Top 20 Financial Modeling Interview Questions (With Answers)

10/2/2019 Top 20 Financial Modeling Interview Questions (With Answers)
Limited Period Offer - Financial Modeling Course (90+ hours videos, 15+ Projects) 
Top 20 Financial Modeling Interview
Questions (With Answers)
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Financial Modeling  (https://www.wallstreetmojo.com/de nite-guide-to-alibaba-

ipo- nancial-and-valuation-model/)
Tutorials
 (https://www.wallstreetmojo.com/types-of- nancial-models/)
 Financial Modeling
Basics 
What is Financial
Modeling?
 (https://www.wallstre
etmojo.com/ nancial-
modeling/)
Financial Modeling in
Excel
(https://www.wallstre
 etmojo.com/free-
nancial-modeling-
training-course/)
Types of Financial Financial Modeling Interview Questions and Answers – If you are
Models
looking for a job that is related to nancial modeling

etmojo.com/types-of- (https://www.wallstreetmojo.com/ nancial-modeling/), you need to
nancial-models/) prepare for the interview questions. Now, every interview is different
Financial Modeling
and the scope of a job position is also different. Still, we can pinpoint
 Interview Questions top 20 nancial modeling interview questions (with answers), which

will help you take the leap from being a potential employee to a new
Alibaba IPO Financial
and Valuation Model one.
https://www.wallstreetmojo.com/financial-modeling-interview-questions-answers/ 1/44
etmojo.com/de nite- According to a nancial modeler who has been doing modeling for

guide-to-alibaba-ipo-
nearly 15 years depicts following way of taking the interview –
nancial-and-
valuation-model/)
mojo.com/)
Box IPO Modeling First, ask for a sample where the interviewee has done some
Details work and
Then, ask questions based on that.
 etmojo.com/top-10-
scariest-details-of-
black-box-ipo/) Asking questions on the basis of the sample may vary, but the
Box IPO Valuation following are the top questions interviewer asks for hiring for the
Model
position of nancial analyst and nancial modeler.
 etmojo.com/box-ipo-
valuation-to-buy-or- Let’s get started. Here is the list of Top 20 Financial Modeling
not-to-buy/)
Interview Questions –
Financial Modeling
Books
#1 – What is nancial modeling? Why is it useful?
 etmojo.com/top-best- #2 – How do you build a Financial Model?
nancial-modeling-
#3 – What is working capital and how do you forecast it?
books/)
Financial Modeling
#4 – What are the design principles of a good nancial model?
Templates #5 – What is an array function and how would you use it?
 #6 – What is the difference between NPV and XNPV?
modeling-templates/) #7 – Pick a model you have built and walk me through it.
#8 – Let’s say that I have bought new equipment. How it would

 Excel Modeling
affect 3 nancial statements.
(141+) 
#9 – What is Sensitivity Analysis in Financial Modeling?
mojo.com/category/ nan #10 – What are LOOKUP and VLOOKUP? What to use when?
cial-modeling/excel- #11 – What is the worst nancial forecast you have made in
modeling) your life?
#12 – How do you forecast revenues?
Related Courses
#13 – How do you forecast Costs?

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#15 – How do you forecast Debt in your Financial Model?
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#1 – What is nancial modeling? Why is it

useful? Is it only con ned to company’s
nancial affairs?
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First of all, nancial modeling is a quantitative analysis which is
used to make a decision or a forecast about a project generally in
asset pricing model or corporate nance. Different hypothetical

variables are used in a formula to ascertain what future holds for
a particular industry or for a particular project.
In Investment Banking and Financial Research, Financial
modeling means forecasting companies nancial statements like
Balance Sheet, Cash Flows, and Income Statement
(https://www.wallstreetmojo.com/ nancial-statements/). These

forecasts are in turn used for company valuations and nancial
analysis.
mojo.com/) It is always good to cite an example with this. You can illustrate
your point in the following manner – Let’s say there are two
projects that a company is working on. The company wants to
know whether it is prudent to keep on working on two projects
or concentrate their full effort on one project. Using nancial
modeling, you can use various hypothetical factors like return,

risk, cash in ow, the cost of running the projects and then come
to a forecasting which may help the company to go for the most
prudent choice.
With respect to Investment Banking, you can talk about the

