problem solving examples in finance

7.3 Methods for Solving Time Value of Money Problems

Learning outcomes.

By the end of this section, you will be able to:

• Explain how future dollar amounts are calculated.
• Explain how present dollar amounts are calculated.
• Describe how discount rates are calculated.
• Describe how growth rates are calculated.
• Illustrate how periods of time for specified growth are calculated.
• Use a financial calculator and Excel to solve TVM problems.

We can determine future value by using any of four methods: (1) mathematical equations, (2) calculators with financial functions, (3) spreadsheets, and (4) FVIF tables. With the advent and wide acceptance and use of financial calculators and spreadsheet software, FVIF (and other such time value of money tables and factors) have become obsolete, and we will not discuss them in this text. Nevertheless, they are often still published in other finance textbooks and are also available on the internet to use if you so choose.

Using Timelines to Organize TVM Information

A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.

Now, let us take an example of a future value problem that has a time frame of five years. Before we begin to solve for any answers, it would be a good approach to lay out a timeline like that shown in Table 7.1 :

The timeline provides a visual reference for us and puts the problem into perspective.

Now, let’s say that we are interested in knowing what today’s balance of $100 in our saving account, earning 5% annually, will be worth at the end of each of the next five years. Using the future value formula

that we covered earlier, we would arrive at the following values: $105 at the end of year one, $110.25 at the end of year two, $115.76 at the end of year three, $121.55 at the end of year four, and $127.63 at the end of year five.

With the numerical information, the timeline (at a 5% interest or growth rate) would look like Table 7.2 :

Using timelines to lay out TVM problems becomes more and more valuable as problems become more complex. You should get into the habit of using a timeline to set up these problems prior to using the equation, a calculator, or a spreadsheet to help minimize input errors. Now we will move on to the different methods available that will help you solve specific TVM problems. These are the financial calculator and the Excel spreadsheet.

Using a Financial Calculator to Solve TVM Problems

An extremely popular method of solving TVM problems is through the use of a financial calculator. Financial calculators such as the Texas Instruments BAII Plus™ Professional will typically have five keys that represent the critical variables used in most common TVM problems: N , I/Y , PV , FV , and PMT . These represent the following:

These are the only keys on a financial calculator that are necessary to solve TVM problems involving a single payment or lump sum .

Example 1: Future Value of a Single Payment or Lump Sum

Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator.

Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash).

To answer this question, you will need to work with factors of $1,000, the present value ( PV ); four periods or years, represented by N ; and the 3% interest rate, or I/Y . Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV [ CLR TVM ].

Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N , 3 for I/Y , and 1000 for PV . Now you have entered enough information to calculate the future value. Continue by pressing the CPT (compute) key, followed by the FV key. The answer you end up with should be displayed as 1,125.51 (see Table 7.3 ).

Important Notes for Using a Calculator and the Cash Flow Sign Convention

Please note that the PV was entered as negative $1,000 (or -$1000). This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows.

In this example, the $1,000 is an investment that requires a cash outflow. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. Conversely, the future value represents a cash inflow in four years’ time. This is why the calculator generates a positive 1,125.51 as the end result of this calculation.

Had you entered the present value of $1,000 as a positive number, there would have been no real concern, but the ending future value answer would have been returned expressed as a negative number. This would be correct had you borrowed $1,000 today (cash inflow) and agreed to repay $1,125.51 (cash outflow) four years from now. Also, it is important that you do not change the sign of any input value by using the - (minus) key). For example, on the TI BA II Plus™ Professional, you must use the +|- key instead of the minus key. If you enter 1000 and then hit the +|- key, you will get a negative 1,000 amount showing in the calculator display.

An important feature of most financial calculators is that it is possible to change any of the variables in a problem without needing to reenter all of the other data. For example, suppose that we wanted to find out the future value in our bank account if we left the money from our previous example invested for 20 years instead of 4. Before clearing any of the data, simply enter 20 for N and then press the CPT key and then the FV key. After this is done, all other inputs will remain the same, and you will arrive at an answer of $1,806.11.

Think It Through

How to determine future value when other variables are known.

Here’s an example of using a financial calculator to solve a common time value of money problem. You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account after five years?

Follow the recommended financial calculator steps in Table 7.4 .

The result of this future value calculation of the invested money is $2,433.31.

Example 2: Present Value of Lump Sums

Solving for the present value (discounted value) of a lump sum is the exact opposite of solving for a future value. Once again, if we enter a negative value for the FV, then the calculated PV will be a positive amount.

Taking the reverse of what we did in our example of future value above, we can enter -1,125.51 for FV , 3 for I/Y , and 4 for N . Hit the CPT and PV keys in succession, and you should arrive at a displayed answer of 1,000.

An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.

How to Determine Present Value When Other Variables Are Known

Here is another example of using a financial calculator to solve a common time value of money problem. You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. How much value would this have in today’s dollars, assuming a 5% interest rate?

Follow the recommended financial calculator steps in Table 7.5 .

The present value of the lottery jackpot is $39,176.31.

Example 3: Calculating the Number of Periods

There will be times when you will know both the value of the money you have now and how much money you will need to have at some unknown point in the future. If you also know the interest rate your money will be earning for the foreseeable future, then you can solve for N, or the exact amount of time periods that it will take for the present value of your money to grow into the future value that you will require for your eventual use.

