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Technical: What is the formula for Free Cash Flow to the Firm (FCFF) and explain its relevance?
FCFF = Net Operating Profit After Tax (NOPAT) + Depreciation/Amortization - CAPEX - Change in Net Working Capital
NOPAT = EBIT * (1 - Tax Rate)
Accept other variations that build up from Net Income, or involve finessing the CFO and CFI sections of the cash flow statement.
FCFF is the cash flow that is available for distribution to all of the firm’s investors and creditors - hence why interest is added back. It is a primary input in discounted cash flow valuation exercises.
Behavioral: How have you influenced and had a positive effect on the careers of junior staff members in your prior role?
Leading and training junior staff is a key role to perform for managerial positions. Such a question will also uncover more about their personal managerial style, be it through love, leading through empowerment, or micromanaging.
Pay attention to how the candidate reflects on the shared results both the manager and junior brought to the company together. A candidate that tells a story mostly about themselves and their ego may point a foreboding sign of how they may see managing others as a perk over a privilege.
Behavioral: Tell me about a time when a project you were working on changed drastically. Why did this happen and how did you respond to the challenges of the change?
Finance roles are at the whim of rapid regulatory, market-led, and investor-driven changes. An excellent finance director is someone who is malleable and attentive to the requirements of who they are working toward. Instead of focusing on the glory, look at what it is in their toolbox that helped them adapt quickly. Is it a commitment to long hours, a process-driven approach to work that saves them time, rapport with colleagues that causes work to be done before deadlines, etc.?
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Technical: Why are deferred tax assets/liabilities created during M&A transactions?
M&A deals involve assets being valued differently from their book value. Book value represents the current depreciation base, therefore a write-up/down on an asset value during a transaction will result in a different depreciation profile being created thereafter, which will result in changes to the tax obligations of a firm.
Technical: Walk me through the section headers and diagrams that you would use on a “one-pager” for our private equity parent investor that will update them on our current financial position.
Asking the candidate to condense an all-encompassing financial report into one page will assess their ability to communicate clearly and focus on what matters. Examples of an acceptable structure outline could be:
Executive Summary > Operating Performance > Financial Performance > Year Ahead
Executive Summary > Key Metrics > Financial Year in Review > Going Forward
Executive Summary > Condensed Operating Metrics > Key Highlights > SWOT Analysis
Because the report is for a private equity owner, the financials most pertinent to their interests will be EBITDA, growth, and interest coverage ratio (among others). A candidate that recognizes this and recommends a related graphic of high-level finances is one that demonstrates the comprehension to tailor their work toward the goal of the requestor.
Candidates that do not have the requisite experience in this sector will get bogged down in too much detail, they will likely list line items from the financial statements, and fail to express how to add objective commentary to the data they are providing.
Technical: What is the present value of a cash flow that is expected to continue into perpetuity?
Present Value = Cash Flow / discount rate
While the answer is quite simple, for most candidates, the gut instinct will be to try and shoehorn in the more widely known concept of yearly discounting. If needed, lend assistance and try to get them to explain how a cash flow from many years into the future will effectively have a negligible value in the present day.
Behavioral: If you could erase something from your resume, what would you choose?
Pay less attention to anything salacious and instead use this question as a more creative deviation of the “mistakes” behavior question. The key is to learn what mistake the candidate made and how they learned and bettered themselves thereafter.
Perhaps mention something about yourself to get the ball rolling and lower the pressure; this will help the candidate feel more at ease and open up. If a candidate is too disparaging or critical about something without seeing the learning outcomes for themselves, it may highlight an inability to take responsibility.
Behavioral: Where do you want to go in your career, what’s the end goal? What other departments at our firm can you see yourself in?
On one hand, it’s important to see whether a candidate clearly identifies how they fit into the firm and how they can add value. On the other, it’s important to be realistic and accept that people move on and have a “career-path ambition.” The “right” answer to such a question is one that demonstrates ambition to excel in the company and build a career, but also one that doesn’t show a sycophantic and rehearsed response of wanting to stay forever.
A candidate that has candor and curiosity should be applauded. If they mention that they could envision moving to another department later on - due to their development resulting in them specializing in that area - then it should not be seen as a lack of commitment to the role they’re applying for. It shows that they are expecting to “level up” and advance, which is to the company’s ultimate benefit.
Behavioral: If you gave me your phone and I called the first friend in your phonebook, which three words would they use to describe you?
Such a question is a good way of finding out more about the candidate as a person and what parallels there are between their personal and professional persona. There is no right or wrong answer here unless some very drastic adjectives are mentioned (e.g., “lazy,” “unambitious,” “argumentative”).
If one word, in particular, is curious to you, dig further in and ask for an example of a time—professionally—when they acted in that way.
There is more to interviewing than tricky technical questions, so these are intended merely as a guide. Not every “A” candidate worth hiring will be able to answer them all, nor does answering them all guarantee an “A” candidate. At the end of the day, hiring remains an art, a science — and a lot of work.
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