Hey guys!! Welcome to TAX DESTINATION Blog.Here we go to know more about Financial Planning & Analysis (FP &A).
You would have gone through more about Accounting, Auditing, Mathematics ,Taxation & found recording & verifying transactions rather boring. Number interests you, but knowing what’s behind them excites you. You will find the reason why the company has made that much or that less in a given time & based on that you will plan & budget for next period.
This is what we called as Financial Planning & Analysis.
Finding Interesting Stories while reading Financial data, and providing managers with the information they need, in order decisions, is definitely more interesting than just recording transactions and preparing balance sheets.
This is a bigger choice & each bigger corporation runs an entire FP&A department.
Let’s go more into Basic Advanced & Technical Questions of FP&A:
Basic Questions
01. Why FP&A, and not accounting, or other job?
This question will ask to check whether you understand the difference between the two & why you actually applied.
You can say that discovering the things happening behind the scenes (or behind the numbers) is more motivating for you than simply recording the financial transactions
02. How do you imagine a typical day in work in the financial planning and analysis team?
You’ll spend a significant amount of time working with profit-loss statements and cash flow. Checking individual transactions, talking to employees responsible for them, and trying to identify any deviations, abnormalities, and trends, you’ll eventually come up with forecasts and recommendations for the company management.
03. How would you ensure to get your message over to people who do not understand financial terminology?
Using demonstration, PowerPoint presentations, case studies and practical examples, you try to make things simple to understand. Because you know that your work is useless unless others understand you.
04. What do you consider your biggest weakness in terms of fp&a?
You have several options for a good answer. The first one is saying that you aren’t aware of any particular weakness that will restrain you from achieving great results in your work. That’s exactly the reason why you opted for financial planning and analysis, and not for some other occupation.
Another option is saying that you simply do not know. Surely, there are some things you can improve on, but you have to do the job first for a few weeks, to be able to tell exactly what your weaknesses are–and then you will improve on them.
Other Basic Questions like
05. What are the current trends of FP&A
06. The Most Common Challenges we face in FP&A right now.
Technical Questions
01. Walk me through the three financial statements.
The balance sheet shows a company’s assets, liabilities, and shareholders’ equity. The income statement outlines the company’s revenues and expenses. The cash flow statement shows the cash flows from operating, investing, and financing activities
The three financial statements all fit together to show a picture of the company’s financial health
02. How does an inventory write-down affect the three statements?
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.
03. If you were CFO of our company, what would keep you up at night?
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 CFO is managing the company’s liquidity optimally, and earning a rate of return over the company’s cost of capital (WACC).
04. Name Three Challenges Facing Our Company
If asked this question, pick different points and add some high-level macro issues such as competition, interest rates, currency and foreign exchange, and access to capital.Also, a well-thought-out answer will address both internal and external challenges.
05. What Are the Hallmarks of A Good FP&A Financial Model?
First off, explain the major objectives of the FP&A department: measuring historical performance, evaluating future business needs, and 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.
Questions on Budgeting, Forecasting & Financial Modelling
1. What’s the Difference Between Budgeting and Forecasting?
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?
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?
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-upapproach to financial modelling 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?
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 per cent 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?
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.
Questions on Accounting
1. Definition, Difference and Journal entry of:
- Accrual and Prepaid
- Reserve and Provisions
- Cap expenditure and Revenue Expenditure
- Deferred Revenue
and Accrued expenses - Capital Reserve
and Reserve capital - Provision &
Contingent Liability - Accrued Payable
& Accrued Expenses - Prepaid Expenses
- Dividend
- Bad Debts and Provision
for doubtful debts - Return on Capital and Return of Capital
- Deferred Revenue
- Depreciation
02. Definition of Turnover Ratio & Payout Ratio
03. What are the Golden Rules of Accounting? What are different
types of Accounts (Real, Nominal
and Personal)?
Golden Rules of Accounting:
Different types of Accounts:
- Personal: Personal Accounts are the ones that are related with
individuals, companies, firms, group
of associations etc. Eg: Veer’s A/c, Kapoor Pvt Ltd, Prepaid Expenses A/c etc. - Real: Real Accounts are the ones that are related with properties,
assets or possessions. Real Accounts
can be of two types: Tangible Real Accounts and Intangible Real accounts.
Eg Machinery A/c, trademarks, goodwill
etc. - Nominal: Nominal Accounts relate to income, expenses, losses or gains. These
include Wages A/c, Salary A/c, Rent A/c etc.
4. What do you mean by a matching concept?
The matching concept states that expenses that are incurred in an
accounting period should be matching
with the revenue earned during that period. Thus, all expenses for that accounting period whether or not
paid during that year and all revenue whether
earned or not during the period should be considered to calculate profit or loss. Hence, depreciation of the current
year is charged against the current year’s revenue.
In other words, the full cost of the asset is not treated as an expense in the year of its purchase itself,
rather it is spread
over its useful
life.
5. IND AS -115,116,16 or respective AS (Just go through concepts, understand difference
between AS and INDAS- In-depth study not required)
- Going concern concept is one of the accounting principles that states that a business entity will continue running its operations in the foreseeable future and will not be liquidated or forced to discontinue operations for any reason.
Prudence Concept: Prudence concept is a concept that has been put in place to ensure that the person who is making the financial statements makes sure that the assets and income are not overstated to make sure the company is not overvalued.
Accrual Concept: Accrual concept is the most fundamental principle of accounting which requires recording revenues when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid.
GAAP allows preparation of financial statements on an accrual basis only (and not on cash basis). This is because under accrual concept revenues and expenses are recorded in the period to which they relate and not when they are received or paid. Application of accrual concept results in accurate reporting of net income, assets, liabilities and retained earnings which improves analysis of the company’s financial performance and financial position over different periods
03. 07. What is the use and purpose of Excel Pivot Table, VLOOKUP, HLOOKUP, SUMIF and Index Match?
Pivot Table is an interactive way to quickly summarize large amounts of data. It is used to summarize, sort, reorganize, and group. It allows us to extract the significance from a large, detailed data set.
VLOOKUP: It is a function that makes Excel search for a certain value in a column, to return a value from a different column in the same row.
HLOOKUP: Stands for Horizontal Lookup. It is a function that makes Excel search for a certain value in a row, in order to return a value from a different row in the same column.
SUMIF: SUMIF is the function used to sum the values according to a single criterion. Using this function, you can find the sum of numbers applying a condition within a range. Similar to the name, this will sum if the criteria given is satisfied. This function is used to find the sum of particular numbers within a large data set.
INDEX MATCH: The INDEX MATCH formula is the combination of two functions in Excel: INDEX and MATCH.
=INDEX() returns the value of a cell in a table based on the column and row number.
=MATCH() returns the position of a cell in a row or column.
Combined, the two formulas can look up and return the value of a cell in a table based on vertical and horizontal criteria.
- to apply special
formatting to cells that meet certain criteria. It is most often used to highlight, emphasize, or differentiate
between data and information stored in a spreadsheet.
