Transaction Advisory / Financial Due Diligence Interview Questions and Answers
Ace your transaction advisory and financial due diligence interviews with these commonly asked interview questions. Answers are also included.
Table of contents
- Behavioral Financial Due Diligence Interview Questions
- Technical Financial Due Diligence Interview Questions
Interview Questions and Answers Included Below:
- What responsibilities do you have in your current position? What skillsets from your current job are relevant to financial due diligence?
- Provide an example of a time when you identified a financial issue in a company. How did you mitigate that risk?
- Why financial due diligence / transaction advisory services? What interests you about financial due diligence?
- Why are you interested in working at Deloitte [or another financial due diligence firm]?
- Tell me about a time when you have experienced a difficult situation and how did you overcome that problem?
- Why do we build quality of earnings adjustments in financial due diligence?
- What is net working capital?
- What does it mean to have positive net working capital?
- What is financial due diligence?
- What is gross profit and why is it important to analyze?
The financial due diligence or transaction advisory interview process usually consists of three rounds. The first round typically includes a screening call with a recruiter, the second round includes a more formal interview with one or two professionals from the firm, and the third round typically includes several interviews with more senior members of the firm.
The first and second rounds will likely be mostly behavioral questions while the final round will include a mix of behavioral and technical questions.
Behavioral Financial Due Diligence Interview Questions
Question: What responsibilities do you have in your current position? What skillsets from your current job are relevant to Financial Due Diligence?
Answer: Be prepared to discuss your current role and responsibilities. Financial due diligence is a client-based job, so be sure to include details about your experience working with clients and management teams. Explain how you can work independently (i.e., without a lot of oversight) in your current role. As for the skillsets that are relevant to FDD, discuss how you have developed an understanding of accounting, improved your excel skills and ability to cleanse/analyze large data sets, ability to analyze financial data from multiple different perspectives to draw conclusions, ability to critically think through issues/problem solve, and ability to draw on and learn from past experiences.
Question: Provide an example of a time when you identified a financial issue in a company. How did you mitigate that risk?
Answer: During my work in my current position, I noticed that our company’s salaries and wages were increasing as a percentage of revenue. After looking into the issue, I discovered that we had hired several new employees at a higher rate due to turnover. I presented my findings to my supervisor, who then asked me to find a solution to the problem. I suggested implementing retention bonuses for the current employees to prevent future turnover.
Question: Why Financial Due Diligence or Transaction Advisory? What interests you about financial due diligence?
Answer: I’m interested in financial due diligence because I want to develop my ability to analyze a business and quickly identify key revenue and expense drivers. I’m also interested in financial due diligence because I like the idea of providing value to clients, getting the opportunity to see so many different businesses and business models, and working directly with private equity clients and management teams.
Question: Why are you interested in working at Deloitte [or another financial due diligence firm]?
Answer: This question aims to ensure that you have done adequate research on the firm. Essentially, the interviewer just wants to know that you put in the effort to research the firm. You would be surprised at the number of candidates that do not take the time to research the firm they are interviewing for. To show that you have done your research, try incorporating a few of the firm’s core values into your response. Additionally, if you have a personal tie to the firm then be sure to explain that as well.
Question: Tell me about a time when you have experienced a difficult situation and how did you overcome that problem?
Answer: The point of this question is to understand your work ethic and how you handle difficult situations. If possible, try to use a prior work or school example. A good response would clearly explain the issue at hand and the steps you took to mitigate the problem. For example, maybe one of your previous coworkers quit the firm and you had to step into a leadership role.
Technical Financial Due Diligence Interview Questions
Question: Why do we build quality of earnings adjustments in financial due diligence?
Answer: The reason financial due diligence professionals build quality of earnings adjustments is to adjust historical reported earnings. We adjust earnings in order to present a clearer picture of historical performance. The goal is to develop a view of “adjusted EBITDA” that represents the true earnings of the business and the basis for EBITDA multiple valuations.
Question: What is net working capital?
Answer: Working capital (or “NWC”) is current assets less current liabilities. Net working capital reflects a business’s ability to fund operations.
Question: What does it mean to have positive net working capital?
Answer: Positive net working capital is when current assets are higher than current liabilities, this means the Company should be able to fund its future operations. For example, the company should be able to collect cash for its current assets (accounts receivable, inventory, etc.) and use that cash to pay off its short-term obligations such as accounts payable, accrued payroll, etc.
Question: What is financial due diligence?
Answer: Financial due diligence is the process of reviewing and analyzing a company’s financial records, transactions, and performance to assess its financial health and potential risks before a merger, acquisition, or investment. This is normally achieved through a quality of earnings, net working capital, and debt-like analysis. The goal is to ensure that the financial information provided is accurate and reliable to help clients make an informed decision on the investment.
Question: What is gross profit and why is it important to analyze?
Answer: Gross profit is defined as the revenue a company generates from its sales, less the cost of generating that revenue (sometimes called the cost of goods sold). It represents the amount of money a company has left over after accounting for the direct costs of producing its products or providing its services. It is important to analyze gross profit because it provides insight into the profitability of a company’s core business operations. If the company cannot generate gross profit, the underlying business model is flawed.
Practice makes perfect. The best way to prepare for interview questions is to study.
Leverage our free resources or complete the financial due diligence interview guide to help you prepare for difficult behavioral and technical interview questions. Our interview guide includes over 25 interview questions as well as several ideas for questions that you can ask during the interview process.