Financial Models that you have prepared. You may refer to
examples like Box IPO Model
(https://www.wallstreetmojo.com/box- nancial-model/) and
Alibaba Financial Model
(https://www.wallstreetmojo.com/de nite-guide-to-alibaba-ipo-
nancial-and-valuation-model/)
Also, note that Financial modeling is useful because it helps
companies and individuals make better decisions.
Financial modeling is not con ned to only company’s nancial

affairs. It can be used in any area of any department and even in
individual cases.
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mojo.com/) #2 – How do you build a Financial Model?
Go through this Financial Modeling in Excel Training
(https://www.wallstreetmojo.com/free- nancial-modeling-training-
course/) to build a nancial model.
Financial Modeling is easy as well as complex. If you look at the
Financial Model you will nd it complex, however, nancial model a

sum total of smaller and simple modules. The key here is to prepare
each smaller modules and interconnect each other to prepare the nal
nancial model.
You can see below various Financial Modeling Schedules / Modules –
mojo.com/)
Please note the following –
The core modules are the Income Statement, Balance Sheet, and
Cash Flows.
The additional modules are the depreciation schedule, working
capital schedule, intangibles schedule, shareholder’s equity
schedule, other long-term items schedule, debt schedule etc.

The additional schedules are linked to the core statements upon
their completion
Also, have a look at Types of Financial Models

(https://www.wallstreetmojo.com/types-of- nancial-models/)
#3 – What is working capital and how do

you forecast it?
This is a basic question of nance included in Financial Modeling
This is a basic question of nance included in Financial Modeling

Interview Questions. You would answer in the following manner –
(https://www.wallstreet If we deduct current liabilities from current assets of the company

mojo.com/)
during a period (usually a year) we would get working capital.
Working capital is the difference between how much cash is tied up in

inventories, accounts receivables etc. and how much cash needs to be
paid for accounts payable and other short-term obligations.
From the working capital, you would also be able to understand the
ratio (current ratio) between current assets and current liabilities. The
current ratio will give you an idea about the liquidity of the company.
Generally, when you forecast Working Capital, you do not take Cash in
“Current Assets” and any debt in the “Current Liabilities”.
Working Capital Forecast essentially involves forecasting Receivables,

Inventory, and Payables.
mojo.com/)
Accounts Receivable Forecast
Generally modeled as Days Sales Outstanding formula
(https://www.wallstreetmojo.com/days-sales-outstanding/);
Receivables turnover = Receivables/Sales * 365
A more detailed approach ma include aging or receivables by
business segment if the collections vary widely by segments

Receivables = Receivables turnover days/365*Revenues
Inventories Forecast
Inventories are driven by costs (never by sales);
Inventory turnover = Inventory/COGS * 365; For Historical

Assume an Inventory turnover number for future years based on
historical trend or management guidance and then compute the
Inventory using the formula given below

Inventory = Inventory turnover days/365*COGS; For Forecast
mojo.com/) Accounts Payable Forecast
Accounts Payables (Part of Working Capital Schedule):

Payables turnover = Payables/COGS * 365; For Historical
Assume Payables turnover days for future years based on

historical trend or management guidance and then compute the
Accounts Payables using the formula given below
Accounts Payables = Payables turnover days/365*COGS; for

Forecast
#4 – What are the design principles of a

good nancial model?
Another easy Financial Modeling Interview question.
Answer this Financial Modeling question using an acronym – FAST.
F stands for Flexibility: Every nancial model should be exible in its

scope and adaptable in every situation (as contingency is a natural
part of any business or industry). Flexibility of a nancial model

depends on how easy it is to modify the model whenever and
wherever it would be necessary.
A stands for Appropriate: Financial models shouldn’t be cluttered

with excessive details. While producing a nancial model, the nancial
modeller always should understand what nancial model is, i.e. a good
representation of reality.
S stands for Structure: The logical integrity of a nancial model is of

utter importance. As the author of the model may change, the
mojo.com/)
structure should be rigorous and integrity should be kept at the
forefront.
T stands for Transparent: Financial models should be such and based

on such formulas which can be easily understood by other nancial
modellers and non-modellers.
COLGATE BALANCE SHEET HISTORICAL DATA
mojo.com/)
Also, note the color standards popularly used in Financial Models –
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Blue – Use this color for any constant that is used in the model.
Black – Use Black color for any formulas used in the Financial
Model
Green – Green color is used for any cross references from
different sheets.
Download this Financial Modeling templates

