The Income Statement: The Launchpad for All Accounting Interview Questions

[@financialmodeling]

Files & Resources: breakingintowallstreet.com/kb/accounting/income-statement/ Table of Contents: 0:00 Introduction 0:39 The Short Version 5:43 Part 1: More Advanced Line Items 7:24 Part 2: Why Does Item X Appear on the IS? 9:50 Part 3: Income Statement Forecasting 11:46 Part 4: The Income Statement in Interviews 14:10 Recap and Summary

[@Michael_NV]

Amazing level of details you provide. You are really a hard worker.

[@financialmodeling]

Thanks for watching!

[@phamhongvann]

Thank you Brian, would you kindly share financial modelling in oil&gas industry please? Thank you.

[@financialmodeling]

We no longer officially cover the topic but may re-introduce it in the future.

[@phamhongvann]

@@financialmodeling thank you :)

[@cyrokkk]

Hi Brian thanks for this video ! One question: In the year when a LT debt is to be repaid in full, does the amount appear in the P&L as a financial cost, or in the CFS under a "debt repayment" item ? I guess it depends what's our starting point in the CFS, i.e. Net Income or EBITDA ?

[@financialmodeling]

Debt repayments of any type should always appear on the CFS. The starting point doesn't matter because it's still a cash outflow that never appears on the Income Statement.

[@cyrokkk]

@@financialmodeling Thanks for the answer, but then I don't really understand the difference of treatment with the preferred dividends for instance. The debt repayment will impact common shareholders' dividends isn't it ?

[@financialmodeling]

@@cyrokkk ​ Preferred Dividends do not impact the Preferred Stock balance unless they are accrued. They just represent a simple payment in the period for the cost of using Preferred Stock in that period. With Debt Repayment, there is no direct impact on the company's Common Dividends because most Dividend policies are set based on Net Income or per-share targets. You could argue that they do make an indirect impact by reducing the total cash flow available for Dividends, but even if that is true, they do not meet the first condition (that they correspond to something only in the current period), as Debt Repayments affect the future Debt balance that needs to be repaid and even the future Interest Expense.

[@joeblow9284]

After 10 years in Finance, I’ve learned that accounting is the tool that poor performing companies use to make themselves look good. It’s completely arbitrary. The only reason to learn accounting is to find out what a company is hiding. There’s such a huge difference between financials and cash flow based on bank accounts, that financial reporting by accrual accounting is virtually useless.

[@financialmodeling]

Like any tool, accounting may be used correctly or incorrectly. Not all companies hide secrets, but some do. But they cannot hide them everywhere, which is why the Cash Flow Statement exists and why the best analysts also read the footnotes, special items, etc., and do their own due diligence.

[@joeblow9284]

@@financialmodelingAgree the cash flow statement is the way to go, however, the traditional cash flow statement based off of the other two financial reports is virtually useless. The only beneficial cash flow statement is one built, using the direct method based off of revenues and deposits and operating expenses. Once you see their operating cash flow is consistently negative, you know the business is in trouble. They’re either operating off debt or cash injections. Meanwhile, the income statement still shows a positive net income, which is total BS.