The investment banking interview question we’re going to go over today is “Walk me through the three financial statements.” This is a very basic and very common technical question that can come up in summer internship and full-time interviews. Here’s exactly how you should answer it.
Sample Answer
“The three financial statements are the Income Statement, Cash Flow Statement and the Balance Sheet.
The Income Statement tells us how much revenue the company generated and how much costs it incurred over a period of time. Starting with Revenue, we subtract Cost of Goods Sold to get Gross Profit. Then, we subtract operating expenses, such as SG&A and R&D to get EBIT. And lastly, we subtract interest expense and taxes to arrive at Net Income.
The Cash Flow Statement shows us the movement of cash – how much cash is coming in and going out of the company. It has three sections: Cash Flow from Operations, Cash Flow from Investing and Cash Flow from Financing.
The Balance Sheet indicates what the company owns and what it owes. It has three sections: Assets, Liabilities, and Shareholder’s Equity. Assets must equal Liabilities plus Shareholder’s Equity.
So that’s a high-level overview of the three financial statements.”
Key Takeaway
When the interviewer asks you to “walk me through the three financial statements”, the key mistake to avoid is don’t go into too much detail. You don’t have to tell the interviewer everything you know about the three statements. Keep the walk-through short and high-level.
Other IBD Interview Questions
When the interviewer asks you to “walk me through the three financial statements”, the key mistake to avoid is don’t go into too much detail. You don’t have to tell the interviewer everything you know about the three statements. Keep the walk-through short and high-level.