Financial Modeling Interview Questions (With Answers)

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Top 20 Financial Modeling Interview Questions

If you are looking for a job related to financial modelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their more, you need to prepare for the interview questions. Now, every interview is different, and the scope of a job position is also different. Still, we can pinpoint the Top 20 financial modeling interview questions (with answers), which will help you leap from being a potential employee to a new one.

A financial modeler who has been doing modeling for nearly 15 years depicts the following way of taking the interview –

  • First, ask for a sample where the interviewee has done some work and
  • Then, ask questions based on that.

Asking questions based on the sample may vary, but the following are the top questions the interviewer asks for hiring for the position of a financial analyst and financial modeler.

Financial Modeling Interview Q&A

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Let’s get started. Here are the list of Top 20 Financial Modeling Interview Questions –

#1 – What is financial modeling? Why is it useful? Is it only confined to the company’s financial affairs?

This is the most basic and important Financial Modeling Interview Question.

What is Financial Modeling

#2 – How do you build a Financial Model?

Go through this Financial Modeling in Excel Training to build a financial model.

Financial Modeling is easy as well as complex. If you look at the Financial Model, you will find it complex; however, the financial model has smaller and simple modules. The key here is to prepare each smaller module and interconnect each other to prepare the final financial model.

You can see below various Financial Modeling Schedules / Modules –

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 different schedules are linked to the core statements upon completion

Also, look at Types of Financial ModelsTypes Of Financial ModelsFinancial models are used to represent the forecast of a company’s financials based on its historical performance and future expectations to use for financial analysis. The most common financial models include the Discounted Cash Flow model (DCF), Leveraged Buyout model (LBO), the Comparable Company Analysis model, and Mergers & Acquisition more

#3 – What is working capital, and how do you forecast it?

This is a basic question of finance. You would answer in the following manner –

If we deduct current liabilities from the company’s current assets during a period (usually a year), we will get working capital. Working capital is the difference between how much cash is tied up in inventories, accounts receivablesAccounts ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more, etc., and how much cash needs to be paid for accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting more and other short-term obligations.

From the working capital, you would also understand the ratio (current ratio) between current assets and current liabilities. The current ratio will give you an idea of the company’s liquidity.

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.

Colgate - Workng Capital - Part 3

Accounts Receivable Forecast

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 trends or management guidance and then compute the Inventory using the formula given below
  • Inventory = Inventory turnover days/365*COGS; For Forecast

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 trends or management guidance and then compute the Accounts Payables using the formula below
  • Accounts Payables = Payables turnover days/365*COGS; for Forecast

#4 – What are the design principles of a good financial model?

Another easy question.

Answer this Financial Modeling question using an acronym – FAST.

F stands for Flexibility: Every financial model should be flexible in its scope and adaptable in every situation (as contingency is a natural part of any business or industry). The flexibility of a financial model depends on how easy it is to modify the model whenever and wherever it is necessary.

A stands for Appropriate: Financial models shouldn’t be cluttered with excessive details. While producing a financial model, the financial modeler should always understand what the financial model is, i.e., a good representation of reality.

S stands for Structure: The logical integrity of a financial model is of utter importance. As the author of the model may change, the structure should be rigorous, and integrity should be kept at the forefront.

T stands for Transparent: Financial models should be based on formulas that other financial modelers and non-modelers can easily understand.

Colgate Historical Balance Sheet

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

  • Blue – Use this color for any constant used in the model.
  • Black – Use Black for any formulas used in the Financial Model
  • Green – Green color is used for cross-references from different sheets.

Download this Financial Modeling templatesFinancial Modeling TemplatesYou can download many financial modeling templates, including the Alibaba IPO model, Box IPO model, Colgate financial model, free cash flow to firm model, sensitivity analysis model, comparable company analysis model, PE and PE band more

#5 – What is an array function, and how would you use it?

If you have a laptop, it will be easier to show and answer this Financial Modeling Interview Question. If not, then just explain how it is done.

An array formulaArray FormulaArray formulas are extremely helpful and powerful formulas that are used in Excel to execute some of the most complex calculations. There are two types of array formulas: one that returns a single result and the other that returns multiple more helps you to perform multiple computations on one or more sets of values.

