– FP&A Interview Questions –
FP&A careers are a fantastic option. Each larger business has its own FP&A department, and you’ll require FP&A Interview Questions to get this position. Do numbers pique your attention, yet you want to know what’s behind them? If that’s the case, pay attention.
Finding hidden stories in financial data, and providing managers with the information they need in order to take both strategic and operational decisions, is definitely more interesting.
The Importance of this Article
Based on extensive research and feedback from professionals in Financial Planning and Analysis, we’ve compiled the most likely interview questions to be asked by an FP&A hiring manager.
We’ve also created what we think are the best answers to these FP&A questions. Thus, please read through all these questions carefully.
However, while you are unlikely to be asked the exact questions listed here, note. Understanding the line of reasoning and types of questions typically asked should help you prepare answers to the commonly asked questions.
Top Most Common FP&A Interview Questions and Answers
Below are some of the topmost common FP&A interview questions and answers:
1. How does an inventory write-down affect the three statements?
Answer:
This can be one of the more challenging FP&A interview questions. Here is the answer: On the balance sheet, the amount of the write-down reduces the asset account of inventory, and so is shareholders’ equity.
Also, the income statement is hit with an expense in either COGS or a separate line item for the amount of the write-down, reducing net income.
On the cash flow statement, the write-down is added back to cash from operations, as it’s a non-cash expense. However, but must not be double-counted in the changes of non-cash working capital.
2. How do you record PP&E and why is this important?
Answer:
There are essentially four areas to consider when accounting for PP&E on the balance sheet: initial purchase, depreciation, additions (capital expenditures), and dispositions.
To these four, you may also have to consider revaluation. Also, for many businesses, is the principal capital asset that generates revenue, profitability, and cash flow.
3. If you were CFO of our company, what would keep you up at night?
Answer:
Step back and give a high-level overview of the company’s current financial position, or companies in that industry. Highlight something on each of the three statements.
Income statement: growth, margins, profitability. Balance sheet: liquidity, capital assets, credit metrics, liquidity ratios. Cash flow statement:
short-term and long-term cash flow profile, any need to raise money or return capital to shareholders.
However, whatever your answer to this question is, just remember, the primary job of the is managing the company’s liquidity optimally, and earning a rate of return over the company’s cost of capital (WACC).
4. Name Three Challenges Facing Our Company
Answer:
If asked this question, pick different points and add some high-level macro issues such as competition, interest rates, currency and foreign exchange, access to capital.
Also, a well thought out answer will address both internal and external challenges.
5. What Are the Hallmarks of A Good FP&A Financial Model?
Answer:
First off, explain the major objectives of the department: measuring historical performance, evaluating future business needs, highlighting issues and strengths in the business.
Also, clearly communicate the most relevant financial information to management, instilling confidence in the quality of information presented.
Thus, know that a good financial model must address these and be simple enough for anyone to understand, yet complex enough to handle all the detail of the business.
Amazing Re-occurring FP&A Interview Questions and Answers
1. What’s the Difference Between Budgeting and Forecasting?
Answer:
Budgeting is setting a plan for the future while forecasting is creating an estimate of what will actually happen. Also, budgeting is a collaborative process, typically set once per year, and is static (unless it’s a rolling budget).
While a forecast is based on incoming data and sets the most probable expectation of what will transpire, and is typically updated once a quarter.
2. How do You Create a Rolling Budget or Forecast Model?
Answer:
If it’s a monthly rolling forecast, you input the historical data that comes in each month at the front of the model and extend a forecast out beyond that.
Also, when you need to add a new month to the forecast, it should be at the end of the model.
However, the model “rolls over” every month (or whatever time period is used) by extending the model of one column. The same approach can apply to a quarterly forecast model.
3. How do You Model Revenues for A Company?
Answer:
This is one of the most common FP&A interview questions. There are three common ways to forecast revenues: bottom-up, top-down, and year-over-year.
A bottom-up approach to financial modeling involves starting with individual products/services, estimating average prices/fees per product or service, and then growth rates.
While a top-down approach involves starting with the overall market size, estimating a company’s market share, and then translating that into revenue.
However, a year-over-year approach involves taking last year’s revenue and increasing it or decreasing it by a certain percentage.
4. How do You Model Operating Expenses for A Company?
Answer:
You can do a bottom-up build, however, typically, operating expenses move in line with revenues. As a result, many models forecast operating expenses as a percent of revenues.
Also, it’s important to separate fixed and variable costs and model them appropriately. Fixed costs should only change in steps (as required), whereas variable costs will be a direct function of revenue.
5. How do You Model Working Capital for A Company?
Answer:
There are three core components of working capital–accounts receivable, inventories, and accounts payable. And we usually model these items to match what is happening with revenues and cost of sales by using “turns” or “days” ratios.
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For example, you could look at the historic relationship between revenues and accounts receivable by calculating receivable days. Next, you would forecast receivable days–linking it to forecast revenues.
The above are some of the frequently asked questions during the FP&A interview. Thus, study the above questions and carefully.
Also, as you enrich yourself with this article, kindly share it with your family and friends. Good luck.
StudentsandScholarship Team.
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