(https://www.wallstreetmojo.com/ nancial-modeling-templates/)
#5 – What is an array function and how

would you use it?
If you have a laptop with you, it would be easier to show and answer
this Financial Modeling Interview Question. If not, then just explain
how it is done.
An array formula helps you to perform multiple computations one or
more sets of values.

mojo.com/)
There are three steps one should follow to compute array function in
excel –
Before entering the array formula into the cell, rst, highlight the
range of cells.
Type in the array formula in the rst cell.
Press Ctrl + Shift + Enter to get the results.
In the Financial model, we make use of arrays in Depreciation

Schedule where the breakup of Assets (shown horizontally) are
transposed vertically using Transpose Function
(https://www.wallstreetmojo.com/transpose-excel-function/) with
Arrays.
mojo.com/)
#6 – What is the difference between NPV

and XNPV?
The answer to this Financial modeling Question will be clear cut.
There is a clear difference between NPV and XNPV. Both of these
compute Net Present Value by looking into the future cash ows
(positive & negative). The only difference between NPV and XNPV is –
# NPV assumes that the cash ows come in equal time intervals.
# XNPV assumes that the cash ows don’t come in equal time
intervals.
When there will be monthly or quarterly or yearly payments, one can

easily use NPV and in the case not-so-regular payments, XNPV would
be suitable.
For details, have a look at Financial Functions in Excel
(https://www.wallstreetmojo.com/ nancial-functions-in-excel/)
mojo.com/)
NOTE – If you want to master Financial modeling, then you may
consider this Financial Modeling Course
(https://www.wallstreetmojo.com/ nancial-modeling-course/)
#7 – Pick a model you have built and walk

me through it.
If you have already built a model, this Financial Modeling Interview
Question is super easy. Just open your laptop, open the spreadsheet
and show the model you have built for any project or company. Then
explain how you have built the model and which hypothetical factors
you have taken into consideration while creating that model and why.
Remember, this is one of the most important questions of all. Because
your technical expertise will be judged by the model you will walk the
interviewer through. And maybe the next questions for the rest of the
interview will be based on the model you have built. So choose
prudently.
You may use the following examples as well –
Alibaba Financial Model

(https://www.wallstreetmojo.com/alibaba- nancial-model/)
Box IPO Financial Model (https://www.wallstreetmojo.com/box-
nancial-model/)
Colgate nancial model (https://www.wallstreetmojo.com/free-
nancial-modeling-training-course/)
(https://www.wallstreet #8 – Let’s say that I have bought new

mojo.com/) equipment. How it would affect 3 nancial
statements.
This may seem a bit like accounting questions. But to check the
nance knowledge of a modeler, interviewer often asks this Financial

Modeling question.
Here’s how you should answer it:
In the beginning, there would be no impact on the income

statement.
In the balance sheet, cash will go down and PP&E (Property,
Plant & Equipment) would go up.

In the cash ow statement, the purchase of PP&E would be
treated as cash out ow (cash ow from Investments
(https://www.wallstreetmojo.com/cash- ow-from-investing-
activities/)).
After few years, there will be wear & tear of the PP&E, so the
company needs to deduct depreciation in the income statement
which will also result in less net income.
In the balance sheet, retained earnings will get reduced.
And in the cash ow statement, the depreciation will be added
back as a non-cash expense in the “cash ow from operations
(https://www.wallstreetmojo.com/cash- ow-from-operations/)”.
#9 – What is Sensitivity Analysis in Financial
Limited Period OfferModeling?