There are three steps one should follow to compute array function in excel –

In the Financial model, we use arrays in the Depreciation Schedule, where the breakup of Assets (shown horizontally) are transposed vertically using a Transpose Function in excelTranspose Function In ExcelThe TRANSPOSE function in excel helps rotate (switch) the values from rows to columns and vice versa. Being a part of the Excel lookup and reference functions, its purpose is to organize the data in the desired format. To execute the formula, the exact size of the range to be transposed is selected and the CSE key (“Control+Shift+Enter”) is pressed. read more with Arrays.

Financial Modeling Interview Questions

#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 compute Net Present ValueNet Present ValueNet Present Value (NPV) estimates the profitability of a project and is the difference between the present value of cash inflows and the present value of cash outflows over the project’s time period. If the difference is positive, the project is profitable; otherwise, it is more by looking into future cash flows (positive & negative). The only difference between NPV and XNPV is –

  • # NPV assumes that the cash flows come in equal time intervals.
  • # XNPV assumes that the cash flows don’t come in equal time intervals.

When there are monthly, quarterly, or yearly payments, one can easily use NPV, and in the case of not-so-regular payments, XNPV would be suitable.

For details, look at Financial Functions in ExcelFinancial Functions In ExcelExcel is known for making complex formulas easy to use and apply. Most needed functions are 1.Future Value 2.FVSchedule 3.Present Value 4.Net Present Value 5.XNPV 6.PMT 7.PPMT 8.Internal Rate of Return 9.Modified Internal Rate of Return 10.XIRR 11.NPER 12.RATE 13.EFFECT 14.NOMINAL 15.SLNread more

#7 – Pick a model you have built and walked me through it.

If you have already built a model, this question is super easy. Just open your laptop and the spreadsheet, and show the model you have built for any project or company. Then explain how you have built the model, which hypothetical factors you have considered while creating that model, and why.

Remember, this is one of the most important questions of all. Because the model will judge your technical expertise, you will walk the interviewer through it. The next questions for the rest of the interview will be based on the model you have built.  So choose prudently.

You may also use the following examples:

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

This may seem a bit like accounting questions. But to check the finance knowledge of a modeler, the interviewer often asks this Financial Modeling question.

Here’s how you should answer it:

#9 – What is Sensitivity Analysis in Financial Modeling?

If you have an analysis already on your laptop, show it to your interviewer to answer this question.

Sensitivity analysis is one of the analyses used in financial modeling. This analysis helps one understand how the target variable is affected by the change in the 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 a few input variables and create an analysis in excel.

We use DATA TABLES to perform sensitivity analysis. The most popular sensitivity analysis is done on the effect of WACCWACCThe weighted average cost of capital (WACC) is the average rate of return a company is expected to pay to all shareholders, including debt holders, equity shareholders, and preferred equity shareholders. WACC Formula = [Cost of Equity * % of Equity] + [Cost of Debt * % of Debt * (1-Tax Rate)]read more and the Company’s Growth rate on the Share Price.

Financial Modeling Interview Questions - Sensitivity Analysis

As we see from above, on one side are changes in WACC, and on the other change in Growth Rates. In the middlebox 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 proficient in using Excel in financial modeling or not.

LOOKUP is a functionLOOKUP Is A FunctionThe LOOKUP excel function searches a value in a range (single row or single column) and returns a corresponding match from the same position of another range (single row or single column). The corresponding match is a piece of information associated with the value being searched. read more that allows you to consider the value entered; then find it within a data range; once the data range is selected, the function returns a value from the same data range without needing to scroll through.

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

The purpose of the VLOOKUP FunctionVLOOKUP FunctionThe VLOOKUP excel function searches for a particular value and returns a corresponding match based on a unique identifier. A unique identifier is uniquely associated with all the records of the database. For instance, employee ID, student roll number, customer contact number, seller email address, etc., are unique identifiers. read more is to search for a value in the leftmost column of the data range and then find a value in the same row from a specified column.

