IB PREP GUIDE

A Complete Guide
Accounts - 01
WHAT ARE GOING TO LEARN

1. Accounting - IB
2. Enterprise Value /
Comparable - IB
3. Market Knowledge - IB
4. Behavioral & Fit - IB
5. DCF - IB
6. M&A, LBO
7. Other Questions (IB+PE)
APPORCH TOWARDS THE QUESTIONS

We will discuss the most

important questions + How to
remember them easily with
Mnemonics (This is real fun)
 1. Walk me through the 3
financial statements?

ACCOUNTING
2. How are the 3 financial
statements related?
3. If you could only use one
financial statement, and
Most Asked Questions in the you only had one year of
Interviews data, which would you use
to evaluate an investment?
4. If you could only use one
financial statement, and
you had two years of data,
which would you use to
evaluate an investment?
 1. Income Statement: Reflects business profitability,
detailing revenue, COGS, SG&A, EBITDA, and net
income.
2. Cash Flow Statement: Tracks cash inflows and
outflows, starting with net income, adjusting for non-
cash items, net working capital changes, and
additional cash flows.
Cash Flow from Operations: Adjusts net income for
WALK ME THROUGH THE 3 non-cash items and changes in net working capital.
FINANCIAL STATEMENTS? Cash Flow from Investing: Accounts for cash
outflows related to asset purchases like capex and
acquisitions.
Cash Flow from Financing: Includes cash flows
from debt/equity issuance, repayments, and
dividends.
3. Balance Sheet: Shows assets (e.g., cash, receivables,
PP&E) and liabilities (e.g., payables, debt) +
shareholder's equity, ensuring assets = liabilities +
equity.

How to Remember
 1. The income statement produces a net income.
2. This net income number is then the first number in
the cash flow statement, since we will start from
net income and add back any non-cash items, such
as depreciation and amortization.
3. After accounting for changes in net working capital,
investing cash flows, and financing cash flows, we
HOW ARE THE 3 FINANCIAL arrive at a cash number.
4. This cash number is the first number in the balance
STATEMENTS RELATED? sheet, on the assets side.
5. However, we will also add net income to the
beginning balance of shareholder’s equity and
deduct any dividends to arrive at an ending
shareholder’s equity number

How to Remember
 1. We should use the cash flow statement, because it
tells us the most about a company’s financial
health. Cash is king, because we ultimately decide
on a company’s value based on its cash flows.
IF YOU COULD ONLY USE ONE 2. The income statement only shows net income, but
FINANCIAL STATEMENT, AND this is an accounting number and it does not show
YOU ONLY HAD ONE YEAR OF important cash flow numbers such as changes in
DATA, WHICH WOULD YOU net working capital, or cash flows from investing
(e.g. capex) or cash flows from financing.
USE TO EVALUATE AN 3. The balance sheet shows assets and liabilities in a
INVESTMENT? given year, but it does not show us the performance
of the company year to year.

How to Remember
 1. Use of Balance Sheet with Two Years of Data:
Effective for analyzing changes in cash flow
Net income by comparing balance sheets from
consecutive years.
IF YOU COULD ONLY USE TWO 2. Calculating Changes:
FINANCIAL STATEMENTS, Change in cash: Current year's cash balance minus last
WHICH WOULD YOU USE TO year's cash balance.
EVALUATE AN INVESTMENT? Change in PP&E: Current year's PP&E minus last year's
PP&E, plus depreciation and amortization expense.
ASSUME YOU HAVE TWO Change in debt: Calculated by analyzing changes in
YEARS OF DATA. debt from one year to another to determine cash flows
from new borrowings or debt repayments.
3. Finding Net Income:
Calculate net income by subtracting last year's
shareholder’s equity from this year's shareholder’s
equity, assuming no dividends were issued.
If dividends are issued, calculate net income by adding
this year’s dividends to this year's shareholder’s
equity and subtracting last year's shareholder’s
equity.

How to Remember
THANK YOU
See you in Accounting Part 2