1.

Sell Side: Any organisation/ individual/ entity that is looking to raise money for one thing or the
other, is on the sell side.
2. Buy Side: Any individual/ investor that is looking to invest their money in hopes of profit is on the
buy side.
3. Sell side clients generally approach investment banks, that begin pitching to potential buy siders
in hopes of raising an adequate amount of money.
4. How do IBs earn money for providing their sell side services?
a. Performance fees – 20%: 20% of the total profit raised by the company
b. Management fees – 2%: Fixed
5. What is deferred expense?
a. Expense which has been paid but not yet consumed and will be recorded as an expense
on the income statement sometime in the future (some other accounting period)
b. When a company pays for a expense out of which it is going to derive value in the
future, and hasn’t been serviced entirely yet is called deferred expense.
c. Kind of like the opposite of def rev
d. Recorded on the asset section, and as and when the goods/ services are serviced, the
asset side gets converted and recognised as expense on Income Statement.
e. Eg: Insurance. Company A -> Buys insurance for 4 years from Jan 2021 – Jan 2025. This is
def expense.
6. Accrued Income?
a. An amount that has been earned, but not yet recorded on the general ledgers.
b. There is a right to earn that income in future accounting periods.
c. Eg: Pension funds, mutual funds collect a pool of cash and invest it out. Clients are paid
out once a year, so they are accumulating income. This is accrued income for the client.
7. Types of accounting errors?
a. Error of omission: something was not recorded
b. Error of commission: something was recorded incorrectly
c. Error of principle: something is not complying with GAAP
8. Deferred Revenue vs Accounts Receivable?
a. Def Rev: Cash received from customers for goods and services not provided yet.
b. A/c Receivables: Goods and services provided already, waiting for cash.
9. What is depreciation? Types of depreciation?
a. Depreciation is the reduction in the value of assets over a certain period (useful life). The
value at the end of the useful life of the asset is called salvage value of the asset.
b. The total depreciation (aggregate of all depreciation expenses across the useful life) on
an asset is called accumulated depreciation on the asset.
c. Scrap Value/ Salvage Value = Cost of asset – Accumulated depreciation
d. Types:
i. Linear (straight line depreciation): (Cost of asset – Salvage Value)/ Useful Life
ii. Diminishing Balance: more amount of dep to be recorded in the early years of
the useful life of the asset
10. Why is depreciation not recorded on land?
a. Useful life for land is difficult to quantify and is arguably zero.
b. Straight line dep = (Value of asset – Salvage Value)/ Useful life
c. Since denominator is not something you can quantify, depreciation is not calculated for
land.
11. What is recession?
 a. Recession is a macroeconomic term that defines a downturn and slowdown in economy
typically for 2 consecutive quarters, coupled with monthly indicators like unemployment
rate going up, CPI going down etc.
b. National Bureau of Economic Research announces recession and may follow flexible
metrics.
12. What are accrued compensations?
a. As a company, the compensations that you owe to an employee on termination of the
employment are called accrued compensations. (Gratuity, reimbursements, vacation
pay, non pro rata bonuses, etc)
13. Deflation recession inflation?
a. Inflation: Rise in prices of goods and services, decrease in purchasing power of money
b. Deflation: To counter inflation, you must raise the interest rates, curbing the demand,
leading to a decrease in prices of goods and services.
c. Recession: Economic downturn, extremely low demand
14. Arms of Investment bank
Two main areas for operating in IBs is the MnAs and the Capital Markets
a. Mergers and Acquisitions.
b. Capital Markets – raising debt and equity for companies
i. IPO Process – underwriting + due diligence + marketing
ii. Issuing Debt – selling bonds to institutional investor
c. Leveraged buyouts: helping private equity firms’ buyout an existing company by
providing them with leverage.
d. Restructuring
15. Glass Steagall Act?
a. Separated the commercial and investment banks in 1930s
b. Banks were blamed for the financial crisis in 1920s and the Great Depression of 1929.
c. There was a believe that the commercial and investment operations of a bank created a
conflict of interest for the bank and hence should be firewalled by separation
16. Commercial vs Investment?
a. IB – Capital Markets, MnA
b. Commercial – taking deposits from clients, issuing loans for retail customers requiring
money (individuals + institutions)
17. Key roles of an analyst?
a. Financial Modelling
b. Updating presentations
c. Drafting Documents
d. Research
e. Due Diligence of companies
f. Setting up meetings
g. Minutes of the meeting
18. Inventory ka ks?
a. Inventory Purchase: Recorded on the Balance Sheet. Cash ↓ and Inventory ↖
b. Inventory Sold: As and when the inventory gets sold, there is conversion from the
Inventory portion of the balance sheet to the COGS portion of the Income Statement.
c. Purchase of Inventory => Cash Outflow => CF from Operating Activity decreases on the
Cash Flow Statement.
d. Sale of Inventory => Cash Inflow => CF from Operating Activity increases on the CFS.
19. Balance Sheet + Income Statement + Retained Earnings
 a. Income Statement is prepared for a given accounting period (across a year or a month).
b. Balance Sheet is prepared at the end of an accounting period to consolidate the
operations of a given accounting period and make sure that your net assets and net
liabilities balance.
c. All the net profit (earnings) recorded on the Income Statement for this accounting
period will be the added to the Retained Earnings of the Balance Sheet.
d. When you start off a new accounting period, you can also reutilise the “Balance at the
beginning of the accounting period”
e. Retained Earnings = Retained Earning Balance from Last period + Net Income of this period – Dividend
20. Book Value?
a. BV = Tangible Assets – Total Liability
b. How much worth is the company if we were to sell all its assets that exist in the physical
form and pay off all the debts using the amount earned on the sale of tangible assets
c. Book Value can be calculated for companies or for certain assets as a whoe
21. Capitalization?
a. The purchase of a particular thing is capitalised if it is thought to be an asset to the
system in the longer run and is potentially going to provide value.
b. Eg: If you purchased an equipment that is going to boost your sales, then that is a capital
expense, but it represents an asset conversion (you have used cash – an asset to buy
another asset – equipment). Hence this is not recognised on the income statement as an
expense.
c. This expense is rather capitalised and is recorded full on the Balance Sheet. On the
Balance Sheet, cash goes down by $100 and PPE (Non-current) goes up by $100, if you
have purchased an asset worth $100. There are no changes to the Income Statement as
of now.
d. When the value of the asset will have depreciated after a year (assume the useful life of
the asset purchased is 5 years) you will be the recording the loss in value of the asset in
a year on the income statement. So, as your progress through the useful life of the asset,
you are going to keep depreciating the value of the asset and keep on increasing the
expense on the Income Statement, till you have depreciated the entire useful value of
the asset + the salvage value at the time of the write off
22. Depreciation?
a. Loss in value of asset over a given period
b. Depreciation is the process of accounting for and converting the value of an asset to an
expense over its useful life
c. Common methods of depreciations:
i. Straight Line Depreciation
Depreciation/ year = Cost of Asset – Salvage Value/ Useful Life of Asset
ii. Unit Production depreciation: Depreciation in each accounting period is based
on the number of units produced in the given accounting period by the asset.
Dep= (#units produced/ #units in lifetime) * (cost – salvage value)
In this case, Depreciation for 2015 can be calculated using:

