Core Frequently asked InternAnalyst

Depreciation goes up by €10. Walk me through the three statements.

What the interviewer is testing

The most asked technical question in first rounds. They want the right numbers, in the right order, with the balance sheet balancing at the end.

Answer it out loud first

Take 30–60 seconds, as you would in the room. Then compare with the model answer.

Show the model answer

In the interview — the 30-second answer

With a 25% tax rate: on the income statement, EBIT falls by €10, tax falls by €2.50, so net income falls by €7.50. On the cash flow statement, net income is down €7.50 but you add back the €10 of depreciation, so cash is up €2.50 — the tax saving. On the balance sheet, cash is up €2.50 and PP&E is down €10, so assets fall €7.50; retained earnings fall €7.50, so it balances.

The full answer

Assume a 25% tax rate.

Statement	Line	Change
Income statement	Depreciation	+10.0
	EBIT / pre-tax income	−10.0
	Tax (25%)	−2.5
	Net income	−7.5
Cash flow statement	Net income	−7.5
	Add back depreciation	+10.0
	Change in cash	+2.5
Balance sheet	Cash	+2.5
	PP&E	−10.0
	Total assets	−7.5
	Retained earnings	−7.5

Why cash goes up: depreciation isn't a cash cost, but it is deductible for tax. The only cash effect is the €2.50 of tax the company no longer pays.

Say the steps in the same order every time — income statement, cash flow, balance sheet — and finish with "and the balance sheet balances". Interviewers change the event (an inventory write-down, a capex, a debt raise); the method stays the same.

Mistakes to avoid

Saying cash falls — depreciation saves tax, so cash rises.
Forgetting to tax-effect: net income falls by 10 × (1 − t), not by 10.
Not finishing with the balance check.

Follow-ups they may ask

How did your answer compare?