Financing Activities (SALE/PURCHASE OF SECURITIES) -
1. Proceeds from issuance of common stock (DIVIDENDS ISSUED)
CASH FLOW FROM FINANCING
, How do the 3 statements link together? - Correct Answer 1. The net income from the Income
Statement, after the payment of any dividends, is added to retained earnings on the Balance Sheet.
2. Debt on the Balance Sheet is used to calculate the interest expense on the Income Statement.
3. PP&E will be used to calculate any depreciation expense.
4. The beginning cash on the Cash Flow Statement comes from the previous period's Balance Sheet.
5. Cash from operations on the Cash Flow Statement is affected by the Balance Sheet's numbers for
changes in working capital.
6. PP&E is another Balance Sheet item that affects the CF Statement because depreciation is based
on the amount of PP&E a company has.
7. Any change due to the purchase or sale of PP&E with affect cash from investing.
8. The CF Statement's ending cash balance becomes the beginning cash balance on the new Balance
Sheet.
If I were stranded on a desert island, only had 1 statement and I wanted to review the overall health
of a company-- which statement would I use and why? - Correct Answer The Cash Flow Statement
because it gives a true picture of how much cash the company is actually generating, independent of
all the non-cash expenses you might have.
Cash is the #1 thing you care about when analyzing the overall financial health of any business.
The Income Statement can be misleading due to any number of non-cash expenses that may not
truly be affecting the overall business. And the Balance Sheet alone just shows a snapshot of the
company at one point in time, without showing how operations are actually performing.
Let's say I could only look at 2 statements to assess a company's prospects-- which 2 would I use and
why? - Correct Answer The Income Statement and Balance Sheet because you can create the Cash
Flow Statement from both of those.
Walk me through how Depreciation going up by $10 would affect the statements. - Correct Answer
Income Statement:
Operating Income would decline by $10 and assuming a 40% tax rate, Net Income would go down by
$6.
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