Lazard Interview Question: You just sold an asset worth ... | Glassdoor

Interview Question

Summer Analyst Interview(Student Candidate) Houston, TX

You just sold an asset worth $200M. Walk me through the

  three financial statements.

Interview Answer

2 Answers


Assumption: Depreciation $20M, Tax rate 40%

Starting from your Income Statement, your depreciation expense will go up by $20M when you sell the asset of $200M. Then your income tax is increased by $8M. So the final net income is increased by +$12M.

Then lets go to the CF Statement.
CF from Operation: Net income is increased by +$12M. Now your Depreciation is reduced by -$20M (in the Cash Flow Statement). CF from Operation is reduced by $8M. (+12M-$20M=-$8)
CF from Financing is not touched.
CF from Investing is increased by $200M, money coming from a sale of the asset.
CF statement total change is positive $192M.

In the Balance Sheet:
The asset side has the following change: Cash increased by $192M, Depreciation increased by $20M and then PPE is decreased by $200M. The net change in asset side is +$12M.
In the liability side, only shareholder's equity is increased by +$12M, which is directly coming from the Income Statement.
So your Balance Sheet is balanced now.

Tseke on Jul 15, 2015

From an Australia perspective, with a 30% tax rate.

Income Statement:
1. Gain on sale of PPE increases other revenue by 200.
2. Net profit before tax increases by 200.
3. Net profit after tax (Net income) increases by 140.

Cash Flow Statement:
1. Net income at the top up by 140.
2. Minus 200 from the cash adjustment section before the Cash Flow from Operations section.
3. Add 200 back in the Cash Flow from Investing section (Re-classifying cash flows as it's more appropriate under investng).
4. Net change in cash at the bottom is still a 140 increase.

Balance Sheet:
1. Cash up by 140.
2. Retained earnings up by 140.
Assets and Liabilities/Shareholders' Equity balances.

Dan on Jul 21, 2015

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