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If you have an analysis already in your laptop, show it to your

(https://www.wallstreet interviewer to answer this Financial Modeling Interview Question.
mojo.com/)
Sensitivity analysis (https://www.wallstreetmojo.com/sensitivity-

analysis-in-excel-with- nance-examples/) is one of the analyses used
in nancial modeling. This analysis helps one understand how the
target variable is affected by the change in input variable. For
example, if you want to see how the stock price of a company is

affected by its input variables; we would take few input variables and
would create an analysis in excel.
We use DATA TABLES to perform sensitivity analysis. Most popular

sensitivity analysis is done on the effect of WACC and Company’s
Growth rate on the Share Price.
mojo.com/)
As we see from above, on one side is changes in WACC and the other
side is changes in Growth Rates. In the middle box is Share Price
sensitivity to these variables.
#10 – What are LOOKUP and VLOOKUP?

What to use when?
Often the interviewer wants to know whether you are pro cient in
using excels in nancial modeling or not.
LOOKUP is a function which allows you to consider the value entered;

then nd it within a data range; once the data range is selected, then
the function returns a value from the same data range without
needing to scroll through.

VLOOKUP, on the other hand, is one of sub-function of LOOKUP.

mojo.com/)
The purpose of VLOOKUP Function
(https://www.wallstreetmojo.com/vlookup-excel-function/) is to search
for a value in the leftmost column of the data range, and then it nds
out a value in the same row from a column you have speci ed.
VLOOKUP is typically used to prepare Comparable Comps

(https://www.wallstreetmojo.com/comparable-company-analysis-
comps/)where the reference data is stored in separate sheets and are

pulled together in a condensed Comparable Company Analysis table.
mojo.com/)
#11 – What is the worst nancial forecast

you have made in your life?
This is a very tricky Financial Modeling Interview question.
You need to handle it well.
Answering this question is similar as answering about your

weaknesses.
So, you need to be tactful.
You should never pick one nancial model and talk about it. Rather
pick two models – one that you couldn’t forecast right and another
where you have hit the nail. And then give a comparison between
these two. And tell the interviewer why one went belly up and
another has become one of your best predictions.
mojo.com/) 12. How do you forecast revenues?
For most companies, revenues are a fundamental driver of economic
performance. A well designed and logical revenue model re ecting
accurately the type and amounts of revenue ows is extremely
important. There are as many ways to design a revenue schedule as

there are businesses.
Some common types include:
1. Sales Growth
2. In ationary and Volume/ Mix effects
3. Unit Volume, Change in Volume, Average Price and Change in
Price
4. Dollar Market Size and Growth

5. Unit Market Size and Growth
6. Volume Capacity, Capacity Utilization and Average Price
7. Product Availability and Pricing
8. Revenue driven by investment in capital, marketing or R&D
9. Revenue based on installed base (continuing sales of parts,

disposables, service and add-ons etc).
10. Employee based
11. Store, facility or Square footage based
12. Occupancy-factor based
An example you can include is that of projecting revenues of Hotels.
mojo.com/)
Revenue for Hotels should be calculated as follows –
Get the total number of rooms each year along with forecasts
Hotel Industry tracks occupancy rates (eg. 80% etc). This means
that 80% of the rooms are occupied, others are vacant and don’t
result in revenues. Make an estimate of occupancy rate for this
hotel.
Also, make an estimate on Average Rent per room per day on

the basis of historicals.
Total Revenues = Total Number of Rooms x Occupancy Rates x
Average Rent per room Per day x 365

(https://www.wallstreet 13. How do you forecast Costs?

mojo.com/)
You can forecast Costs and other expenses as follows –
1. Percentage of Revenues: Simple but offers no insight into any
leverage (economy of scale or xed cost burden

2. Costs other than depreciation as a percent of revenues and
depreciation from a separate schedule: This approach is really
the minimum acceptable in most cases, and permits only partial
analysis of operating leverage.
3. Variable costs based on revenue or volume, xed costs based
on historical trends and depreciation from a separate

schedule: This approach is the minimum necessary for
sensitivity analysis of pro tability based on multiple revenue
scenarios
mojo.com/)
In the above snapshot, we have used a simple cost as a percentage of

