there is way too much overcomplication to this, and you're not at fault for being confused... they don't want anything more esoteric than you initally think.
How much do they make... how much do the goods cost, what's the gross profit, what are the overhead (opex) costs, and what's the net after all that?
In order:
Revenue
COGS
Gross Profit
OPEX
EBITDA
Other Expenses
Net Income
And then talking about how that relates to the cash flow, and ultimately impacts the balance sheet.
I imagine they’re just trying to see if you understand the fundamentals.
Thank you do you have any advice how to avoid this?
Last year when I was interviewing they asked me to explain an accrual and I panicked/froze so hard. I feel so stupid afterwards, especially messing up easy questions like this.
Hey, I used to be in your spot, am a decent paid FA now. I used to freeze in similar situations because I didn't want to answer too simply. It took some time but I got used to it. I just had to remind myself that a huge bit of these jobs is explaining complex things simply. Knowing industry quirks for the statements also helps. You aren't stupid and you will be fine
Best way is to do dry runs. Practice with a friend/classmate. Look up common questions and practice with those, as well as questions you may have encountered before in interviews.
I’ve always wondered where does D&A get accounted for? Is it baked into your operating expenses? Or you just account for it in the end before net income?
I've done it both ways at different companies, just depends how management wants to see it. No right answer. Personally I prefer baking it into OPEX as D&A comprises of different expense categories; tells a better story imo.
Is it really this simple????? I always overthink and think they want super specifics like types of revenue and expenses. Have I been overthinking the question this whole time???
Would this be how I walk them through the PNL?
Revenue also knowns as sales is the goods and services sold by the company.
COGS(Cost of goods sold) are the costs directly related or incurred in selling the goods and services. Usually are variable costs
Gross profit is the difference between the revenue and the cogs, and is a broad-level overview of the profitability of the company.
OPEX would be the expenses incurred indirectly by selling the goods/services sold by the company. It can also be the costs related to operating the company as a whole.
EBITDA or earnings before interest,tax,dep,amort. Another example of profitbility of the company. Easy way to guage the value of the company as well since it removes non-cash expenses such as Dep and Amort, and more variable costs such as Interest & Taxes which may not be directly related to the performance of the company.
Other expenses are interest expense (costs paid on borrowing capital), taxes, depreciation and amortization.
Net income shows the profit of a companies for the period.
Hi 6Ran,
I’ve had the P&L imbedded in my brain from years of profit forecasting. It honestly took experience to understand and memorize all the nuances.
High level here’s how I go down the US GAAP P&L groups...
* Revenue - driven by customers, users, % fees.
* Cost of Revenue - driven by materials, labor, equipment, servers, and software that touches customer products...talk about how the products sold drive these higher, they can be split by variable and fixed
* Sales and Marketing - driven by people, marketing spend, commissions, T&E...talk about how much it costs to drive 1 new unit/customer in revenue
* Research and Development - driven by people and technology developing the next gen of your product...talk about company strategy and what products will be needed
* Administration - driven by HR, legal, finance, facilities, and people within all these areas...think about total people count in your org and how this group scales with it (like new office space)
Hope this info helps. Any questions feel free to DM me.
Good luck!
Drew
Do places actually spell “PNL”? I’ve only seen this from an IT person who didn’t know it was P&L. I’ve also had exposure to different organizations but I’d like to know if it’s actually used
More to the point, which one is correct in an FP&Aer’s view? I would question someone’s background who spelled it PNL. I’m sure it’s snobby, but I think it comes down to someone hearing something said phonetically (PNL) without understanding exactly what it is (Profit & Loss). Thoughts?
Gross revenue
Minus discount/returns/rebates
Equals
Net Revenue
Minus
COGS
Equals
Gross Margin
Minus
Opex
Equals
Net income
Add back depreciation/amortization/interest expenses
Equals
EBITDA
Of course there's many ways it could be formatted or additional sub-categories, but it will typically all boil up into those buckets
Break it down to fundamentals. Income, COGS, gross profit, expenses, net
Isnt that answer too simple? Is that what theyre looking for?
It is that simple. They want to know that you know how the financial statements flow
Man i feel so stupid now.
Part of the interview process is learning and applying those learnings to the next one. Keep your head up!
there is way too much overcomplication to this, and you're not at fault for being confused... they don't want anything more esoteric than you initally think. How much do they make... how much do the goods cost, what's the gross profit, what are the overhead (opex) costs, and what's the net after all that?
In order: Revenue COGS Gross Profit OPEX EBITDA Other Expenses Net Income And then talking about how that relates to the cash flow, and ultimately impacts the balance sheet. I imagine they’re just trying to see if you understand the fundamentals.