Cost – Salvaeg = $20000

Total Production (Activity) = 120,000 miles

So, how much depreciation per mile? == 20000/120000

Since in 2015, 15000 miles were driven, total depreciation is going to be 15000* (1/6)

iii. Double Declining Balance: Depreciation is more during the initial years of the
asset purchase and value of depreciation goes on decreasing as the life of the
asset progresses. This is used by companies that want to have a lower tax value
in the initial years of the asset expense. Depreciation ↖ Taxable Income ↓
23. What is SMA?
a. SMA is Simple Moving Average.
b. Calculated by taking the sum of a certain number of data points (x) and dividing the
aggregate by x
c. Eg: 15-day Simple Moving Average => Sum of closing value of last 15 days including
today/ 15
d. This moving average keeps changing every single day, since each new day a new data
point is added to the average and a previous data point is taken out
e. Higher the days for which the moving average is being calculated, the more stable it is
going to be. Eg: A 200 day moving average is expected to be a lot more stable than a 50-
day moving average, which is going to be very volatile
f. The lesser the number of days for the average calculation, the more synergized is the
SMA line pattern to the actual market prizes

24. In indirect method of cash flow, how to reach operating cash flow?
a. Net Income
b. Depreciation
c. (Change in A/c receivables)
d. (Change in A/c payables)
 e. (Stock based compensations)
f. Any cash expense
25. Profit Margins typically have some profit quantity (Gross Profit, Operating Profit) in the
Numerator and Revenue in the Denominator
26. Operating Profit = EBIT ||| EBITDA = EBIT + DA
27. High Gross Margins tell us that the cost of goods sold is not that high. Eg: Zoom had a gross
margin of 92% during the lockdown. That means the Gross Profits are almost the same as the
revenue, since the cost of adding on one subscriber is negligible
28. If you are an equity investor in a company, you will need to look out for Net Income margins. Net
income is going to be the amount that is going to be accessible to the equity shareholders (after
debt interest, taxes and other obligations have been paid off). There might be a scenario where
the company is very profitable, but the shareholders receive nothing. This is a scenario where
your company is extremely levered. Even though you record good EBITDAs, a significant portion
of the company’s budget will be spent on repaying debt interest. Net Income is the return to
equity investors.
29. Return on Equity typically have some form of Equity measure (some form of Net Income) in the
Numerator, and some form of Equity Invested in the Denominator
30. Two types of Profitability ratios: Return on Invested Capital (entire company) and Return on
Equity (just the shareholders)
31. Difference between Operating and Debt Margins are generally associated with Debt.
32. Differences in Operating Margins of different companies may arise due to Business Differences as
well. Coca-Cola has major cost to be the Marketing Expense (syrup and bottle production is low
capital intensive). In the case of Toyota, there is intense capital needed for producing one item.
So the Gross Profits and hence the Operating Incomes will be significantly different, due to
differences in the Business and domain
33. Accounting Returns:
a. Return on Equity (ROE): Net Income/ Shareholder’s Equity
b. Return on Invested Capital (ROIC): Net Operating Profit After Tax/ Total Invested Capital
Total Invested Capital = Book Value of Equity + Debt – Cash
34. Cash Receipt is the receipt that is generated to acknowledge the receiving of cash corresponding
to a certain transaction done previously on credit. One copy of the receipt is given to the person
who credited the amount, and the other is kept with the business for accounting purposes (to
recognise the conversion of a/c receivables to cash)
35. RE (Period A) = RE (Period A-1) + Net Income – Dividends
36.