Costs or percentage of Sales assumption.
14. Where do you pick the historical

Financial Statements?
Best practice is to pick the nancial statements from the Annual
Reports or the SEC Filings directly. This may involve copying and
pasting the data from the annual report to the excel sheet.
Many feel that this task is for losers, however, my take is that this
is the most important task in creating the nancial model. Once you
start populating the data, you will realize the subtle changes in the
nancial statements that the company may have done. Additionally,

you will get a good understanding of the kind of items included in the
nancial statements.
mojo.com/)
Many would argue that Bloomberg (https://www.bloomberg.com/)
and other databases will provide an error free nancial statements. I
respect these databases, however, I face one problem while using
these databases. These databases use a very standardized way to
report the nancial statements. With this, they may include/exclude
key items from one line item to another and thereby creating
confusion. With this, you may miss out on important details.
My golden rule – Use the SEC lings

(https://www.wallstreetmojo.com/sec- lings-10k-10q-8k-13d-proxy-
form-3-4-5/) and nothing else for Financial Statements.
mojo.com/)
source: Colgate SEC Filings

(http://investor.colgatepalmolive.com/sec.cfm?
DocType=Annual&Year=&FormatFilter=)
#15 – How do you forecast Debt in your

Financial Model?
This is an advanced Financial Modeling Interview Question. Usually
modeled as part of debt schedule
Key feature of the debt schedule is to use the Revolver facility

and how it works so that the minimum cash balance is
maintained and ensures that the Cash account does not become
negative in case the operating cash ow is negative (Companies
in investment phase who need lot of debt in initial years of
operation – Telecom cos for example)

Overall range of Debt to equity ratio
(https://www.wallstreetmojo.com/capital-gearing-ratio/) should
mojo.com/) be maintained if there is any guidance by the management
Debt balance can also be assumed to be constant unless there is
a need to increase the debt
Notes to the accounts would give repayment terms and
conditions which need to be accounted for while building the
debt schedule
For some industries, like Airlines, Retail etc Operating Leases
might have to capitalize and converted to debt. However, this is

a complex topic and beyond the scope of discussion at this point
mojo.com/)
#16 – How do you consider Stock Options in

Financial Models?
This is another example of Advanced Financial Modeling Interview
question.
Stock Options are used by many companies to incentivise their

employees. Employees get an option to buy the stock at the Strike
Price.
If the market price is greater than the stock price, then the employee
can exercise its options and pro t from it.
When the employees exercise their options, they pay the strike price
to the company and get shares against each option. This results in the
increase in the number of shares outstanding. This results in lower
Earnings Per Share.

The options proceeds received by the company can be thereby used

either to buy back shares or can be deployed in the projects.
mojo.com/)
Also, look at Treasury Stock Method

(https://www.wallstreetmojo.com/treasury-stock-method/)
#17 – Which valuation tools are used once

you have prepared the Financial Model
Once you have prepared the nancial model you can use the use
Once you have prepared the nancial model, you can use the use
either Discounted Cash Flows (https://www.wallstreetmojo.com/dcf-
discounted-cash- ow/) or Relative Valuation
(https://www.wallstreetmojo.com/equity-value-vs-enterprise-value-
mojo.com/)
calculate-formula/) for nding the target price.
DCF Valuation (https://www.wallstreetmojo.com/dcf-discounted-cash-

ow/) approach includes nding the Free Cash Flow to the Firm
(https://www.wallstreetmojo.com/free-cash- ow- rm-fcff/) and
thereby nding the present value of FCFF until perpetuity
(https://www.wallstreetmojo.com/perpetuity-formula/).
For example, presented below is the Free Cash Flow to Firm of
Alibaba. The Free Cash ow are divided into two parts – a) Historical
FCFF and b) Forecast FCFF
mojo.com/)
Historical FCFF is arrived at from the Income Statement, Balance