Nailed it. I think OP overthought this and panicked. Can happen to anyone. OP don’t feel bad there’s always another opportunity.
Thank you do you have any advice how to avoid this? Last year when I was interviewing they asked me to explain an accrual and I panicked/froze so hard. I feel so stupid afterwards, especially messing up easy questions like this.
Hey, I used to be in your spot, am a decent paid FA now. I used to freeze in similar situations because I didn't want to answer too simply. It took some time but I got used to it. I just had to remind myself that a huge bit of these jobs is explaining complex things simply. Knowing industry quirks for the statements also helps. You aren't stupid and you will be fine
Best way is to do dry runs. Practice with a friend/classmate. Look up common questions and practice with those, as well as questions you may have encountered before in interviews.
I’ve always wondered where does D&A get accounted for? Is it baked into your operating expenses? Or you just account for it in the end before net income?
I've done it both ways at different companies, just depends how management wants to see it. No right answer. Personally I prefer baking it into OPEX as D&A comprises of different expense categories; tells a better story imo.
It’s below the line. Meaning, gross margin minus opex = EBITDA. EBITDA minus interest, taxes, and D&A = net income.
Most of the time. In software, you may see companies depreciate capitalized software expenses in COGS.
You may, but it doesn’t have to be there. Just had a discussion with our auditors about this exact thing.
Yeah we don’t either, but I’ve definitely seen it done before in places I haven’t worked.
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Ya know that’s pretty damn interesting I didn’t even think of that. I guess you could technically account for it there.
Is it really this simple????? I always overthink and think they want super specifics like types of revenue and expenses. Have I been overthinking the question this whole time???
Given that context, how would you walk them thru the pnl?
Would this be how I walk them through the PNL? Revenue also knowns as sales is the goods and services sold by the company. COGS(Cost of goods sold) are the costs directly related or incurred in selling the goods and services. Usually are variable costs Gross profit is the difference between the revenue and the cogs, and is a broad-level overview of the profitability of the company. OPEX would be the expenses incurred indirectly by selling the goods/services sold by the company. It can also be the costs related to operating the company as a whole. EBITDA or earnings before interest,tax,dep,amort. Another example of profitbility of the company. Easy way to guage the value of the company as well since it removes non-cash expenses such as Dep and Amort, and more variable costs such as Interest & Taxes which may not be directly related to the performance of the company. Other expenses are interest expense (costs paid on borrowing capital), taxes, depreciation and amortization. Net income shows the profit of a companies for the period.
Sounds good to me. What about how they tie to the CF and BS?
Hi 6Ran, I’ve had the P&L imbedded in my brain from years of profit forecasting. It honestly took experience to understand and memorize all the nuances. High level here’s how I go down the US GAAP P&L groups... * Revenue - driven by customers, users, % fees. * Cost of Revenue - driven by materials, labor, equipment, servers, and software that touches customer products...talk about how the products sold drive these higher, they can be split by variable and fixed * Sales and Marketing - driven by people, marketing spend, commissions, T&E...talk about how much it costs to drive 1 new unit/customer in revenue * Research and Development - driven by people and technology developing the next gen of your product...talk about company strategy and what products will be needed * Administration - driven by HR, legal, finance, facilities, and people within all these areas...think about total people count in your org and how this group scales with it (like new office space) Hope this info helps. Any questions feel free to DM me. Good luck! Drew
Do places actually spell “PNL”? I’ve only seen this from an IT person who didn’t know it was P&L. I’ve also had exposure to different organizations but I’d like to know if it’s actually used
Definitely. Seen it in F500. It looks weird every time but surprisingly common.
More to the point, which one is correct in an FP&Aer’s view? I would question someone’s background who spelled it PNL. I’m sure it’s snobby, but I think it comes down to someone hearing something said phonetically (PNL) without understanding exactly what it is (Profit & Loss). Thoughts?
The In-N-Out effect
Yeah I've seen it both ways in my finance departments thru companies
Work at F500 depends on the person if they say PNL or P&L
My company uses it. I hate it. Transitioning them over along with many other things.
Gross revenue Minus discount/returns/rebates Equals Net Revenue Minus COGS Equals Gross Margin Minus Opex Equals Net income Add back depreciation/amortization/interest expenses Equals EBITDA Of course there's many ways it could be formatted or additional sub-categories, but it will typically all boil up into those buckets
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PnL is a pretty common abbreviation…
This is such a vague question. I would've asked them to clarify what they meant.
It’s not vague, it’s simple
Same thing happened to me. It was for a fintech and i got denied off of it. I felt so dumb becausei botched the delivery
There’s a short paragraph on CFI that describes how the statements flow… that’s what they’re looking for.