What are the most effective ways to demonstrate forecasting experience in a Corporate Finance interview?

It's crucial to understand the purpose behind our forecasting work. Demonstrating how our forecasts align with the company's goals and support informed decision-making will set us apart.

Every project is different. Therefore, setting a goal for your projections is key when communicating and presenting forecasts. Knowing who your audience is and clarifying the purpose of your forecast, can trailer your approach and communicate results more effectively. I have seen team members look like a deer in headlights when presentations are communicated in a technical format. Reading the room is key and moving forward from there.

Ok, so for an interview I would start by saying that I would know the purpose by my knowledge of the business. However, at times there were rolling or ad hoc forecasts. In those times I would understand the real purpose whether it’s for an M&A, a specific management’s decision support or merely to create tracking for the period/ year end results.

In my experience l, apart from understanding the purpose of the exercise, business knowledge is the most important. Say for instance we’re forecasting sales. What is the sales mix of the company? What products or services are we selling. Is the demand for these product subgroups different from each other? In that case perhaps forecasting each subgroup is valuable and then summing the quantities. You can use the excel forecast function or create a simple time series model by hand in Excel or your software of choice ( Python, R). The advantage of using excel is that you can easily share your data. The disadvantage is that forecast accuracy (MSE) might by too high.

It may not be as Sophisticated and technical in many cases as we might think. In majority cases it might be as simple as going line by line in each of the financial statements and knowing the cost and revenue drivers and then projecting them properly. There is no such thing as one size fits all even within the same organization or for various elements. So I’d rather analyze the situation and see which method fits better in each case.

Assumptions are easily said than done. Sales guys would give one extreme of the spectrum that is overly positive and finance tend to be at the other end of the spectrum. Same goes for costs, business would like to keep a lot of slack whereas the management would keep it quite tight. It’s good to underpromise and over deliver in forecasting, however finance person I would like to keep a no surprise environment.

Making reasonable assumptions in financial forecasting is key. For example, when projecting sales, consider factors like market trends, historical data, and industry benchmarks to ensure our forecasts are grounded in reality.

In a Corporate Finance interview, presenting our forecasting results is critical. It's about more than just numbers, it's our chance to convey the story behind the data. Summarize findings clearly, use visuals to enhance understanding, and be prepared to discuss assumptions, risks, and recommendations. Effective communication is the key to success.

Always be open to learn. It's about taking input from others and understanding their viewpoints. It helps in identifying mistakes and avoiding them in the future. Always try to identify and bridge the gap between the forcast and the actual outcome to resolve issues and focus on the future.