VLOOKUP is typically used to prepare Comparable Comps Comparable Comps Comparable comps are nothing but identifying relative valuations like an expert to find the firm's fair value. The comparable comp process starts with identifying the comparable companies, then selecting the right valuation tools, and finally preparing a table that can provide easy inferences about the fair valuation of the industry and the more the reference data is stored in separate sheets and pulled together in a condensed Comparable Company Analysis table.

Financial Modeling Interview - VLOOKUP

#11 – What is the worst financial forecast you have made in your life?

This is a very tricky question.

You need to handle it well.

Answering this question is similar to answering about your weaknesses.

So, you need to be tactful.

You should never pick one financial 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.

12. How do you forecast revenues?

For most companies, revenues are a fundamental driver of economic performance. There are as many ways to design a revenue schedule as there are businesses. A well-designed and logical revenue model reflecting the type and amounts of revenue flows accurately is extremely important.

Some common types include:

  1. Sales Growth
  2. Inflationary 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 rate, and Average Price
  7. Product Availability and Pricing
  8. Revenue was 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.

Financial modeling - Revenue Drivers

Revenue for Hotels should be calculated as follows –

13. How do you forecast Costs?

You can forecast Costs and other expensesExpensesOther expenses comprise all the non-operating costs incurred for the supporting business operations. Such payments like rent, insurance and taxes have no direct connection with the mainstream business more as follows –

  1. Percentage of Revenues: Simple but offers no insight into any leverage (economy of scale or fixed cost burden.
  2. Costs other than depreciation as a percent of revenues and depreciation from a separate schedule: This approach is the minimum acceptable in most cases and permits only partial analysis of operating leverageOperating LeverageOperating Leverage is an accounting metric that helps the analyst in analyzing how a company’s operations are related to the company’s revenues. The ratio gives details about how much of a revenue increase will the company have with a specific percentage of sales increase – which puts the predictability of sales into the more.
  3. Variable costs based on revenue or volume, fixed costs based on historical trends, and depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more from a separate schedule: This approach is the minimum necessary for sensitivity analysis of profitability based on multiple revenue scenarios
Financial Modeling Interview - Cost Forecast

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?

A best practice is to pick the financial statements from the Annual ReportsAnnual ReportsAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory more 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 financial model. Once you start populating the data, you will realize the subtle changes in the financial statements that the company may have made. Additionally, you will get a good understanding of the kind of items included in the financial statements.

Many argue that Bloomberg and other databases will provide an error-free financial statement. I respect these databases; however, I face one problem while using these databases. These databases use a very standardized way to report financial statements. With this, they may include/exclude key items from one line item to another, thereby creating confusion. With this, you may miss out on important details.

My golden rule – Use the SEC filingsSEC FilingsSEC filings are formal documents submitted to the Securities and Exchange Commission in the United States that contain financial information about the company as well as any other relevant information about recent or upcoming more and nothing else for Financial Statements.

Financial Modeling Interview - using SEC Filings

source: Colgate SEC Filings

#15 – How do you forecast Debt in your Financial Model?

This is an advanced Question. Usually modeled as part of a debt schedule

Financial Modeling Interview - Debt Schedule

#16 – How do you consider Stock Options in Financial Models?

This is another example of the Advanced Financial Modeling Interview question.

Stock OptionsStock OptionsStock options are derivative instruments that give the holder the right to buy or sell any stock at a predetermined price regardless of the prevailing market prices. It typically consists of four components: the strike price, the expiry date, the lot size, and the share more to incentivize their employees. Employees get an option to buy the stock at the Strike Price.

If the market priceMarket PriceMarket price refers to the current price prevailing in the market at which goods, services, or assets are purchased or sold. The price point at which the supply of a commodity matches its demand in the market becomes its market more exceeds the stock price, the employee can exercise options and profit from it.

When the employees exercise their options, they pay the strike priceStrike PriceExercise price or strike price refers to the price at which the underlying stock is purchased or sold by the persons trading in the options of calls & puts available in the derivative trading. Thus, the exercise price is a term used in the derivative more to the company and get shares against each option. This increases the number of shares outstandingNumber Of Shares OutstandingOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance more. This results in lower Earnings Per ShareEarnings Per ShareEarnings Per Share (EPS) is a key financial metric that investors use to assess a company's performance and profitability before investing. It is calculated by dividing total earnings or total net income by the total number of outstanding shares. The higher the earnings per share (EPS), the more profitable the company more.

