⏱ Reading Time: 3 Minutes 27 Seconds

Happy Monday, future bankers!

Hope everyone is doing well! Today we’re covering the mechanics of revenue recognition, your most valuable asset, and a $3.8 billion merger that was officially called off.

🚀 Let’s get into it.

🔢 Technical Question

What are some examples of when a company collect cash from a customer, but not record it as revenue?

Sure, I’d be happy to help with that. In accounting, revenue recognition is a key principle that determines when a company records revenue. There are several instances when a company might collect cash from a customer but not record it as revenue immediately:

1. Deferred Revenue (or Unearned Revenue): This is money received by a company for goods or services that have not yet been delivered or rendered. This is common in subscription-based businesses like software-as-a-service (SaaS) companies, where customers pay upfront for a year’s subscription, but the company can only recognize this as revenue monthly as the service is provided.

2. Customer Deposits: Sometimes, a company may require a customer to make a deposit before it begins work on a product or service. This deposit is not recognized as revenue until the product or service is delivered.

3. Long-term Contracts: In long-term contracts, such as construction projects, revenue is often recognized over time as work is completed. This is known as the percentage-of-completion method. If a customer makes a payment but the work isn’t sufficiently completed, the payment may not be recognized as revenue.

4. Sales with Right of Return: If a company sells a product with a right of return, it may need to defer recognizing some or all of the revenue until the return period expires.

5. Layaway Sales: In a layaway sale, a customer pays a portion of the item’s price, and the company holds the item until the customer pays the rest. The company doesn’t recognize revenue until the full payment is received and the item is delivered.

Remember, the key principle here is that revenue is recognized when earned, not necessarily when cash is received. This is in accordance with the accrual basis of accounting, which records revenues when they are earned and expenses when they are incurred. The actual receipt of cash is not the primary factor in determining when to recognize revenue.

🗣 Behavioral Question

What’s the most valuable asset that you would bring to our company?

Here are some best practices for answering this question:

1. Self-awareness: Understand your strengths and how they align with the role you’re applying for. This could be technical skills, soft skills, or experiences that make you uniquely qualified.

2. Specificity: Be specific about your skills and experiences. Instead of saying “I’m a hard worker”, you could say “I’m a proven independent thinker,” and provide an example of when you demonstrated that skill.

3. Relevance: Make sure the asset you mention is relevant to the role. For an investment banking internship, valuable assets might include strong analytical skills, ability to work under pressure, or experience with financial modeling.

4. Evidence: Provide examples or evidence to back up your claims. If you say you’re great with numbers, mention a time when you used your quantitative skills to achieve a positive outcome.

5. Connection to the Company: Show that you understand the company’s needs and culture. If the company values teamwork and you’re great at collaborating with others, that’s a valuable asset.

🗞 Industry News

🛩 $3.8 Billion Merger Officially Called Off

JetBlue and Spirit Airlines have scrapped their plans for a $3.8 billion merger agreement. This decision follows a federal judge's ruling in January, where the deal was blocked due to antitrust concerns. The Biden Administration, which has a tough stance on mergers that could reduce competition, sees this abandonment as a success. The Justice Department argued that the merger would have negatively affected consumers with increased ticket prices. JetBlue's leadership also cited regulatory hurdles and time constraints as reasons for terminating the agreement.

Privately, JetBlue was relieved about the deal's termination due to Spirit's worsening financial situation. Spirit Airlines now faces an uncertain future as an independent entity. The company is struggling financially, and analysts warn of a possible bankruptcy if their position doesn't improve. As a result of the news, Spirit's shares dropped significantly in late morning trading, while JetBlue saw a slight increase. Despite setbacks with this merger and a separate antitrust ruling against their partnership with American Airlines, JetBlue remains focused on revenue growth and cost-saving measures.

Read more about this story below.

Refer 3 Friends ➡️ Get Access to Database of 100+ IB Career Pages

1. Refer Friends: If you manage to get three of your friends to sign up for Finterview, we have a special offer for you. We’ll send you a curated database of links to the career pages of 100+ (and growing) investment banks. This way, you can streamline your search for new internships.

2. How It Works: All you need to do is reply to this email and list the email addresses of the friends you referred. Once we receive your reply and verify the sign-ups, we’ll email you the comprehensive list.

3. Questions or Clarifications: If you have any questions or need further assistance, feel free to reply to this email. We’re here to help! 🌟

Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!