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Welcome back to the Wall Street Prep Quick Lesson Series!
In this video, we’ll build a cash flow statement given an income statement and balance sheet in Excel. The accounting here is a simplified presentation of how the three major financial statements are inter-related and lays the foundation of financial statement models in investment banking. Many accounting questions that we see time and again in finance interviews are designed to test the understanding explained in this exercise.
Ready to Model? Before diving in to the videos below, be sure to download this lesson’s Excel model template: Cash Flow Statement template.
The Cash Flow Statement, Video 1
The Cash Flow Statement, Video 2
Comments
Why is “Additional purchases of Intangible Assets” excluded from the CapEx in the CF?
To calculate CapEx to arrive at cash from investing, we subtracted depreciation. But we have already subtracted D&A when we calculated cash from operations. Does that mean that we’re we subtracting depreciation twice (i.e. double counting)?
Same question regarding amortization of intangibles when calculating increases in other L/T assets.
Thanks!
A very clear and interesting presentation. Thanks!
Why notes payables are not taken in calculating CFO in Video 1. Notes payable are also current liabilities. What all Current assets and current liabilities should be taken and what not to be considered while calculating Cash flow from operation.
Thank you for the presentation. Please why is dividend payment coming after the calculation of Net Income?
I understood that if we have an increase in the accounts receivable, means that is a cash that you don’t have recognized as revenue. But this doesn’t mean that the clients are paying later, if we say that we did the DSO and the average payment still the same from… Read more »
Thank you so much for taking the time to create these. Super helpful for me as a senior operator.
Thank you for the lesson. Quite insightful. I wanted to see an example that has Investments in Subsidiaries and affiliate companies as assets on the balance sheet. I want to know what could make such investment drop or increase
How does an increase in depreciation increase PP&E? In the video they mention that the increase in PP&E may be attributed to an increase in depreciation, but wouldn’t an increase in depreciation decrease the value of the company’s fixed assets (PP&E)?
Thanks in advance for any help!
Not that it changes the lesson being taught here but the 2013 balance sheet doesn’t balance in this example and it’s important that the balance sheet balances in real life. Net assets (assets minus liabilities) should equal equity and it doesn’t.
On an unrelated note….How did you get the little number 1 and number 2 above and to the side of the words ‘Amortization’ and ‘Assume’?
When I compare my results from compiling the CF statement from the Balance Sheet and IS to the CF shown by the firm I get different numbers. Why might that be?
Great Explanation! Well simplified. I have 2 questions:- (1) Is your treatment of Deferred Taxes and Goodwill based on IFRS or US GAPP. I’m asking because I am more acquainted with IFRS. (2) Is it always presumed that Investment outflows are made in cash? If an investment is acquired on… Read more »
Regarding the decision to put “other long term assets” in investing — is this somewhat subjective, or are other Long Term Assets always (or 95%+ of the time) put into investing activities?
That was great!!! Thank you.
Hi, Where would you place loan interest outflow? I assume that loan interest liability is part of notes payable position and as such is part of financing cash outflow. Would it be correct to first adjust operating cf for interest expense and than show actual interest paid under financing cf?… Read more »
Thank you
Hi, why is goodwill (intangible asset) incorporated in the cashflow? Is it because the increase is due to cash out?
Useful tutorials
On the first CF video at around 9:51 mark, the instructor says that “if inventory went up, I must have paid cash for it somehow”. But couldn’t you have bought the inventory on account? And hence there would still be the increase in inventories on the balance sheet but the… Read more »
What a great course! I learned something very useful. Thank you!
I thought since Depreciation has been added back at the cash from operation section it doesn’t need to be added to the cash from investing. How’s this so?
Really enjoyed working through this! I plan on taking the boot camp so wanted to go through the videos as well. I love that it’s explained in such simply layman terms!
It was awesome, never learned preparing cashflow with reason as why inflow and outflow.
I was hardly able to tally the statements before. After this I don’t think I will make mistake.
Owesome.
Good way to learn cash flow statment.
i am satisfied.
Very useful lesson. Looking forward to future lessons.
This was definitely in layman’s term and I enjoyed it. The explanation was simple, clear and concise.
This was a great and concise explanation!
The template link, is not working. Any way of getting a new link for the cash flow template?
Well presented in short way.
Hi, I am trying to figure why in the template, you didn’t have any separate row under the income statement for any other income /(expense) which might have been earned (incurred) not as part of the operating income but separately. For. eg., if we need to include “Loss on early… Read more »
I can’t wait to get all the video series and put it all to work on my first important deal. It will make me look like an expert once I come into my future client’s door.
Best Wishes
Professionally formulated and well explained.