London Banking Technical Drill
This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.
I am a final-year finance student at a UK university targeting a bulge-bracket analyst role in London on a graduate visa. Can you run a rapid-fire 10-minute banking technical screen with live follow-ups? I want it focused on accounting links, EV to equity bridge, and pressure handling.
Absolutely. I will keep it fast, specific, and interview-realistic.
Format: I ask one question at a time, then challenge your answer with follow-ups just like a banking interviewer.
First question: Walk me through how the three financial statements link together.
The income statement flows into retained earnings through net income, which increases equity on the balance sheet. The cash flow statement starts with net income and adjusts for non-cash items and changes in working capital to get to cash. Then the ending cash balance on the cash flow statement rolls into the balance sheet. So net income affects equity, and cash flow affects cash on the balance sheet.
Good. Now a follow-up under pressure: if depreciation goes up by 10, what happens to the three statements, assuming nothing else changes?
On the income statement, EBIT falls by 10 and pre-tax income also falls by 10, so net income falls by 10 times one minus tax rate. On the cash flow statement, net income is lower, but depreciation is added back, so operating cash flow is partly offset. On the balance sheet, PP and E declines by 10 net of accumulated depreciation, retained earnings fall by the after-tax hit, and cash may be unchanged if the add-back offsets the lower earnings.
Mostly right. Key refinement: cash does not stay unchanged if taxes fall too, because the tax shield from higher depreciation increases cash by the tax rate times 10. Next question: walk me from Enterprise Value to Equity Value.
Start with Enterprise Value, then subtract net debt, meaning debt and debt-like items minus cash and cash equivalents. Then subtract any preferred equity and minority interests if they are included in EV but not common equity, and add non-operating assets if relevant. The result is Equity Value.
Good framework. Now explain what happens if a company takes on 100 of new debt to repurchase shares at fair value, ignoring fees and taxes.
Enterprise Value stays the same because the business value does not change from a financing decision. Net debt increases by 100 because debt rises and cash falls by 100 after the buyback. Equity Value falls by 100 because common equity is reduced through the repurchase, so share count is lower and value moves from equity to debt holders.
Correct. Final pressure test: suppose you blank for 5 seconds in the interview. What do you do to recover without sounding weak?