Now, suppose that you have $100 today and you would like to know how long it will take for you to be able to purchase a product that costs $133.82.

After making sure your calculator is clear, you will enter 5 for I/Y , -100 for PV , and 133.82 for FV . Now press CPT N , and you will see that it will take 5.97 years for your money to grow to the desired amount of $133.82.

Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above. If you do not make either the PV or the FV a negative number (with the other being a positive number), then you will end up getting an error message on the screen instead of the answer to the problem. The reason for this is that if both numbers you enter for the PV and FV are positive, the calculator will operate under the assumption that you are receiving a financial benefit without making any cash outlay as an initial investment. If you get such an error message in your calculations, you can simply press the CE/C key. This will clear the error, and you can reenter your data correctly by changing the sign of either PV or FV (but not both of these, of course).

Determining Periods of Time

Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals will be made?

Table 7.6 shows the steps you will take.

The result of this calculation is a time period of 8.7667 years for the account to reach the targeted amount.

Example 4: Solving for the Interest Rate

Solving for an interest rate is a common TVM problem that can be easily addressed with a financial calculator. Let’s return to our earlier example, but in this case, we know that we have $1,000 at the present time and that we will need to have a total of $1,125.51 four years from now. Let’s also say that the only way we can add to the current value of our savings is through interest income. We will not be able to make any further deposits in addition to our initial $1,000 account balance.

What interest rate should we be sure to get on our savings account in order to have a total savings account value of $1,125.51 four years from now?

Once again, clear the calculator, and then enter 4 for N , -1,000 for PV , and 1,125.51 for FV . Then, press the CPT and I/Y keys and you will find that you need to earn an average 3% interest per year in order to grow your savings balance to the desired amount of $1,125.51. Again, if you end up with an error message, you probably failed to follow the sign convention relating to cash inflow and outflow that we discussed earlier. To correct this, you will need to clear the calculator and reenter the information correctly.

After you believe you are done and have arrived at a final answer, always make sure you give it a quick review. You can ask yourself questions such as “Does this make any sense?” “How does this compare to other answers I have arrived at?” or “Is this logical based on everything I know about the scenario?” Knowing how to go about such a review will require you to understand the concepts you are attempting to apply and what you are trying to make the calculator do. Further, it is critical to understand the relationships among the different inputs and variables of the problem. If you do not fully understand these relationships, you may end up with an incorrect answer. In the end, it is important to realize that any calculator is simply a tool. It will only do what you direct it to do and has no idea what your objective is or what it is that you really wish to accomplish.

Determining Interest or Growth Rate

Here is another example of using a financial calculator to solve a common time value of money problem. Let’s use a similar example to the one we used when calculating periods of time to determine an interest or growth rate. You still want to help your child with their first year of college tuition and related expenses. You also still have a starting amount of $15,000, but you have not yet decided on a savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years before you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time period, again with no other deposits or withdrawals?

Follow the steps shown in Table 7.7 .

The result of this calculation is a necessary interest rate of 6.194%.

Using Excel to Solve TVM Problems

Excel spreadsheets can be excellent tools to use when solving time value of money problems. There are dozens of financial functions available in Excel, but a student who can use a few of these functions can solve almost any TVM problem. Special functions that relate to TVM calculations are as follows:

Excel also includes a function called Payment (PMT) that is used in calculations involving multiple payments or deposits (annuities). These will be covered in Time Value of Money II: Equal Multiple Payments .

Future Value (FV)

The Future Value function in Excel is also referred to as FV and can be used to calculate the value of a single lump sum amount carried to any point in the future. The FV function syntax is similar to that of the other four basic time-value functions and has the following inputs (referred to as arguments), similar to the functions listed above:

Lump sum problems do not involve payments, so the value of Pmt in such calculations is 0. Another argument, Type, refers to the timing of a payment and carries a default value of the end of the period, which is the most common timing (as opposed to the beginning of a period). This may be ignored in our current example, which means the default value of the end of the period will be used.

The spreadsheet in Figure 7.3 shows two examples of using the FV function in Excel to calculate the future value of $100 in five years at 5% interest.

In cell E1, the FV function references the values in cells B1 through B4 for each of the arguments. When a user begins to type a function into a spreadsheet, Excel provides helpful information in the form of on-screen tips showing the argument inputs that are required to complete the function. In our spreadsheet example, as the FV formula is being typed into cell E2, a banner showing the arguments necessary to complete the function appears directly below, hovering over cell E3.

Cells E1 and E2 show how the FV function appears in the spreadsheet as it is typed in with the required arguments. Cell E4 shows the calculated answer for cell E1 after hitting the enter key. Once the enter key is pressed, the hint banner hovering over cell E3 will disappear. The second example of the FV function in our example spreadsheet is in cell E6. Here, the actual numerical values are used in the FV function equation rather than cell references. The method in cell E8 is referred to as hard coding . In general, it is preferable to use the cell reference method, as this allows for copying formulas and provides the user with increased flexibility in accounting for changes to input data. This ability to accept cell references in formulas is one of the greatest strengths of Excel as a spreadsheet tool.

Download the spreadsheet file containing key Chapter 7 Excel exhibits.

Determining Future Value When Other Variables Are Known . You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account in five years?

