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Happy Tuesday, future bankers!

🚀 Let’s get into it.

🔢 Technical Question

“What are deferred tax assets/liabilities and how do they arise?”

Deferred tax assets and liabilities are accounting concepts that arise from differences in the recognition of income and expenses for tax purposes versus financial reporting purposes. These differences can result in temporary timing discrepancies between taxable income and accounting income. Deferred tax assets and liabilities are created to account for these timing differences.

Deferred Tax Assets:

1. Definition: Deferred tax assets represent future tax benefits that a company expects to realize, usually in the form of reduced tax expenses, due to deductible temporary differences.

2. Example: An example of a deferred tax asset is the recognition of an expense for tax purposes before it is recognized on the financial statements. This could happen when a company uses accelerated depreciation for tax purposes but straight-line depreciation for financial reporting.

Deferred Tax Liabilities:

1. Definition: Deferred tax liabilities represent future tax obligations that a company expects to incur due to taxable temporary differences.

2. Example: If a company recognizes revenue for tax purposes before it is recognized on the financial statements, a deferred tax liability is created. This might occur if the company recognizes revenue when it is received for tax purposes but recognizes it when it is earned for financial reporting.

How They Arise:

1. Temporary Differences: Differences between the tax basis and the book basis of assets and liabilities create temporary differences.

2. Recognition: Deferred tax assets and liabilities are recognized when these temporary differences result in future taxable or deductible amounts.

It's important for bankers and investors to analyze deferred tax assets and liabilities as they can impact a company's future tax payments and overall financial health.

🗣 Behavioral Question

"Tell me about a time when you had to meet a tight deadline. What steps did you take to ensure timely completion, and what was the outcome?"

The key to answering this question is to be specific, describe what you did to accomplish the task, discuss the outcome, and share your takeaways.

Here’s an example response:

"During my last semester, I was part of a project for our student-managed investment fund. I was required to analyze a Zillow’s financial statements and provide a comprehensive report within two days. The project was a key component of my coursework, and the deadline was non-negotiable.

To ensure timely completion, I immediately broke down the project into smaller tasks, creating a detailed timeline for each step of the analysis. I prioritized high-impact tasks, such as conducting ratio analysis and evaluating the company's financial health, to ensure that even if time became a constraint, the core analysis would be completed.

I ended up submitting the project ahead of the deadline, and the professor commended the depth of my analysis. This experience reinforced the importance of effective time management and planning, skills that I believe are essential in the fast-paced environment of investment banking."

🗞 Industry News

Cutting 12,000 jobs 📦

UPS witnessed an 8% drop in its stock following a quarter where it fell short of revenue expectations, provided a pessimistic outlook, and announced job cuts to lower costs. However, UPS managed to surpass profit expectations for the 15th consecutive quarter, increased its dividend, and recovered over half of the volume lost during labor negotiations. CEO Carol Tomé outlined two strategic moves to right-size the company, including a workforce reduction of approximately 12,000 positions and exploring alternatives for its truckload brokerage business, Coyote. Despite the challenges faced in 2023, such as economic conditions and disruptions from labor negotiations, UPS reported a net income that more than halved to $1.61 billion for the fourth quarter, with revenue declining by 7.8% to $24.92 billion.

Looking forward, UPS expects 2024 revenue between $92 billion and $94.5 billion, below the consensus, and anticipates a decline in adjusted operating margin. Despite these headwinds, UPS increased its quarterly dividend and emphasized strategic moves to focus on key growth areas.