Balance Sheet

Assets are split into current (cash, accounts receivable, inventory — convertible to cash within a year) and non-current (PP&E, intangibles, goodwill). Liabilities follow the same split: current (accounts payable, short-term debt, deferred revenue due within a year) and non-current (long-term debt, pension obligations). Shareholders' equity includes common stock, additional paid-in capital, retained earnings, and treasury stock. Retained earnings accumulate net income minus dividends over the life of the company.

Net Income from the income statement flows into retained earnings on the balance sheet. Cash from the cash flow statement ties to the cash line on the balance sheet. Depreciation reduces PP&E on the balance sheet while appearing on the income statement. Understanding these linkages — the 'three-statement model' — is the foundation of all financial modeling in investment banking. An interviewer may ask you to trace a single transaction through all three statements.

Bankers analyze balance sheets for leverage (Debt/Equity, Debt/EBITDA), liquidity (current ratio, quick ratio), and asset quality. A company with high goodwill relative to total assets likely grew through acquisitions. A company with negative working capital may have a strong business model (like Amazon collecting from customers before paying suppliers) or may be in financial distress. The distinction matters enormously in interviews.

Interviewers love testing whether you know where items sit. Deferred revenue is a current liability. Goodwill is a non-current asset. Operating leases now appear on the balance sheet under ASC 842. Accounts receivable is a current asset that increases when revenue is recognized but cash hasn't been collected. Memorize the classification of the top 15–20 line items and you'll handle most balance sheet questions effortlessly.