Alle Fragen zum Tag accounting - Consulting Q&A - PrepLounge.com

Hi there,

In terms of case interviews, you don’t need either of the two. You just need to know how to read a basic balance sheet and P&L, the basic ratios (eg P/E) and the basic financial formulas (eg breakeven). If you do 5-10 M&A/PE cases with P&L and/or balance sheet you should be fine.

In terms of the job, Financial Accounting could definitely be useful, in particular for due diligence, M&A and PE projects.

Best,

Francesco

Hi,

The NW school is a good source but it depends on how much you want to deep dive into the subject. If your aim is just to "speak the same language" and understand what is happening, it is fine. If your aim is to handle the accounting part on your own, you should definetly do a face-to-face course or an intership to put your hands on the financial statements ina safe enviroment.

Where are you going to start your company? Every country has his own detailed rules about accounting, you should consider it before buying a course.

Hope it helps,
Luca

Hi Anonymous,

I agree with all the other commentators.

There are however a few good reads that I can highly recommend:

1. Business Model Generation by Alexander Osterwalder
2. High Output Management by Andy Grove
3. The Innovator's Dilemma by Klayton Christensen
4. Anything by Michael Porter

Cheers

Elias

Hi Giorgia,

two books which I find extremely helpful to get a fundamental understanding of how to practically think in terms of business economics, financial management and value creation are:

• Finance for non-financial managers (https://books.google.de/books/about/Finance_for_Nonfinancial_Managers_Second.html?id=WNLyAwAAQBAJ&source=kp_cover&redir_esc=y)
• Valuation: Measuring and Managing the Value of Companies (by McKinsey)(https://books.google.de/books?id=iI3J4b2hWlwC&printsec=frontcover&dq=valuation+book&hl=en&sa=X&ved=0ahUKEwjZ8ofbw7PcAhWlHJoKHaK3CiMQ6AEIKTAA#v=onepage&q=valuation%20book&f=false)

These two books have proved very helpful to many non-business background consultants in starting their job at MBB firms. However, one word of caution: the direct usefulness for case interview preparation is somewhat limited, since case interviews test for conceptual thinking and "analytical raw horse power", rather then testing actual functional or industry knowledge.

Cheers, Sidi

Hi Anonymous!

to be honest - this can not be answered in a general way, since it heavily depends on the industry (e.g., banking balance sheets are completely different from mining company balance sheets), and also on the company-specific situation (e.g., whether liquidity/solvency is a major concern in the current lifecycle stage).

Here are a couple of examples, but there may be many more, contingent on the actual context:

Solvency Ratios

• Quick Ratio = (Current Assets – Inventories) / Current Liabilities: the quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

• Current Ratio = Current Assets / Current Liabilities: an even simpler variant to the quick ratio and is used to determine the company’s ability to pay back its short term liabilities. If the ratio is below 1, it raises a warning sign as to whether the company is able to pay its short term obligations when due. It doesn’t mean the company will go bankrupt, but is something that has to be looked at. If a company has a low current ratio year after year, it could be a characteristic of the industry where companies operate and high debt levels.

Debt/Equity Ratios

• Total Debt/Equity Ratio = Total Liabilities / Shareholders Equity: the objective of this KPI is to determine how a company has been financing its growth. A high ratio means that the company has been growing due to debt. Not all debt is bad, but if the number is exceedingly high, remember that the company has to pay off the loan as well as interest payments. An important factor to consider then is to determine whether the returns generated from the debt exceeds the cost of debt (i.e. interest).

Turnover Ratios

• Receivables Turnover = Revenue / Average Accounts Receivables: the receivables turnover ratio is one that is categorized as an activity ratio because it measures the company’s effectiveness in collecting its credit sales.

• Inventory Turnover = COGS / Average of Inventory: Inventory is money. It costs money to buy, it costs money to just hold it because it takes up a lot of overhead if it isn’t cleared out. You waste shelf space, the product gets old and it may have to be sold at a fraction of the price just to get rid of it. Inventory turnover is important for companies with physical products and is best used to compare against peers. After all, the inventory turnover for a retailer like Wal-Mart is going to be very different to a car company like Ford.

Cheers, Sidi

Hi,

First of all, in cases, you either do the calculations on the product level or on the company level. You rarely jump from one to another.

On a product level, usually, you compare your unit economics with the competitors and there may be 2 options:

1) You calculate contribution margin per product which is price minus all variable costs of sales per this product. The difference between the contribution margin and gross margin is that fixed overhead costs are not included in the contribution margin.

• Price per unit
• Variable Costs per unit
• CM = Price per unit - variable costs per unit

But sometimes in the cases, they may still call it gross margin fro simplicity. You can calculate as a % as well

2) You compare net margin per product:

• Cost per product that already includes variable costs and fixed costs allocation
• Price of product
• Net Margin = Price per product - Cost per product

Best

Hi,

Net operating profit (Or net Income) = EBIT - interest income - income taxes

You'll don't need EBIAT formula on the case interviews. Net income will be useful

Best!