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Financial Statement Opinion

I was wondering if you could help me out with a financial statement question for a possible job interview? My question is if you were a bank and a company was trying to borrow money from you to purchase commercial real estate and you could only use one financial statement (income statement, balance, sheet, or cash flow statement), which financial statement would you choose? Thank you for your time.

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon
May I ask why you are limited to using only one statement?

Anonymous
(Director of Operations) |

Hello Len,

It's just a theoretical question that I may be asked during an interview.

Allan Kaplan
Title: CFO
Company: Euclid Systems Corporation
(CFO, Euclid Systems Corporation) |

My answer would be Cashflow statement. It starts with net income, but then shows the reality of how much cash is being generated from / used by the operations and where that cash is being used. Are they funding from new debt, paying down debt, building up payables, squeezing receivables, etc. Are they using a lot of cash for paying down old debt? etc.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

The proper answer – “Each statement provides information that is not able to be gleaned from the other statements. As they are not interchangeable, it is not recommended to underwrite a loan with only one statement. That approach represents a risk that a bank would not accept.”

Sometime that answer to an interview question is simply – “The question makes no sense and this is why…”

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

I agree Regis...it reminds me of questions like this:
If you had to choose between breathing in and breathing out, what would you choose? aka polarity thinking.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Cash is king. The cash flow statement would be the one to use. It will reflect if the company is generating cash and not just book income. It will also reflect any good or bad trends in working capital management.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I'm with Regis, I would tell them the importance each financial statement can have in making a proper business valuation. They may ask the question hoping you will challenge it.

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