Gross margin fell from 38% to 33% this quarter. How would you find out why?
What the interviewer wants to hear
- Confirm data and check for one-offs or accounting changes
- Break down by product, channel, region and customer
- Separate price, mix and cost effects
- Check input costs, discounts, freight and currency
- Quantify each driver and recommend actions
Model answer
First I confirm the numbers: was there a one-off such as an inventory write-down, or a change in how costs are classified, for example freight moved into COGS. Then I break the margin down by product, channel, region and key customer to see where the drop is concentrated. I separate three effects. Price: did we give more discounts or promotions. Mix: did sales shift towards lower-margin products or channels, which can reduce total margin even if each product margin is unchanged. Cost: did raw material, freight or packaging costs rise, or did the rupee or dirham move against a supplier currency. I quantify each effect in a bridge from 38% to 33%, for example 2 points from mix, 2 from input cost and 1 from discounts. Then I talk to sales and procurement to confirm causes and suggest actions, such as price increases or renegotiating suppliers.
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 set up a rolling forecast and how is it different from the annual budget?
- 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?
- 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?