How would you set up a rolling forecast and how is it different from the annual budget?
What the interviewer wants to hear
- Rolling forecast always looks a fixed number of months ahead, such as 12 or 18
- Updated monthly or quarterly with latest actuals and assumptions
- Driver-based so updates are quick
- Budget is a fixed target; forecast is the best current estimate
- Used for cash planning and resource decisions
Model answer
A budget is set once a year and acts as a target. A rolling forecast is my best current estimate and always looks the same distance ahead, for example 12 months. Each month, when actuals close, I drop the finished month and add a new month at the end. To make that practical, the model has to be driver-based: revenue from pipeline, conversion and price, costs from headcount plans and unit rates, so each update is a change of a few drivers rather than rebuilding everything. I agree a short calendar with business owners to collect updates and I track forecast accuracy, comparing what we predicted three months ago with what happened. The forecast feeds cash planning, hiring decisions and early warnings to management. I keep the budget for performance measurement, and show actual versus budget and actual versus latest forecast side by side.
Can you answer it under time pressure?
Take a timed medium round and get scored on every answer.
More medium Financial Analyst questions
- Depreciation goes up by 10 and the tax rate is 25%. Walk me through the impact on the three statements.
- Two mutually exclusive projects rank differently on NPV and IRR. Which would you choose and why?
- How would you analyse the unit economics of an online grocery delivery business?
- What is the difference between sensitivity analysis and scenario analysis, and how do you show them in Excel?
- How would you forecast revenue for a subscription software business for the next 12 months?
- Gross margin fell from 38% to 33% this quarter. How would you find out why?
- A plant manager wants approval for a 25 crore new production line. How would you evaluate the proposal?
- The CFO wants to release cash from working capital. What levers would you look at?
- How do you structure a three-statement financial model so others can use and audit it?