Guidance to FP & A for Finance Professionals

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.

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-up approach 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:

1 Debit The Receiver, Credit The Giver

2 Debit What Comes In, Credit What Goes Out

3 Debit All Expenses and Losses, Credit All Incomes and Gains

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)

06. Accounting Concepts such as Going Concern concept, Prudence Concept and Accrual Concept?

Going Concern Concept: 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.

08. What is conditional formatting in excel? Have you ever used it and please illustrate an example where conditional formatting can be used?

Conditional formatting is a feature of many spreadsheet applications that allows you 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.

So, Friends that's all about FP&A

Thanks & Regards

TAX DESTINATION

TAX DESTINATION