Sheet and Cash Flows of the company from its Annual Reports
Forecast FCFF is calculated only after forecasting the Financial
Statements
We note that Alibaba’s Free Cash Flow are increasing year after
year
In order to nd the valuation of Alibaba, we must nd the
present value of all the future nancial years (till perpetuity –
Terminal value (https://www.wallstreetmojo.com/terminal-value-
formula-method-calculations-in-excel/))
NOTE – If you want to master Financial modeling, then you may

consider this Financial Modeling Course
(https://www.wallstreetmojo.com/ nancial-modeling-course/)
#18 – Which Financial Model Layout do you
(https://www.wallstreet prefer?
mojo.com/)
This Financial Modeling Question is very easy. There are primarily two
types of Financial Model layouts – Vertical and Horizontal.
Vertical Financial Model Layouts are compact, you can easily

align the columns and headings. However, they are tougher to
navigate because a lot of data is contained in a single sheet.
Horizontal Financial model Layouts are easier to setup with
each module in a separate sheet. Here the readability is high as
you can name the individual tabs accordingly. The only problem
is that there are many numbers of sheets which you have
interlink. I prefer the Horizontal Layouts as I nd them easier to
manage and audit.
mojo.com/)
19. Which ratios do you calculate for

Financial Modeling?
There can be many ratios that are important from Financial Modeling
point of view. Some of the important ones are listed below
Liquidity ratios like Current Ratio

(https://www.wallstreetmojo.com/current-ratio/), Quick Ratio
(https://www.wallstreetmojo.com/quick-ratio/), and Cash Ratio
(https://www.wallstreetmojo.com/cash-ratio/)
Return on Equity (https://www.wallstreetmojo.com/return-on-
equity-roe-dupont-roe/)
Return on Assets (https://www.wallstreetmojo.com/return-on-

total-assets-roa/)
Turnover Ratios like Inventory Turnover Ratios
(https://www.wallstreetmojo.com/inventory-turnover-ratio-
formula/), Receivables Turnover ratio, Payables Turnover Ratio
Margins – Gross, Operating, and Net

mojo.com/) (https://www.wallstreetmojo.com/net-pro t-margin-gross-
operating/)
Debt to Equity Ratio
(https://www.wallstreetmojo.com/capitalization-ratio/)
Also, have a look at this Complete practical guide on Ratio Analysis

(https://www.wallstreetmojo.com/ratio-analysis/)
#20 – Can you tell which excel function

would slow down the recalculation process
of a large nancial model?
Actually, the answer to this Financial Modeling question is not one, it
can be because of multiple reasons
Data tables usage for sensitivity analysis causes slow down
Array formulas (as used for Transpose and other calculations)

can cause signi cant slowdown.
If there is a circular reference
(https://www.wallstreetmojo.com/circular-reference-in-excel/) in
your nancial model, then the excel can slow down.
In the nal analysis

Fi i l d li i t i ill tb dt l i l
Financial modeling interview will not be con ned to only nancial

modeling questions. You need to be thorough with accounts, general
nance questions, excel & advance excel, general HR questions and
current affairs. The above questions will help you understand what
mojo.com/)
sort of questions you can expect in nancial modeling interviews and
how to answer them.
Prepare well and wish you all the best for your nancial modeling
interviews.
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Course (with 15+
Projects)
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(https://www.wallstreetmojo.com/ nancial
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About Dheeraj Vaidya
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worked as JPMorgan Equity Analyst, ex-CLSA India Analyst ; edu quali cation - engg (IIT Delhi),
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awesome in Financial Analysis. Here, I share secrets about the best ways to analyze Stocks,
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Comments
Carlito Carlos Edwin A. Gierran says
Thank you so much. Dheeraj.
Reply
Dheeraj Vaidya says
thanks
Reply
Eric Ayensu says
That a great piece thank you for sharing.
Reply
Limited Period Offer

