FINANCIAL MODELING QUESTIONS WITH CORRECT ANSWERS 2025

FINANCIAL MODELING QUESTIONS WITH
CORRECT ANSWERS 2025
WhatMisMfinancialMmodeling?MWhatMisMaMfinancialMmodelMusedMforM-MCORRECTMANSWERM-
AMfinancialMmodelMisMsimplyMaMtoolMthat'sMusuallyMbuiltMinMExcelMtoMforecastMaMbusiness'MfinancialMperfor
manceMintoMtheMfuture.MTheMforecastMisMtypicallyMbasedMonMtheMcompany'sMhistoricalMperformanceMand
MrequiresMpreparingManMincomeMstatement,MbalanceMsheet,McashMflowMstatementMandMsupportingMsched

ulesM(knownMasMaM3-
statementMmodel).MFromMthere,MmoreMadvancedMtypesMofMmodelsMcanMbeMbuiltMsuchMasMdiscountedMcas
hMflowManalysisM(DCFMmodel),Mleveraged-buyout,MmergersMandMacquisitions,MandMsensitivityManalysis.M

CanMbeMusedMto:M

•MRaisingMcapitalM(debtMand/orMequity)M

•MMakingMacquisitionsM(businessesMand/orMassets)M

•MGrowingMtheMbusinessMorganicallyM(i.e.MopeningMnewMstores,MenteringMnewMmarkets,Metc.)M

•MSellingMorMdivestingMassetsMandMbusinessMunitsMBudgetingMandMforecastingM(planningMforMtheMyearsMah
ead)M

•MCapitalMallocationM(priorityMofMwhichMprojectsMtoMinvestMin)MValuingMaMbusiness



HowMdoMyouMbuildMaMfinancialMmodel?M-MCORRECTMANSWERM-1.MHistoricalMresultsMandMassumptionsM

a.MBuildingMaMfinancialMmodelMbeginsMwithMcollectingMinformationMfromMfinancialMstatementsMforMtheMpa
stMthreeMyearsMorMmoreMandMcalculatingMitemsMsuchMasMrevenueMgrowthMrate,MgrossMmargins,MaccountsM
payableMdays,MinventoryMdaysMandMaccountsMreceivableMdays.MTheseMmetricsMareMthenMusedMinMcombina
tionMwithMtheMfinancialManalyst'sMinsightsMtoMlayMoutMtheMassumptionsMforMtheMforecastMperiodMasMhard-
codes.

2.MConstructMIncomeMStatement

a.MWithMtheMforecastMassumptionsMinMplace,MyouMcanMbuildMtheMincomeMstatementMstartingMfromMreven
ue,MCOGS,MallMtheMwayMdownMtoMEBITDA.M

3.MConstructMBalanceMSheet

a.MBalanceMsheetMisMtheMnextMthingMtoMbuild.MUsingMtheMassumptionsMsuchMasMARMdays,MAPMdaysMandMin
ventoryMdays,MbalanceMsheetMitemsMlikeMaccountsMreceivableMandMinventoryMcanMbeMforecastedMintoMthe
Mfuture.M



4.MBuildMtheMsupportingMschedules

a.MBeforeMcompletingMtheMincomeMstatementMandMbalanceMsheet,MyouMneedMtoMcreateMaMscheduleMforMc
apitalMassetsMsuchMasMProperty,MPlantM&MEquipmentM(PP&E)MasMwellMasMforMdebtMandMinterest.M

5.MCompleteMI/SMandMB/S

, a.MOnMtheMincomeMstatement,MlinkMdepreciationMtoMtheMPP&EMscheduleMandMinterestMtoMtheMdebtMsche
dule.MYouMcanMthenMfinishMupMtheMincomeMstatementMbyMcalculatingMtheMearningsMbeforeMtax,MtaxesMan
dMnetMincome.MOnMtheMbalanceMsheet,MlinkMtheMclosingMPP&EMbalanceMandMclosingMdebtMbalanceMfromMt
heMsupportingMschedules.MShareholder'sMequityMisMcomputedMbyMaddingMnetMincomeMandMcapitalMraised
MandMsubtractingMdividendsMorMsharesMrepurchasedMfromMlastMyear'sMclosingMbalance.M



6.MConstructMcashMflowMstatement

a.MUponMcompletingMtheMincomeMstatementMandMbalanceMsheet,MyouMcanMbuildMtheMcashMflowMstateme
ntMusingMtheMreconciliationMmethod.MOperatingMcashMflowMisMcalculatedMbyMtakingMtheMnetMincome,Madd
ingMdepreciationMandMadjustingMforMchangesMinMnon-cashMworking



NameMthreeMofMtheMmostMcommonMfinancialMmodelingMbestMpractices.M-MCORRECTMANSWERM-1.MExcel

a.MTryingMtoMlimitMtheMuseMofMtheMmouse

b.MKnowingMfunctionsMandMformulas

2.MFormatting

a.MEasilyMdistinguishableMdata

3.MModelMlayoutMandMdesign

a.MBuildingMmodelMonMaMsingleMworksheetMandMusingMgroupMfunctionsMandMuseMtheMsameMcolorMtheme



HowMwouldMyouMforecastMrevenues?M-MCORRECTMANSWERM-
ThereMareMtwoMapproachesMtoMmodelMbuildingM—
MmakingMyourMmodelMrealistic,MorMkeepingMitMsimpleMandMrobust.M



TheMfirstMprinciplesMapproachMidentifiesMvariousMmethodsMtoMmodelMrevenuesMwithMhighMdegreesMofMde
tailMandMprecision.MThereMareMalsoMindustry-
specificMconsiderationsMthatMneedMtoMbeMtakenMintoMaccount.MForMinstance,MwhenMforecastingMrevenueM
forMtheMretailMindustry,MyouMwillMforecastMexpansionMrateMandMderiveMincomeMperMsquareMmeter.MWhenM
forecastingMrevenueMforMtheMtelecommunicationsMindustry,MyouMwillMpredictMtheMmarketMsizeMandMuseMc
urrentMmarketMshareMandMcompetitorManalysis.MWhenMforecastingMrevenueMforManyMserviceMindustries,My
ouMwillMestimateMtheMheadcountMandMuseMtheMincomeMforMemployeeMtrends.M

OnMtheMotherMhand,MtheMquickMandMdirtyMapproachMtoMrobustMmodelsMoutlinesMhowMyouMcanMmodelMre
venuesMinMaMmuchMmoreMstraightforwardMwayMwithMtheMbenefitMthatMtheMmodelMwillMbeMmoreMsimpleMa
ndMeasyMtoMuse.MInMthisMapproach,MyouMwillMpredictMtheMfutureMgrowthMrateMbasedMonMhistoricalMfigures
MandMtrends.