Go through all the content provided in drive of all 4units.
Theory section of the
file is important for external viva. These are some expected questions for
external viva from your syllabus.
Basic Concepts
1. What is financial modeling?
Financial modeling involves creating a mathematical model representing the financial performance of a
business or project. It helps in decision-making by forecasting future financial performance based on
historical data and assumptions.
2. Can you explain the purpose of a financial model?
The purpose is to analyze a company's financial health, forecast future financial performance, evaluate
investment opportunities, and support strategic decision-making.
3. What are the key components of a financial model?
Income Statement
Balance Sheet
Cash Flow Statement
Supporting schedules (e.g., debt schedule, depreciation schedule)
Technical Questions
4. What is the difference between a DCF model and a comparable company analysis?
A DCF (Discounted Cash Flow) model values a company based on its projected free cash flows discounted
back to their present value.
Comparable company analysis values a company by comparing its valuation multiples (e.g., P/E ratio) to
those of similar companies in the industry.
5. How do you calculate the Weighted Average Cost of Capital (WACC)?
WACC = (E/V * Re) + (D/V * Rd * (1 - Tc))
E = Market value of equity
V = Total value of equity and debt
Re = Cost of equity
D = Market value of debt
Rd = Cost of debt
Tc = Corporate tax rate
6. What is the difference between levered and unlevered free cash flow?
Levered free cash flow is the cash flow available to equity shareholders after interest payments and debt
repayments.
Unlevered free cash flow is the cash flow available before any debt payments, reflecting the company's
operational performance.
Practical Application
7. How do you forecast revenue in a financial model?
Revenue can be forecasted using historical growth rates, market trends, or a bottoms-up approach
where individual components of revenue (e.g., sales volume and price per unit) are projected.
8. Explain the concept of terminal value in DCF modeling.
Terminal value represents the value of a company beyond the explicit forecast period, typically
calculated using the perpetuity growth model or exit multiple method.
9. How do you handle circular references in financial models?
Circular references occur when two or more calculations depend on each other. They can be resolved by
enabling iterative calculations in Excel or restructuring the model to break the circular dependency.
Advanced Questions
10. What are sensitivity and scenario analyses in financial modeling?
Sensitivity analysis examines how changes in a single variable impact the financial model's outputs.
Scenario analysis evaluates the impact of different combinations of variables (scenarios) on the model's
outputs.
11. Can you explain how to build a three-statement financial model?
A three-statement model integrates the income statement, balance sheet, and cash flow statement. It
involves linking the statements through formulas and ensuring that the financial outputs flow correctly
from one statement to another.
12. What is the purpose of a debt schedule in a financial model?
A debt schedule tracks the company's debt obligations, including principal repayments, interest
expenses, and new borrowings, and ensures they are accurately reflected in the financial statements.