Note: Be sure to follow the sign conventions. In this case, the PV should be entered as a negative value.

Note: In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 4 percent must be entered as 4% or 0.04—not 4, as you would enter in a financial calculator.

Note: It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.

Note: The Excel command used to calculate future value is as follows:

You may simply type the values for the arguments in the above formula. Another option is to use the Excel insert function option. If you decide on this second method, below are several screenshots of dialog boxes you will encounter and will be required to complete.

This dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for FV by typing this in the search box and selecting Go, or you can simply choose FV from the list of most recently used functions (as shown here with the highlighted FV option).

Figure 7.6 shows the completed data input for the variables, referred to here as “function arguments.” Note that cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. You may also type values directly into the Function Arguments dialog box, but if you do this and you have to change any of your inputs later, you will have to reenter the new information. Using cell addresses is always a preferable method of entering the function argument data.

Additional notes:

• The Pmt argument or variable can be ignored in this instance, or you can enter a placeholder value of zero. This example shows a blank or ignored entry, but either option may be used in problems such as this where the information is not relevant.
• The Type argument does not apply to this problem. Type refers to the timing of cash flows and is usually used in multiple payment or annuity problems to indicate whether payments or deposits are made at the beginning of periods or at the end. In single lump sum problems, this is not relevant information, and the Type argument box is left empty.
• When you use cell addresses as function argument inputs, the numerical values within the cells are displayed off to the right. This helps you ensure that you are identifying the correct cells in your function. The final answer generated by the function is also displayed for your preliminary review.

Once you are satisfied with the result, hit the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The FV of this present value has been calculated as approximately $2,433.31.

Present Value (PV)

We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3 , we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today. Thus, $100 is its present value. In Excel, the PV function is used to determine present value (see Figure 7.7 ).

The formula in cell E1 uses cell references in a similar fashion to our FV example spreadsheet above. Also similar to our earlier example is the hard-coded formula for this calculation, which is shown in cell E6. In both cases, the answers we arrive at using the PV function are identical, but once again, using cell references is preferred over hard coding if possible.

Determining Present Value When Other Variables Are Known

You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. You are interested in knowing how much value this would have in today’s dollars, assuming a 5% interest rate.

• If you wish for the present value amount to be positive, the future value you enter here should be a negative value.
• In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 5 percent must be entered as 5% or 0.05—not 5, as you would enter in a financial calculator.
• It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.
• The Excel command used to calculate present value is as shown here:

As with the FV formula covered in the first tab of this workbook, you may simply type the values for the arguments in the above formula. Another option is to again use the Insert Function option in Excel. Figure 7.8 , Figure 7.9 , and Figure 7.10 provide several screenshots that demonstrate the steps you’ll need to follow if you decide to enter the PV function from the Insert Function menu.

As discussed in the FV function example above, this dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for PV by typing this into the search box and selecting Go, or you can simply choose PV from the list of the most recently used functions.

Figure 7.10 shows the completed data input for the function arguments. Note that once again, cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. As in the FV function example, you may also type values directly in the Function Arguments dialog box, but if you do this and you have to change any of your input later, you will have to reenter the new information. Remember that using cell addresses is always a preferable method of entering the function argument data.

Again, similar to our FV function example, the Function Arguments dialog box shows values off to the right of the data entry area, including our final answer. The Pmt and Type boxes are again not relevant to this single lump sum example, for reasons we covered in the FV example.

Review your answer. Once you are satisfied with the result, click the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function. The PV of this future value has been calculated as approximately $39,176.31.

Periods of Time

The following discussion will show you how to use Excel to determine the amount of time a given present value will need to grow into a specified future value when the interest or growth rate is known.

You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals are made?

• As with our other examples, interest and growth rates must be entered as percentages, not as whole integers. So, 6 percent must be entered as 6% or 0.06—not 6, as you would enter in a financial calculator.
• The present value needs to be entered as a negative value in accordance with the sign convention covered earlier.
• The Excel command used to calculate the amount of time, or number of periods, is this:

As with our FV and PV examples, you may simply type the values of the arguments in the above formula, or we can again use the Insert Function option in Excel. If you do so, you will need to work with the various dialog boxes after you select Insert Function.

As discussed in our previous examples on FV and PV, this menu allows you to either search for a function or select a function that has been used recently. In this example, you can search for NPER by typing this into the search box and selecting Go, or you can simply choose NPER from the list of most recently used functions.

• Once you have highlighted NPER, click the OK button, and a new dialog box will appear for you to enter the necessary details. As in our previous examples, it will look like Figure 7.12 .

Figure 7.13 shows the completed Function Arguments dialog box. Note that once again, we are using cell addresses in this example.

As in the previous function examples, values are shown off to the right of the data input area, and our final answer of approximately 8.77 is displayed at the bottom. Also, once again, the Pmt and Type boxes are not relevant to this single lump sum example.

Review your answer, and once you are satisfied with the result, click the OK button. The dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The amount of time required for the desired growth to occur is calculated as approximately 8.77 years.

Interest or Growth Rate

You can also use Excel to determine the required growth rate when the present value, future value, and total number of required periods are known.

Let’s discuss a similar example to the one we used to calculate periods of time. You still want to help your child with their first year of college tuition and related expenses, and you still have a starting amount of $15,000, but you have not yet decided which savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years until you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time, again with no other deposits or withdrawals?

