Are you planning to apply for a job vacancy and are you afraid of the questions about FP&A in an interview that they may ask you? Don’t worry! We have thought of this post precisely to help you with this.
Applying for a position in FP&A can be stressful: in Latin America, most small and medium-sized companies have not yet adopted practices of this type or are in a very preliminary stage of their implementation.
90% of the CFOs surveyed by Bluedraft in SMEs in Latin America stated that they did not have a suitable FP&A tool for this type of process.
For this reason, in an interview for a financial position you may receive questions that are from another area, or that are very theoretical and you were not prepared for something of that type, or many more unforeseen things that may arise.
Today we want to ask you some questions about FP&A in a job interview that there is a possibility that you will be asked. We hope you find it useful!
#1 How is PP&E registered?
PP&E is the acronym in English for “property, plant and equipment”. This is a classification for the tangible assets that a company has. PP&E should be analyzed under four item areas: initial purchase, depreciation, additions (capital expenditures), and disposals.
Revaluation may also be taken into account in some cases. When registering a PP&E, the tool with which you do it can become very important, so it is a good recommendation to use suitable software for it.
#2 What skills are necessary to be a good FP&A analyst?
To grow and be an increasingly better Financial Planning and Analysis analyst, we believe that we need to work and develop three fundamental qualities. These are:
- Analysis capacity,
- presentation skills,
- Soft skills
A highly sought-after virtue in FP&A analysts is the talent for exposing financial situations in a clear and entertaining manner. A good FP&A analyst should manage storytelling resources in order to alert the rest of the organization’s management team when situations are not favorable.
#3 How can I properly base an FP&A plan?
This is one of the FP&A interview questions that comes up often. From our experience, we have learned that there are some points that are elementary when putting together an FP&A plan. Let’s see:
- Have clear goals.
- Communicate the objectives assertively.
- Mention the risks and efforts required in advance.
- Involve customers in the process, punctually from communication.
- Work on the details of the plan. Details make the difference between success and failure.
#4 Does an FP&A solution help me manage all three financial statements?
Yes, a Financial Planning and Analysis software solution will support both your processes related to the balance sheet, the income statement and the cash flow statement. With these three states, you will have a complete vision of the financial health of the company and you will be able to manage it in a more assertive way.
Let us remember that the balance sheet shows the assets, liabilities and the capital of the shareholders of a company at a certain moment. The income statement, on the other hand, describes the income and expenses of the company during a period (it can be a quarter, a quarter or a year).
And finally, the statement of cash flows or cash flow shows the cash flows in operating, investing and financing activities during a specific period.
#5 What is the difference between a budget and a rolling forecast?
The budget is establishing a plan for the future, while the rolling forecast is creating an estimate of what could happen on an ongoing basis. On the other hand, the budget is a collaborative process that is usually carried out once a year and is static, then compared against the forecast.
A rolling forecast, however, is based on incoming updated data and its function is to establish a more probable expectation of what may happen. The rolling forecast is generally updated once per quarter or four months.
#6 How do you create a rolling budget or forecast model?
If it’s a monthly iteration forecast, you’ll need to enter historical data coming from previous months at the front of the model and then you’ll need to extend a forecast beyond that.
When you need to add a new month to the forecast, it should be at the end of the model. The model is executed every month or to the period that the company implements it, extending the model of a column. The same approach can be applied to a quarterly forecast model.
#7 How does an inventory reduction affect the financial statements?
It is one of the most common FP&A interview questions. Answering this with solvency will make you add a good point.
A correct answer is to mention that inventory reduction should be deducted on the balance sheet. Also, we will create a reduced net income on the income statement, as we need to show the effect in writing on the COGS. Finally, you have to add the reduction to cash flow, since it is classified as a «non-cash expense».
#8 How do you estimate the income of a company?
There are three common ways in which a company’s revenue forecast is made. These are: bottom up, top down, and year over year.
The bottom-up approach to financial modeling starts with individual products and services, then estimates average prices and fees per product or service, and finally growth rates.
Second, a “top-down” or top-down approach starts with the overall size of the market, estimating a company’s market share, and then translating that into “revenue”.
Finally, a «year-over-year» approach involves taking last year’s revenue and increasing or decreasing it as we estimate by a certain percentage.
#9 How do you model operating expenses for a company?
Another widely used FP&A interview question. The general answer is this: operating expenses move in line with revenue. This is why in many companies CFOs forecast operating expenses as a percentage of revenue.
It is important, however, to differentiate between fixed and variable costs and model them appropriately. Fixed costs must be considered according to their condition, while variable costs will be a direct function of income.
#10 How do you model working capital for a company?
The core components of a company’s working capital are:
- accounts receivable,
- accounts payable and
- inventory (or inventories).
A common practice is to model these three elements with what happens to revenues and costs through what are called “days” relationships. That is, use the days of inventory as a kind of unit of measure.
We can look, for example, at the relationship that existed in the past between revenues and accounts receivable, when calculating days of coverage receivable. Then, with this data, we can now forecast days receivable by linking them to forecast revenue.
a few last words
These questions don’t always come up in a job interview. But they are some of the questions about FP&A in an interview that you can get asked without any warning, and keeping them in mind is a way to be prepared.
We hope this post has been useful to you, inviting you to get to know our glossary of financial terms, something that can also help you a lot when it comes to growing to be a better FP&A analyst. Until next time!
Learn about our glossary of financial and FP&A terms by clicking here.