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Entrepreneurs Monthly Article

February 2013

Things to Know for Your Next Finance Interview

-Oranich Aimcharoen 14

A lot of people may wonder what it takes to do well in a finance interview. What kind of things do we have to know anyways? One of the fundamental things that each finance or non-finance majors are expected to know is how to analyze financial statements. These three statements allow investors to extrapolate and judge the financial standing of the company that they may be interested in investing with. Each of these financial statements are very detailed, and for the first edition of our monthly newsletter, I will walk you through the analysis of the Balance Sheet. You may all be wondering, what is a balance sheet? It is a financial statement that provides a snapshot of a companys financial health at a specified date! I can guarantee you that if you take a snapshot of yourself today and another one sixty years from now, you will look very different. That is why if you were to compare the balance sheet of different companies, you need to select balance sheets that come from the same time frame; otherwise your conclusions will not be relevant. So what goes into a balance sheet? Balance sheets in general outline how much assets, liabilities, and shareholder equity a company has. Dont be scared and discouraged by the technical terms. Assets in general are what the company owns. Think about yourself. Yours assets will be how much money you have, the number of shoes you own, or your jewelry collection. For businesses, its the same way. Assets for companies normally take the form of cash, property, inventory, etc. Liabilities are what the

company owes. For you, it would the loan that you have to pay back mom and dad for your college education. Companies do the same thing. Some of them choose to borrow and take out loans from banks. Companies also purchase inventories (the stuff that goes into production) from suppliers so they may also owe suppliers. Shareholders equity is essentially the net worth of the business. Before you even begin analyzing the balance sheet, simply remember the fundamental rule Asset= Liabilities+ Shareholders Equity At this point, you all are probably baffled at what I am talking about. How is it useful for someone to know how much assets, liabilities, and shareholders equity a company has? Believe me, it is extremely important. If we look at the break down of these three categories, you will start to understand why. What goes under asset? Too many things. But the important ones that you are expected to know fall under the sub-categories of current assets and long-tern assets. The differences between these three categories are that current assets can be easily converted into cash within one year. The typically line items that you will see are cash, accounts receivable, inventory, etc. Long-term assets are a little different. They are typically assets that are owned for a long time and contribute to the companys operations. Think about plant, property and equipment. The factories! Liabilities operate in a similar manner. Liabilities can be split into current liabilities and longterm liabilities. The key factor that separates these two

-Oranich Aimcharoen 14

How to Analyze Financial Statements (Balance Sheet)

Liabilities operate in a similar manner. Liabilities can be split into current liabilities and long-term liabilities. The key factor that separates these two categories is the time period of payment. Current liabilities are expected to be paid within one fiscal year while the latter is greater than one year. So what are some of the liabilities that we should be familiar with, especially for interviews? Debt is always number one! Accounts payable is also very common. Shareholder equity as we had discussed is the companys net worth. Always remember the general formula Asset= Liabilities+ Shareholders Equity Shareholders Equity = Asset - Liabilities So if we re-arrange it, you will see that shareholders equity is just the difference between assets and liabilities. Thats the balance sheet!

A Basket of Broken Eggs

Remember the time when Lehman Brothers Holding filed for bankruptcy? What about when Bear Stearns had no option but to engage in emergency sales? Five years ago, it would be hard to imagine that happening to the bulge brackets. Today, it is no longer the case. Both Goldman Sachs and Morgan Stanley are regarded as respectable and stable investment banks. However, after the financial panic that took place, there have been talks about Goldman no longer being the golden egg and that Morgan Stanley will not be able to preserve its current standing as an independent investment bank. The CEO of Morgan Stanley, Jack Mack, in an attempt to counter critics claims, said, "[The firm has] strong earnings and $179 billion in liquidity -there is no rational basis for the movements in our stock or credit default spreads." Although the heads of both companies emphasized that they are financially capable of maintaining their status quo, external analysts seem to disagree. Looking at the numbers, both Goldman and Morgan Stanley are not in such sound positions. Recently, share prices have plunged which reflected investors fear on the banks stability. Goldman experienced a drop of 14% while Morgan Stanley saw their prices fall by 24%. As the financial crisis continues, these two firms may be forced to sell themselves to commercial banks that can provide them with reliable streams of funds. Further fear of credit defaults within the general investment market has further created an adverse atmosphere for Goldman and Morgan Stanley as anxious investors bid up prices of insurance on debt issued. With the current economic environment, it is hard to determine which way the pendulum would swing, but both companies vowed to maintain their position as traditional investment banks.