Pinakiin Design Interview Questions and Answers

Linking between Income Statement, Balance sheet and cash flow statement

• The net income from the income statement is added to the retained earnings in the balance sheet

• Changes in assets and liabilities in the balance sheet affect the cash flow statement

• Net cash flow from operating activities in the cash flow statement is derived from the income statement and balance sheet

• Net cash flow from investing and financing activities in the cash flow statement is derived from the balance...read more

Cash Conversion Cycle is the time taken to convert inventory into cash.

• It measures the efficiency of a company's cash flow.

• It includes the time taken to sell inventory, collect receivables, and pay suppliers.

• A shorter cycle indicates better cash flow management.

• Formula: CCC = DIO + DSO - DPO

• DIO = Days Inventory Outstanding, DSO = Days Sales Outstanding, DPO = Days Payable Outstanding

Deferred Tax Liability is a balance sheet item that represents the amount of income tax that a company will owe in the future.

• It arises due to temporary differences between the book and tax values of assets and liabilities

• It is calculated using the tax rate that is expected to apply in the period when the liability is settled

• It is a non-current liability and is reported on the balance sheet

• Examples include depreciation and amortization expenses, and differences in revenue rec...read more

Impairment is a sudden decrease in the value of an asset, while depreciation is a gradual decrease in the value of an asset over time.

• Impairment is usually caused by external factors such as economic downturns or changes in market conditions.

• Depreciation is a result of wear and tear, obsolescence, or the passage of time.

• Impairment is recognized as a loss on the income statement, while depreciation is recognized as an expense.

• Impairment is usually a one-time event, while depre...read more

Minority interest refers to the portion of a subsidiary's net income or losses that is not owned by the parent company.

• It is the ownership stake in a company that is less than 50%

• It is reported on the balance sheet as a liability

• It is calculated by multiplying the subsidiary's net income or loss by the percentage of ownership held by the minority shareholder

• It is also known as non-controlling interest (NCI)

• Example: If a parent company owns 80% of a subsidiary and the remainin...read more

Share repurchase is a process of buying back company's own shares from the market.

• Share repurchase is also known as stock buyback.

• It is a way for companies to return value to shareholders.

• It can be done through open market purchases or tender offers.

• Share repurchase reduces the number of outstanding shares, increasing earnings per share.

• It can also be used to prevent hostile takeovers.

• Example: Apple repurchased $75 billion worth of its own shares in 2018.

• Example: Coca-Cola ha...read more

Restricted cash is cash that is set aside for a specific purpose and cannot be used for other expenses.

• Restricted cash is typically held in a separate account or in a separate section of the general ledger.

• It is often used to ensure that funds are available for a specific purpose, such as a legal settlement or a capital expenditure.

• Examples of restricted cash include security deposits, escrow accounts, and funds held in trust.

• Restricted cash is reported separately on the bala...read more

Normalised profit is the adjusted profit of a company, excluding one-time or non-recurring items.

• Normalised profit is used to provide a more accurate picture of a company's ongoing profitability.

• It excludes one-time gains or losses, such as the sale of assets or restructuring costs.

• Normalised profit is calculated by adjusting the reported profit for these one-time items.

• It is useful for comparing the profitability of a company over time or against its peers.

• For example, if a ...read more