How To Find the Best Candidates with a Financial Modelling Test

Thursday, May 20, 2021 Print Email

Financial modeling is an important aspect of financial planning, making investment decisions, and raising capital. For a business, being able to accurately model and predict financial results is critical for long-term planning and success. Those that work in financial modeling are in high demand as a result.

If you're looking to hire a financial modeling expert, you'll need to make sure that the person you hire is the right fit for the job. Just as with any position, it's important that the candidate fits with the rest of the team and that they have the right skills and experience for the job. Because financial modeling is so important, it makes sense to take extra care in the hiring process.

Finding a suitable candidate is difficult, as CVs and interviews only reveal so much. If you really want to know whether your financial analyst is going to be suitable for the role, you need to create a financial modeling test that really evaluates their skills. A good test will be able to look at the candidate's key skills and how they relate to their ability to do the job well. In this article, you can learn more about financial modeling and how to test candidates when hiring for your business.

What is Financial Modelling?

A financial model is a tool incorporated into spreadsheet software like Microsoft Excel that forecasts a company's financial performance in the future. The projection is usually based on the company's past performance and future expectations, and it necessitates the preparation of an income statement, balance sheet, cash flow statement, and supporting schedules.

Whether internally or externally, the output of a financial model is used for decision-making and financial analysis. Financial models will be used by executives inside a corporation to make choices about the following:

  • Raising capital (debt and/or equity)

  • Making acquisitions (businesses and/or assets)

  • Growing the business organically (e.g., opening new stores, entering new markets, etc.)

  • Selling or divesting assets and business units

  • Budgeting and forecasting (planning for the years ahead)

  • Capital allocation (priority of which projects to invest in)

  • Valuing a business

  • Financial statement analysis/ratio analysis

  • Management accounting

Financial decisions are some of the most important that an organization can make, having a big potential impact on future revenue and growth. Accurate modeling means an organization is more likely to succeed in the long term and build a competitive advantage in the industry.

What Skills Are Important for Financial Modelling?

If you're hiring for a financial modeling position in your company, you need to make sure you find a candidate with suitable skills. Good financial analysts have a wide range of skills, including but not limited to:

  • A solid understanding of accounting

  • Strong Excel skills

  • Being able to link the three types of financial statement

  • Understanding how to build a financial forecast

  • Understanding the logical framework for problem-solving

  • Attention to detail

  • The ability to distill large amounts of data into a simple format

  • Clear presentation skills

  • The ability to be able to focus on the small details and the big picture

These skills can be broken down into three main areas: accounting and financial knowledge, excel skills and problem solving, presentation and logic. The ideal candidate will have skills in each area, although some analysts may focus on certain areas over others. Depending on the needs of your business, some skills might be more important than others.

How to Test Candidates for Financial Modelling Expertise Before Hiring

Assessing the skills of potential candidates is difficult through interviews alone. Creating a financial modeling test is one of the best ways to do this. You can either design your own test or use a pre-made one from an organization specializing in candidate testing. Making your own is probably a better option if you know the subject well, while using a pre-made test is a better option if you'd like to save time.

A good financial modeling test will ideally evaluate the candidate on all of the most important skills, including:

  1. Accounting - It's critical to have a thorough understanding of accounting concepts in order to be successful with financial modeling. This encompasses ideas like the matching principle, accruals, revenue recognition, and non-cash items like depreciation and amortization. The test should judge the candidate's understanding of these key concepts.

  2. Excel – Excel is the most important program for financial modeling. Financial modeling necessitates advanced Excel abilities. Developing financial models might be more of an art than a science at times. To save time and generate models quickly, a candidate should be familiar with all of the major keyboard shortcuts. It's also critical that they understand all of the key formulae and functions for performing computations and financial analyses. The test should cover all of these concepts and ensure that the candidate is fully prepared for the role.

  3. Presentation skills – A great financial modeler should also understand that being able to present their data and financial forecasts is just as important as the actual analysis. Good financial models and graphs are easy to read with clear and obvious annotations to make them easy to interpret. You can implement a design and presentation segment into the test to ensure that the person you hire is able to display data just as well as they analyze it.

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