What is APV??

Adjusted Present Value

Adjusted present value refers to the net present value (NPV) or investment adjusted for the interest and tax advantages of leveraging debt provided that equity is the only source of financing

What is EV Enterprise Value Enterprise value represents the entire economic value of a company! "ore specifically# it is a measure of the theoretical ta$eover price that an investor %ould have to pay in order to acquire a particular firm! Market Capitalization + Total Debt - Cash = Enterprise Value Enterprise value considers much more than just the value of a company&s outstanding equity! 'o buy a company outright# an acquirer %ould have to assume the acquired company&s debt# though it %ould also receive all of the acquired company&s cash! (cquiring the debt increases the cost to buy the company# but acquiring the cash reduces the cost of acquiring the company! )ebt and cash can have an enormous impact on a particular company&s enterprise value! *or this reason# t%o companies %ith the same mar$et capitali+ations may sport very different enterprise values! *or example# a company %ith a ,-. million mar$et capitali+ation# no debt# and ,/. million in cash %ould be cheaper to acquire than the same ,-. million company %ith ,0. million of debt and no cash!

How does ??? impact the three financial statements?

Varieties of this question are some of the most common technical question asked in interviews today. This type of question attempts to test your understanding of how the three financial statements income statement! "alance sheet! cash flow statement# fit together. The most common variation of this question is how does $%& of depreciation affect the three financial statements answered "elow#. '(ve posted a few additional e)amples as well. To answer this question! take the * statements one at a time. +y advice is to start with the income statement. ,emem"er to ta)-affect any change in revenue or costs usually you will "e told to assume a ta) rate of .&/#. Work your way down to net income. 0e)t! tackle the cash flow statement. The first line of the cash flow statement is net income so start with that and work your way down to net change in cash. 1ast! take the "alance sheet. The first line of the "alance sheet is cash so again! start with that. The "alance sheet must "alance in order for your answer to "e correct! which is why ' recommend doing the "alance sheet last. ,emem"er the "asic "alance sheet equation2 Assets 3 1ia"ilities 4 5hareholders( 6qu

If a company incurs $10 (pretax) of depreciation expense, how does that affect the three financial statements?
The most common version of this type of question. 0ote that the amount of depreciation may "e a num"er other than $%&. To answer this question! take the three statements one at a time. 7irst! the income statement2 depreciation is an e)pense so operating income 68'T# declines "y $%&. Assuming a ta) rate of .&/! net income declines "y $9. 5econd! the cash flow statement2 net income decreased $9 and depreciation increased $%& so cash flow from operations increased $.. 7inally! the "alance sheet2 cumulative depreciation increases $%& so 0et PP:6 decreases $%&. We know from the cash flow statement that cash increased $.. The $9 reduction of net income caused retained earnings to decrease "y $9. 0ote that the "alance sheet is now "alanced. Assets decreased $9 PP:6 -%& and ;ash 4.# and shareholder(s equity decreased $9. <ou may get the follow-up question2 If depreciation is non-cash, explain how this transaction caused cash to increase $4. The answer is that "ecause of the depreciation e)pense! the company had to pay the government $. less in ta)es so it increased its cash position "y $. from what it would have "een without the depreciation e)pense.

A company makes a $100 cash purchase of e uipment on !ec" #1" How does this impact the three statements this year and next year?
First Year2 1et(s assume that the company(s fiscal year ends =ec. *%. The relevance of the purchase date is that we will assume no depreciation the first year. Income Statement2 A purchase of equipment is considered a capital e)penditure which does not impact earnings. 7urther! since we are assuming no depreciation! there is no impact to net income! thus no impact to the income statement. Cash Flow Statement2 0o change to net income so no change to cash flow from operations. >owever we(ve got a $%&& increase in cape) so there is a $%&& use of cash in cash flow from investing activities. 0o change in cash flow from financing since this is a cash purchase# so the net effect is a use of cash of $%&&. Balance Sheet2 ;ash asset# down $%&& and PP:6 asset# up $%&& so no net change to the left side of the "alance sheet and no change to the right side. We are "alanced. Second Year2 >ere let(s assume straightline depreciation over ? years and a .&/ ta) rate. Income Statement2 @ust like the previous question2 $A& of depreciation! which results in a $%A reduction to net income. Cash Flow Statement2 0et income down $%A and depreciation up $A&. 0o change to cash flow from investing or financing activities. 0et effect is cash up $B. Balance Sheet2 ;ash asset# up $B and PP:6 asset# down $A& so left side of "alance sheet doen $%A. ,etained earnings shareholders( equity# down $%A and again! we are "alance

1urrent (ssets of 2an$3 "ar$etable securities#cash#interest bearing deposits

1urrent (ssets of "anufacturing company3 cash# a4c receivable#inventory#mr$tabl securities *ixed assets3 land#building#plants#machinery#motor vehicles#office

one of the most significant assets on a bank balance sheet is the line item for net loans -money the bank loaned to its customers Merchandising Company
+erchandising companies deal with the resale of items. Typically! merchandising companies are referred to as retailers or wholesalers. Wholesale companies sell products to retailers. ,etailers! in turn! sell the product to the end consumer the customer# at a higher price than they paid when they purchased it. +erchandising companies usually have two types of e)penses -- e)penses related to the products they are selling! called cost of goods sold! and e)penses related to the day-to-day operations of the "usiness. The latter would include rent! utilities! office supplies and staff salaries.

Service Company
5ervice companies also deal in products. >owever! their products are usually intangi"le. 5ervice companies provide services for their customers. This type of company includes law firms! accounting firms! salons and spas! among others. 7or e)ample! a service product is a ta) return prepared "y an accounting firm. A product for a salon could include a haircut or manicure. Typically! service companies have only e)penses relating to the daily operations of the "usiness.

Balance Sheet Differences

8ecause merchandising companies and service companies sell different things! they also have some "alance sheet differences. The "alance sheet lists all of the companyCs assets! lia"ilities and equity. 8oth types of company will still maintain these sections. >owever! there is one main difference in the accounts listed. This difference is found in the asset section. +erchandising companies will have an asset for inventory! whereas service companies do not. This is listed as a current asset. Dther differences can include the types of accounts paya"le a merchandising company has. 7or e)ample! a merchandising company may have a standing account paya"le to a wholesale company for the purchase of its products. A service company may have a service revenue receiva"le account for e)pected payment for services provided.

'itle 5 "anufacturing company 5 "erchandising company 5 6ervice 1ompany 5 7nventory 5 8 9a% materials 8 Wor$ in process 8 *inish goods 5 8 "erchandise inventory 5 No inventory 5 1ost of goods4services 5 8 1ost of goods sold 5 8 Net purchase price 5 8 1ost of rendering of services 5 1ost of goods manufactured 5 8 )irect materials 8 )irect labor 8 :verhead 5 8 5 8 9elated service expenses 5

Unless the business is saving resources to launch new products, build new production facilities, pay down debt, or pay a dividend to shareholders, a current ratio this high usually signals that management is not using cash very efficiently.