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Vaidya says Modeling Course (90+ hours videos, 15+ Projects) 
thanks Eric!
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Aarish says
Love your explanation
Reply
Dheeraj Vaidya says
thanks Aarish!
Reply
Hadi S says
Tks Professor Deraj..
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Dheeraj Vaidya says
thanks Hadi!
Reply
Nitesh Jain says
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Thank you very much for this article. Sir
Reply
Dheeraj Vaidya says
thanks Nitesh!
Reply
Piyush Acharya says
Dheeraj, it is an excellent article with a great learning.
Reply
Dheeraj Vaidya says
thanks Piyush!
Reply
GC says
Thank you very much!
Reply
mojo.com/)
Dheeraj Vaidya says
thanks Gustavo!
Reply
Rishabh Aggarwal says
Hi Dheeraj,
Thanks a lot to share your knowledge with us. It really help us to clear the concept of Financing
and learn the new area of shortcuts ,which facilitate the complex data into easier way.
Reply
Dheeraj Vaidya says
thanks Rishabh!
Reply
Obaa Ohemma says
thanks Dheeraj I always learn something new in your write ups
Reply
mojo.com/)
Dheeraj Vaidya says
thanks Obaa!
Reply
Stefan says
Hello Dheeraj,
You have a programm to convert pdf le in excel, or enter the dates manually.
Thank you,
Reply
Dheeraj Vaidya says
Hi Stefan, I enter the data manually.
Reply
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Top 20 Financial Modeling Interview Questions (With Answers)

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10/2/2019 Top 20 Financial Modeling Interview Questions (With Answers)

Financial Modeling  (https://www.wallstreetmojo.com/de nite-guide-to-alibaba-

#8 – Let’s say that I have bought new equipment. How it would

#13 – How do you forecast Costs?

Valuation Modeling (https://www.wallstreetmojo.com/full-access-bundle/)

#1 – What is nancial modeling? Why is it

Limited Period OfferThis

First of all, nancial modeling is a quantitative analysis which is

used to make a decision or a forecast about a project generally in

asset pricing model or corporate nance. Different hypothetical

a particular industry or for a particular project.

In Investment Banking and Financial Research, Financial

modeling means forecasting companies nancial statements like

Balance Sheet, Cash Flows, and Income Statement

(https://www.wallstreetmojo.com/ nancial-statements/). These

know whether it is prudent to keep on working on two projects

or concentrate their full effort on one project. Using nancial

modeling, you can use various hypothetical factors like return,

to a forecasting which may help the company to go for the most

With respect to Investment Banking, you can talk about the

examples like Box IPO Model

(https://www.wallstreetmojo.com/box- nancial-model/) and

Alibaba Financial Model

Also, note that Financial modeling is useful because it helps

companies and individuals make better decisions.

Financial modeling is not con ned to only company’s nancial

Start Your Free Investment Banking Course

Limited Period Offer - Financial

course/) to build a nancial model.

Financial Modeling is easy as well as complex. If you look at the

Financial Model you will nd it complex, however, nancial model a

You can see below various Financial Modeling Schedules / Modules –

Please note the following –

schedule, other long-term items schedule, debt schedule etc.

Also, have a look at Types of Financial Models

#3 – What is working capital and how do

This is a basic question of nance included in Financial Modeling

(https://www.wallstreet If we deduct current liabilities from current assets of the company

Working capital is the difference between how much cash is tied up in

“Current Assets” and any debt in the “Current Liabilities”.

Working Capital Forecast essentially involves forecasting Receivables,

Generally modeled as Days Sales Outstanding formula

business segment if the collections vary widely by segments

Inventories are driven by costs (never by sales);

Inventory turnover = Inventory/COGS * 365; For Historical

historical trend or management guidance and then compute the

Inventory using the formula given below

Accounts Payables (Part of Working Capital Schedule):

Assume Payables turnover days for future years based on

Accounts Payables = Payables turnover days/365*COGS; for

#4 – What are the design principles of a

Answer this Financial Modeling question using an acronym – FAST.

F stands for Flexibility: Every nancial model should be exible in its

part of any business or industry). Flexibility of a nancial model

A stands for Appropriate: Financial models shouldn’t be cluttered

S stands for Structure: The logical integrity of a nancial model is of

T stands for Transparent: Financial models should be such and based

COLGATE BALANCE SHEET HISTORICAL DATA

Also, note the color standards popularly used in Financial Models –

 Popular Course in this category

(https://www.wallstreet Related Courses

LBO Modeling Course (https://www.wallstreetmojo.com/lbo-

Valuation Modeling Course