How are the three financial statements linked?
The primary aim of this industry question is to evaluate your communication skills by how effectively you can explain something industry related in relatable terms. It's also designed to test your knowledge. Find a way to explain how the three main financial statements stand alone as a snapshot of information and how they relate to each other to provide a bigger financial picture. Avoid rambling or explaining it in a roundabout way. Practice your answer so that you can deliver it quickly and cohesively.
"The short answer is that they are all connected, yet when separated, are intended to distill only a part of the financial information in a relatable way, each offering its own snapshot. Let's start with how an Income Statement is tied into a Balance Sheet and Statement of Cash Flows through Net Income..."
You always want to seem prepared to answer the question posed while exuding confidence and communicating clearly. Enunciate your words, avoiding stutters or long pauses. Sounding too rehearsed can make you sound wooden and boorish. Practice in front of your computer's camera, trying not to look at yourself on the screen but rather maintaining eye contact with the camera lens as if you're speaking face-to-face with a person; keep at it until you are relaxed and seem natural.
Try to incorporate their language into your answer, and try to answer this question in their terms. For example, here's what they say in their 2022 business principles; "We set the highest standards of performance. We demand financial rigor and risk discipline; we will always maintain a fortress balance sheet. We strive for the best internal governance and controls. We act and think like owners and partners. We strive to build and maintain the best, most efficient systems and operations. We are disciplined in everything we do. We execute with both skill and urgency."
Community answers are written by other candidates practicing this set. Reading how others frame the same question is one of the fastest ways to sharpen your own.
Anonymous Answer
-Net income from the income statement flows to the balance sheet and cash flow statement
-Depreciation is added back and CapEx is deducted on the cash flow statement, which determines PP&E on the balance sheet
-Financing activities mostly affect the balance sheet and cash from finalizing, except for interest, which is shown on the income statement
-The sum of the last period’s closing cash balance plus this period's cash from operations, investing, and financing is the closing cash balance on the balance sheet
Marcie's Feedback
Excellent! You appear to be well-informed about how the three financial statements connect to each other. Any interviewer will be impressed by your knowledge in this area. Nice!
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