Note: The present value needs to be entered as a negative value.

Note: The Excel command used to calculate interest or growth rate is as follows:

As with our other TVM function examples, you may simply type the values for the arguments into the above formula. We also again have the same alternative to use the Insert Function option in Excel. If you choose this option, you will again see the Insert Function dialog box after you click the Insert Function button.

Once we complete the input, again using cell addresses for the required argument values, we will see what is shown in Figure 7.16 .

As in our other examples, cell values are shown as numerical values off to the right, and our answer of approximately 0.0619, or 6.19%, is shown at the bottom of the dialog box.

This answer also can be checked from a logic point of view because of the similar example we worked through when calculating periods of time. Our present value and future value are the same as in that example, and our time period is now 8.5 years, which is just under the result we arrived at (8.77 years) in the periods example.

So, if we are now working with a slightly shorter time frame for the savings to grow from $15,000 into $25,000, then we would expect to have a slightly greater growth rate. That is exactly how the answer turns out, as the calculated required interest rate of approximately 6.19% is just slightly greater than the growth rate of 6% used in the previous example. So, based on this, it looks like our answer here passes a simple “sanity check” review.

• 1 The specific financial calculator in these examples is the Texas Instruments BA II Plus™ Professional model, but you can use other financial calculators for these types of calculations.

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How to develop critical thinking skills in finance & accounting

Stephen Moir

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When it comes to finance and accounting roles, employers are increasingly looking for problem solvers, not a number-crunchers. Over recent years, we have seen an increasing demand for people who can analyse and interpret data and think critically.

What is critical thinking.

A critical thinker is a problem solver. They are able to evaluate complex situations, weigh-up different options and reach logical (and often quite creative) conclusions.

Critical thinkers are highly-valued by employers as they innovate and make improvements, without taking unnecessary risks. Chartered Accountants Australia and New Zealand recently identified that it was in the top 10 attributes that will help you get noticed in the job market.

Why are critical thinking skills important?

Once you have learnt how to develop critical thinking skills you will be better able to add value to data, interpret trends within the business, understand how people and performance intersect and take-on broader commercial outlook that benefits the business.

How to develop critical thinking skills

Critical thinking comes naturally to some people, but it is also a skill than can be practiced. Here are some tips for how to develop your own critical thinking skills :

• Examine: Self-awareness is the foundation of critical thinking. It allows you to play to your strengths and address your weaknesses. Question how and why you do things the way you do.
• Analyse: Look for opportunities to grow and improve. Consider alternative solutions to the problems you encounter in your work.
• Explain:  Clear communication is key. Get into the habit of talking through your reasoning and conclusions with colleagues.
• Innovate: Develop an independent mind-set. Find ways to think outside the box and challenge the status quo. Make sure your decisions are well-thought out. A critical thinker is logical as well as creative.
• Learn: Keep an open and well-oiled mind. Brush-up on your problem-solving skills by doing brain-teasers or trying to solve problems backwards. Keep up-to-date with professional learning opportunities . You may also need to unlearn past mindsets in order to grow and move forward.

How to apply critical thinking skills in your current role

Could you implement a new process or procedure that enhances performance or profitability? You might also consider volunteering for a new project or responsibility that gives you the opportunity to innovate and take on a new challenge. It’s a great way to broaden your skillset and gain exposure to other parts of the business.

Surround yourself with other critical thinkers in the organisation and work together towards achieving a problem-solving culture. Ask questions, and always look for opportunities for continual learning.

Changing roles to develop critical thinking skills 

At Moir Group, we are passionate about finding the right cultural fit between people and the organisations they work with. If you are a critical thinker, it’s worth looking for a stimulating work environment that encourages innovation and non-conformist thinking when considering your next role.

How to demonstrate critical thinking skills at an interview

During an interview, use examples from your past experiences to demonstrate your problem-solving abilities. Show that you can be analytical, weigh-up pros and cons, consider other view points and be creative in your solutions. Clearly articulating your thought process is key.

Sometimes an interviewer will ask you to simplify the complex as a way of determining your clarity of thought. For example: “How would you explain the state of the economy to a kindergarten child?” In instances like these, the focus will be on how you explain your reasoning, rather than achieving a ‘right’ answer. Learn more here.

If you’re looking to take that next step in your career, we can help. Get in touch with us here .

2 Responses to “How to develop critical thinking skills in finance & accounting”

Hi Stephen,

The above is very useful and very valuable for employers. However my understanding of critical thinking is slightly different from above. I recently listened to a course in critical thinking by Professor Steven Novella of Yale School of Medicine. To keep it simple it is to do with assessing the veracity of views and statements made by oneself, others and media being constantly aware of the many biases, the flaws and fabrications of memory, half truths, unspoken truths, and even lies. So it becomes key to adopt an inquisitive mindset, to look for external evidence that supports argument and not just wishful or hopeful thinking.

Just wanting to add to the debate as this is a really important area.

Hi Richard,

We are pleased that found this article useful. Thanks for your sharing your thoughts about critical thinking.

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Training for Financial Services

Creative Problem-Solving in Financial Challenges: Strategies and Examples

In the domain of financial challenges, the ability to creatively solve problems can be a key differentiator between success and stagnation. When conventional methods fall short, innovative strategies often pave the way for unprecedented solutions.