The options proceeds received by the company can be used either to buy back shares or deployed in the projects.

Stock Options - Financial Modeling Interview Questions

Also, look at the Treasury Stock MethodTreasury Stock MethodTreasury Stock Method is an accounting approach assuming that the options & stock warrants are exercised at the beginning of the year (or date of issue, if later) & proceeds from the exercise of these options & warrants are used to repurchase shares in the market. read more

#17 – Which valuation tools are used once you have prepared the Financial Model

Once you have prepared the financial model, you can use Discounted Cash FlowsDiscounted Cash FlowsDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company's future more or Relative Valuation for finding the target price.

DCF ValuationDCF ValuationDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company's future more approach includes finding the Free Cash Flow to the FirmFree Cash Flow To The FirmFCFF (Free cash flow to firm), or unleveled cash flow, is the cash remaining after depreciation, taxes, and other investment costs are paid from the revenue. It represents the amount of cash flow available to all the funding holders – debt holders, stockholders, preferred stockholders or more and finding the present value of FCFF until perpetuityPerpetuityPerpetuity is the most commonly used in accounting and finance, which means that a business or an individual receives constant cash flows for an indefinite period (like an annuity that pays forever). According to the formula, its present value is calculated by dividing the amount of the continuous cash payment by the yield or interest more.

For example, presented below is the Free Cash Flow to the Firm of Alibaba. The Free Cash flow is divided into two parts – a) Historical FCFF and b) Forecast FCFF.

Alibaba Financial Modeling Template

#18 – Which Financial Model Layout do you prefer?

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 set up 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 you have many numbers of sheets interlinked. I prefer the Horizontal Layouts as I find them easier to manage and audit.
Financial modeling Interview - Layouts

19. Which ratios do you calculate for Financial Modeling?

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

Also, have a look at this Complete practical guide on Ratio AnalysisRatio AnalysisRatio analysis is the quantitative interpretation of the company's financial performance. It provides valuable information about the organization's profitability, solvency, operational efficiency and liquidity positions as represented by the financial more

#20 – Can you tell which excel function would slow down the recalculation process of a large financial model?

The answer to this Financial Modeling question is not one; it can be because of multiple reasons.


Financial modeling interviews will not be confined to only financial modeling questions. You must be thorough with accounts, general finance questions, excel & advance excel, general HR questions, and current affairs. The above questions will help you understand what questions you can expect in interviews and how to answer them.

Prepare well, and I wish you all the best!

Reader Interactions


  1. lisa says

    awesome! thank you so much!!!

  2. Meher says

    Thanks a lot. Coming from a non-commerce background and these questions really helped get a sense of common questions.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  3. Carlito Carlos Edwin A. Gierran says

    Thank you so much. Dheeraj.

    • Dheeraj Vaidya says

      thanks :-)

  4. Eric Ayensu says

    That a great piece thank you for sharing.

    • Dheeraj Vaidya says

      thanks Eric!

  5. Aarish says

    Love your explanation

    • Dheeraj Vaidya says

      thanks Aarish!

  6. Hadi S says

    Tks Professor Deraj..

    • Dheeraj Vaidya says

      thanks Hadi!

  7. Nitesh Jain says

    Thank you very much for this article. Sir

    • Dheeraj Vaidya says

      thanks Nitesh!

  8. Piyush Acharya says

    Dheeraj, it is an excellent article with a great learning.

    • Dheeraj Vaidya says

      thanks Piyush!

  9. GC says

    Thank you very much!

    • Dheeraj Vaidya says

      thanks Gustavo!

  10. 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.

    • Dheeraj Vaidya says

      thanks Rishabh!

  11. obaa ohemma says

    thanks Dheeraj I always learn something new in your write ups

    • Dheeraj Vaidya says

      thanks Obaa!

  12. stefan says

    Hello Dheeraj,

    You have a programm to convert pdf file in excel, or enter the dates manually.
    Thank you,

    • Dheeraj Vaidya says

      Hi Stefan, I enter the data manually.