Finance Analyst Interview Question: Financial Model Creation

When asked to walk through a financial model I have created in the past, I would typically start by outlining the objective of the model and the key components involved. Let’s say I created a discounted cash flow (DCF) model to evaluate the valuation of a company:

1. Objective: The objective of the model was to determine the intrinsic value of the company based on its future cash flow projections.
2. Assumptions: Some of the key assumptions made in the model included revenue growth rates, profit margins, discount rate, and terminal value assumptions.
3. Key Drivers: The key drivers of the model included projected revenue growth, operating expenses, capital expenditures, depreciation, and tax rates. These drivers influenced the cash flow projections and ultimately the company's valuation.

By carefully selecting and analyzing these assumptions and drivers, I was able to create a robust financial model that provided valuable insights for decision-making.