By understanding the intricacies of financial obstacles and harnessing creativity to navigate them, organizations and individuals can access a world of possibilities.

From unconventional budgeting techniques to out-of-the-box investment approaches, the landscape of financial problem-solving is rich with inventive examples waiting to be explored further.

Key Takeaways

• Innovative problem-solving techniques are vital in addressing complex financial issues.
• Encourage out-of-the-box thinking and value innovative solutions.
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• Real-life examples highlight successful creative approaches in financial challenges.

Importance of Creative Problem-Solving

The utilization of creative problem-solving techniques plays a pivotal role in addressing complex financial challenges with innovative and effective solutions. Critical thinking and problem-solving skills are essential in steering through the intricate landscape of financial decision-making. By approaching challenges with a strategic mindset, organizations can uncover new opportunities and devise tailored solutions that align with their objectives.

Innovation is key to overcoming financial hurdles. By thinking outside the box and exploring unconventional approaches, businesses can discover innovative ways to optimize resources and maximize financial outcomes. Resourcefulness, coupled with a deep understanding of the financial landscape, enables organizations to adapt to changing circumstances and proactively address potential issues.

Creative problem-solving empowers teams to explore various scenarios, anticipate risks, and develop contingency plans. It fosters a culture of adaptability and resilience, positioning organizations to thrive in dynamic financial environments. Embracing creativity in problem-solving not only enhances decision-making processes but also drives sustainable growth and competitive advantage in the ever-evolving financial sector.

Understanding Financial Challenges

Exploring the intricacies of financial landscapes demands a thorough grasp of the challenges that organizations face in today's dynamic economic environment. Financial stress and economic hardships are common hurdles that businesses encounter, requiring a strategic approach to navigate successfully.

To understand financial challenges better, consider the following:

• Market Volatility : Fluctuations in the market can lead to uncertain returns on investments and impact overall financial stability.
• Regulatory Changes : Adapting to evolving regulations requires time, resources, and expertise, adding complexity to financial management.
• Debt Management : Balancing debt levels while ensuring operational efficiency is crucial to avoid financial strain and maintain liquidity.
• Risk Assessment : Identifying and mitigating financial risks, such as interest rate fluctuations or currency risks, is essential for long-term sustainability.

Strategies for Innovative Solutions

Deciphering financial complexities in today's ever-changing economic landscape necessitates the implementation of innovative problem-solving strategies. Innovative thinking is vital when tackling financial challenges. One effective strategy is to encourage brainstorming sessions where team members can freely share unique ideas without judgment. This fosters a creative environment that can lead to innovative solutions. Additionally, utilizing problem-solving techniques such as root cause analysis can help identify the underlying issues causing financial challenges. By addressing these root causes, long-term solutions can be implemented to prevent similar issues from arising in the future.

Furthermore, thinking outside the box and considering unconventional approaches can often result in breakthrough solutions. This could involve exploring new technologies, partnerships, or business models to address financial problems in a novel way. Implementing a culture that values and rewards innovative thinking can also encourage employees to proactively seek out creative solutions to financial challenges. By combining innovative thinking with proven problem-solving techniques, organizations can navigate financial complexities with agility and resilience.

Leveraging Creativity in Budgeting

To optimize financial decision-making and resource allocation, leveraging creativity in budgeting is imperative for organizations seeking to adapt to dynamic market conditions and drive innovation in their financial strategies. When thinking outside traditional methods in budgeting, organizations can benefit from:

• Zero-Based Budgeting : This approach requires justifying all expenses for each new budgeting period, encouraging a thorough review of spending habits and the identification of areas for potential cost savings.
• Activity-Based Budgeting : By linking budgeting to specific activities, this method provides a more accurate reflection of the costs associated with each activity, enabling better resource allocation.
• Rolling Budgets : Unlike static budgets, rolling budgets continuously update throughout the year, allowing for strategic shifts in resource allocation based on changing circumstances.
• Cross-Functional Collaboration : Involving teams from various departments in the budgeting process promotes diverse perspectives and innovative ideas that can lead to more effective financial strategies.

These approaches empower organizations to break free from conventional budgeting constraints and foster a culture of innovation in financial management.

Real-Life Examples of Success

In examining instances of successful implementation of innovative financial problem-solving strategies, concrete evidence emerges of the tangible benefits derived from embracing unconventional approaches in budgeting. Case studies and success stories provide valuable insights into how organizations have overcome financial challenges through creative solutions. One such example is Company X, which faced a cash flow crisis due to delayed payments from clients. By implementing a dynamic discounting strategy, Company X offered clients discounts for early payments, greatly improving cash flow and reducing outstanding receivables.

Through these real-life examples, it is evident that thinking outside the box and implementing innovative financial solutions can lead to positive outcomes, even in the face of challenging financial obstacles.

