Houlihan Lokey Interview Question: What happens if depreciation ... | Glassdoor

Interview Question

Summer Financial Analyst Interview(Student Candidate) Chicago, IL

What happens if depreciation increases by 10?


Interview Answer

2 Answers


Pre-tax operating income on the income statement decreases by 10. As a result of the subsequent tax shield, net income only falls by 6, so retained earnings falls by 6. On the cash flow statement, the depreciation is added back as a non-cash expense, so overall cash from operations increases by 4. On the Balance Sheet, PP&E decreases by 10, so 4-10 = -6 for retained earnings, and the balance sheet balances.

Interview Candidate on Oct 28, 2010

The answer above is okayish, though not full. It makes an important assumption, though I think for such an interview this answer shall suffice!

Candidate on Dec 10, 2015

Add Answers or Comments

To comment on this, Sign In or Sign Up.