Oct 08, 2026 by Offer

Nomura Depreciation Question 2027: 3-Statement Impact

The Nomura depreciation three statements answer: $10 of depreciation lowers pre-tax income by $10, reduces taxes (raising net income by less than $10), adds back $10 in operating cash flow, and reduces net PP&E by $10 on the balance sheet — which still balances. Commonly reported by candidates, this is the most classic accounting walkthrough in banking interviews.

What This Question Assesses

This is the definitive test of whether the three statements articulate in your head. The interviewer wants the full walkthrough with the tax effect handled correctly: depreciation is non-cash, so cash flow adds it back, and the balance sheet balances through retained earnings and PP&E. Partial answers reveal partial understanding.

How to Answer: Nomura Depreciation Three Statements

Step 1 — Income statement: depreciation of $10 reduces operating income by $10; taxes fall by $10 times the tax rate, so net income falls by $10 × (1 − tax rate).
Step 2 — Cash flow statement: net income is down by $10 × (1 − tax rate), but depreciation is added back (+$10), so operating cash flow rises by $10 × tax rate.
Step 3 — Balance sheet: PP&E falls by $10 (accumulated depreciation), cash rises by the cash flow increase, retained earnings fall by the net income decrease — assets and equity move equally, so it balances.
Step 4 — State the intuition: depreciation is a non-cash charge — it saves taxes, which is why cash flow rises.

Example: "Income statement: net income falls by $10 times one minus the tax rate. Cash flow: add back the $10, so operating cash flow rises by $10 times the tax rate. Balance sheet: PP&E down $10, cash up by the tax saving, retained earnings down by the net income drop — it balances."

Common Mistakes on Nomura Depreciation Three Statements

Forgetting the tax effect — saying net income falls by the full $10 ignores the tax shield.
Saying cash flow is unchanged — the tax saving means operating cash flow actually rises.
Failing to prove the balance sheet balances — walk both sides to show assets equal liabilities plus equity.

This exact question appears across banks, not just Nomura. Nail the $10 walkthrough once and you own every accounting follow-up.

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FAQ

Why does cash flow rise from depreciation?

Because depreciation reduces taxable income without spending cash — the tax saving is real cash retained.

What is the tax rate assumption?

Use a generic corporate rate for illustration; the mechanics matter more than the specific rate, which may vary by region.

Does depreciation affect enterprise value?

Indirectly — through the tax shield's effect on free cash flow in a DCF. The depreciation itself is added back.

What if the question uses $100 instead of $10?

Same mechanics, scaled up. Interviewers vary the number to check you understand the logic rather than a memorized script.

Preparing for Nomura's interview? Our 2027 Nomura Online Assessment and Video Interview Exact Questions has practice questions and answers — $79 one-time, instant download.