Implementing Creative Solutions

An essential aspect of tackling financial challenges effectively involves the strategic implementation of innovative solutions that address underlying issues with precision and foresight. When it comes to implementing creative solutions, thinking outside the box and adopting unconventional approaches can greatly enhance problem-solving capabilities. Here are four key strategies to ponder:

• Cross-Functional Collaboration: Encourage collaboration between different departments or teams to leverage diverse perspectives and expertise, fostering innovative solutions that take into account various angles simultaneously.
• Pilot Programs: Implement small-scale pilot programs to test the feasibility and effectiveness of new ideas before full-scale implementation, reducing risks and allowing for adjustments based on initial feedback.
• Technology Integration: Embrace cutting-edge technologies to streamline processes, improve efficiency, and open up new opportunities for revenue generation or cost savings.
• Customer-Centric Design: Prioritize understanding customer needs and preferences to tailor financial solutions that truly resonate with the target audience, driving satisfaction and loyalty.

To sum up, creative problem-solving is like a beacon of light in the darkness of financial challenges, guiding individuals towards innovative solutions and successful outcomes.

By leveraging creativity in budgeting and implementing creative strategies, individuals can navigate through complex financial situations with ease and efficiency.

Real-life examples serve as proof that thinking outside the box can lead to remarkable results, inspiring others to embrace creativity in overcoming their own financial obstacles.

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5 Ways to Learn Financial Analysis Skills

• 09 Jun 2022

Financial analysis —the process of gleaning insights from a company’s financial information—is a valuable skill, no matter your role. Analyzing your organization’s financial documents and contextualizing them within the broader market enables you to understand the story behind the numbers and use that perspective to make business decisions.

Don’t worry if you don’t have a finance background ; there are several accessible ways to gain financial analysis skills.

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Must-Have Skills for Financial Analysis

Before diving into how to build your financial analysis skills, here’s a breakdown of the skills you need to succeed .

• Reading and understanding financial statements: A company’s financial statements include its balance sheet , income statement , and statement of cash flows . Each contains vital information about the business’s financial health.
• Calculating key ratios: Ratio analysis involves calculating one metric’s ratio to another. This allows you to compare metrics across periods and organizations, because circumstantial factors are eliminated.
• Data storytelling : Analyzing financial statements is just the beginning of financial analysis; you also need to effectively communicate the story the data tells and propose actionable insights.
• Big-picture thinking: Financial analysis isn’t just for comparing your organization’s past and present performance; it’s also about comparing it to broader market and industry trends. Financial analysis can include creating predictive models to forecast a company’s financial movement against the industry.

There are several options to help you gain and sharpen your financial analysis skills. Here are five ways to learn financial analysis to excel in your career .

How to Learn Financial Analysis Skills: 5 Methods

1. earn a degree in finance.

If you aim to become a financial analyst, earning a bachelor’s degree in finance or a related field is highly recommended. Related fields include statistics, economics, analytics, accounting, and math. All are favorable options because of the quantitative problem-solving skills they teach.

While a bachelor’s degree has become a requirement for most financial analyst roles, earning a Master of Business Administration (MBA) or other graduate degree in finance or analysis can contribute to your chances of landing your ideal job.

If you’re not planning on breaking into the financial analysis field, a degree in the subject isn’t necessary, as it’s not a time- or cost-effective way to gain skills as a non-finance professional.

2. Take an Online Course or Certificate Program

Another way to gain financial analysis skills is to take an online course . Online courses allow for schedule and location flexibility. They’re also more affordable than a degree program, making them accessible to those not necessarily pursuing a financial analyst role.

For instance, consider Leading with Finance , taught by Harvard Business School Professor Mihir Desai. The course covers the basics of financial analysis, how financial statements inform broader business decisions, the ins and outs of capital markets, the pillars of value creation, and how to use multiple methods to value a business—all within six weeks.

This can be a cost- and time-effective way to gain financial analysis skills, particularly for non-finance professionals who want to use financial information to make decisions. One such professional is Paul Accornero , global chief commercial officer at a multinational appliance manufacturing company.

“I use what I learned on a daily basis,” says Accornero. “Even though I’m not in a finance role, operating in a general management position, I need to make decisions utilizing the principles we learned on a daily basis. [Leading with Finance] empowered me to do that with confidence.”

Related: Are Online Classes Worth It? 12 Pros & Cons of Online Learning

3. Learn from Real-World Examples

Although learning financial analysis principles is important, understanding how they apply to real-world scenarios will ultimately equip you with the knowledge to use them in your own life.

To gain exposure to these scenarios, you can do research online, talk to financial analysts about how they use these skills to make decisions for their business, or enroll in a course that uses the case method.

A core component of the HBS Online learning experience , the case method presents learners with a real-world business challenge facing an individual or organization. It outlines the challenge’s circumstances and available information, prompting the learner to consider what decision they would make in the same situation. After reflection and discussion, the actual decision is revealed.

This exercise allows you to test your critical thinking skills and learn from a business’s successes and setbacks to apply the learnings to your own organization.

4. Gain Hands-on Experience

Sometimes, the best way to gain skills is to dive into the work and try it. If you have access to your company’s financial statements, read them. What sticks out to you? What questions do you have? What story can you derive from the numbers?

If this is a challenging exercise, ask your company’s finance employees questions. They likely work with financial statements daily and can help you orient yourself, identify the meaning behind financial data, and explain its impact on your firm.

If you can’t access your organization’s data, leverage the United States Securities and Exchange Commission’s EDGAR database , which allows you to access public companies’ statements.

Reading financial information from companies you know can be an effective way to put the mechanics of financial analysis into the context of a real company.

5. Leverage Your Network and Attend Finance-Focused Events

Another accessible way to build and bolster financial analysis skills is by leveraging your professional network. Those experienced in the field may be glad to share their expertise, experiences, and useful tips for learning and applying financial analysis.

Attending finance-focused events, such as networking gatherings, conferences, and webinars , can also be fun ways to level up your skills and grow your network. If this is important to you, make sure any courses you take have a networking component like the HBS Online Community .

Why Learn Financial Analysis Skills?

Financial analysis skills are key to making business decisions that positively impact your organization and can give you a competitive edge in the job market.

Whether you’re responding to a decline in profit margin, assessing your latest marketing campaign’s financial impact, or determining whether you can hire more employees, building your financial analysis skills is an investment in your career and your business’s financial health.

Do you want to improve your confidence and knowledge of finance? Explore Leading with Finance —one of our online finance and accounting courses —to elevate your financial analysis skills and make informed decisions at your organization. Not sure which course is the right fit? Download our free course flowchart to determine which best aligns with your goals.

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How to Conduct a Problem-Solving Session with Finance?

In the fast-paced and dynamic world of finance, problem-solving skills are invaluable. Whether you are a financial manager, a business owner, or an aspiring finance professional, being able to effectively address and solve financial issues is crucial for success. In this article, we will explore the importance of problem-solving in finance and provide a step-by-step guide on how to conduct a problem-solving session with finance.

Understanding the Importance of Problem-Solving in Finance

Problem-solving is a fundamental skill in financial management. It involves identifying, analyzing, and resolving financial issues that may arise in a business or organizational setting. Successful problem-solving not only helps in mitigating risks but also contributes to the overall growth and profitability of a company.

When it comes to financial management, problem-solving plays a pivotal role in ensuring the smooth operation and sustainability of a business. Financial managers are responsible for making strategic decisions that can impact the organization’s financial performance. By effectively addressing problems and finding innovative solutions, financial managers can enhance financial stability, optimize resource allocation, and foster growth.

Effective problem-solving in finance offers numerous benefits. Firstly, it helps in identifying and rectifying financial inefficiencies, thus improving cost-effectiveness. For example, if a company is experiencing cash flow issues, a financial manager can analyze the problem and implement strategies to improve cash flow, such as negotiating better payment terms with suppliers or implementing more efficient billing processes.

Secondly, effective problem-solving in finance aids in identifying potential opportunities and enhancing revenue generation. Financial managers who are skilled problem solvers can identify market trends, analyze customer needs, and develop innovative financial strategies to capitalize on emerging opportunities. This could involve launching new products or services, entering new markets, or implementing cost-saving measures.

Moreover, successful problem-solving fosters teamwork, promotes critical thinking, and strengthens decision-making abilities within the finance department. When financial managers and their teams work together to solve complex financial problems, it encourages collaboration and knowledge sharing. This not only leads to better problem-solving outcomes but also cultivates a culture of continuous improvement and learning within the organization.

Preparing for a Problem-Solving Session

Before conducting a problem-solving session, thorough preparation is essential to ensure its effectiveness. Here are the key steps involved:

Identifying the Financial Issues at Hand

The first step is to clearly identify the financial issues that need to be addressed. This could include problems with cash flow, budgeting, financial reporting, investment decisions, or any other challenge affecting the financial performance of the organization.

For example, if the organization is experiencing cash flow problems, it is important to determine the root cause of the issue. Is it due to slow-paying customers, high expenses, or ineffective collection procedures? By identifying the specific financial issues, the problem-solving session can be focused and targeted.

Gathering Relevant Financial Data

Once the issues have been identified, gather all the relevant financial data that is necessary for analysis and decision-making. This may include financial statements, sales reports, budget details, and any other financial information related to the problem at hand.

For instance, if the problem is related to budgeting, it is crucial to gather information on the organization’s current budget, actual expenses, and projected revenue. This data will provide a comprehensive understanding of the financial situation and enable the team to make informed decisions during the problem-solving session.

Assembling the Right Team for the Session

Next, assemble a team of individuals who possess the required expertise and knowledge to contribute to problem-solving. This could include financial analysts, accountants, business strategists, and other relevant stakeholders. Ensure that the team members have diverse perspectives and can bring fresh insights to the table.

For example, having a financial analyst on the team can provide valuable insights into financial data analysis and forecasting. An accountant can offer expertise in identifying financial discrepancies and suggesting corrective measures. By assembling a diverse team, the problem-solving session can benefit from a wide range of perspectives and expertise.

Additionally, it is important to consider the dynamics of the team. Are the members able to collaborate effectively? Do they have good communication skills? These factors can significantly impact the success of the problem-solving session.

Conducting the Problem-Solving Session

Once the preparation phase is complete, it’s time to conduct the problem-solving session. Follow these steps to ensure a productive and efficient session:

Before diving into the problem-solving session, it is important to understand the significance of this phase. This is where the real work happens, where ideas are shared, and solutions are generated. It is a collaborative effort that requires effective communication and critical thinking.

Setting the Agenda for the Meeting

Start by setting a clear agenda for the problem-solving session. Outline the goals, objectives, and topics that need to be discussed during the meeting. This ensures that everyone is aware of the purpose of the session and can come prepared with relevant information and ideas.

When setting the agenda, consider the time constraints and prioritize the most pressing issues. This will help keep the session focused and ensure that valuable time is not wasted on less important matters.

Facilitating Open and Constructive Dialogue

During the session, encourage open and constructive dialogue among the team members. Create a safe and non-judgmental environment where everyone feels comfortable expressing their opinions and challenging existing beliefs. This fosters creativity and innovation, leading to better problem-solving outcomes.

As the facilitator, it is important to actively listen to each team member and ensure that their voices are heard. Encourage active participation and discourage any form of dominance or bias. This will help create a collaborative atmosphere where diverse perspectives can be explored.

Utilizing Problem-Solving Techniques in Finance

There are several problem-solving techniques that can be applied in a finance context. These include brainstorming, SWOT analysis, financial modeling, cost-benefit analysis, and root cause analysis, among others. Apply the appropriate techniques to systematically analyze the financial issues and generate potential solutions.

Brainstorming is a valuable technique that allows team members to freely share their ideas and thoughts without any judgment. This can lead to innovative solutions that may not have been considered otherwise. SWOT analysis helps identify the strengths, weaknesses, opportunities, and threats associated with the problem at hand. Financial modeling allows for a quantitative analysis of different scenarios, helping to evaluate the potential outcomes of each solution.

Cost-benefit analysis helps weigh the financial costs and benefits of each solution, enabling decision-makers to make informed choices. Root cause analysis helps identify the underlying causes of the problem, allowing for targeted solutions that address the core issues.

By utilizing these problem-solving techniques, the team can approach the financial issues from different angles, ensuring a comprehensive analysis and a wider range of potential solutions.

Remember, the problem-solving session is not just about finding a quick fix. It is about understanding the problem, exploring various options, and making informed decisions that will have a positive impact on the financial health of the organization.

Post-Session Actions and Follow-ups

Once the problem-solving session is over, there are critical steps to take to ensure the proposed solutions are implemented effectively:

Analyzing the Results of the Session

Review and analyze the outcomes of the problem-solving session. This step is crucial as it allows for a comprehensive understanding of the proposed solutions and their potential impact on the organization. By carefully evaluating the feasibility, potential impact, and alignment with the organization’s goals, finance professionals can make informed decisions on which solutions to prioritize.

During the analysis, it is essential to consider various factors, such as the resources required for implementation, the potential risks involved, and the expected timeline for achieving the desired outcomes. By conducting a thorough evaluation, finance professionals can identify the most viable options and prioritize them based on their urgency and significance.

Implementing the Proposed Solutions

Once the proposed solutions have been analyzed and prioritized, the next step is to develop an actionable plan for their implementation. This plan should outline the specific steps required to execute each solution effectively.

Assigning responsibilities is a critical aspect of the implementation process. By clearly defining who is accountable for each task, finance professionals can ensure that everyone involved understands their role and can contribute to the successful execution of the solutions. Additionally, setting deadlines is crucial to keep the implementation process on track and avoid unnecessary delays.

Furthermore, allocating the necessary resources is essential for the successful implementation of the proposed solutions. This includes financial resources, human resources, and any other required assets. By ensuring that the necessary resources are available, finance professionals can increase the likelihood of achieving the desired outcomes.

Effective implementation also requires clear communication and coordination among all stakeholders. Regular updates and progress reports should be shared to keep everyone informed and aligned. Additionally, monitoring the progress of the implementation is vital to identify any potential issues or roadblocks early on and take corrective actions as needed.

Monitoring the Impact of Implemented Solutions

Implementing the proposed solutions is not the end of the problem-solving process. It is crucial to regularly monitor the impact of the implemented solutions on the financial performance of the organization. This step allows finance professionals to assess the effectiveness of the solutions and make any necessary adjustments to optimize the outcomes.

Tracking relevant key performance indicators (KPIs) is an effective way to measure the impact of the implemented solutions. These KPIs can include financial metrics, such as revenue growth, cost savings, and profitability, as well as non-financial metrics, such as customer satisfaction and employee productivity. By monitoring these indicators, finance professionals can gain valuable insights into the success of the implemented solutions and identify areas for improvement.

Continuous feedback gathering is also essential in monitoring the impact of the implemented solutions. By seeking input from various stakeholders, including employees, customers, and partners, finance professionals can gain a holistic understanding of the outcomes and identify any potential issues or areas of improvement.

Based on the feedback and performance data gathered, finance professionals can make necessary adjustments to optimize the outcomes of the implemented solutions. This iterative approach ensures that the organization remains agile and responsive to changing circumstances.

In conclusion, conducting a problem-solving session with finance is an essential process for mitigating financial risks and driving organizational growth. By understanding the importance of problem-solving in finance, adequately preparing for the session, conducting it effectively, and taking post-session actions and follow-ups, finance professionals can effectively address financial challenges and steer their organizations toward success.

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Accountants as Problem Solvers

August 01, 2020

By: Linda McCann , DBA, CMA, CPA ; David Horn , CPA ; Jennifer Dosch , CMA

Managers often complain that accounting graduates aren’t prepared for today’s business environment. The complexity of our global economy and the increasing influence of, and reliance on, technology leads to practitioners and instructors questioning if undergraduate accounting programs focus on the right curriculum to prepare students for careers.

One soft skill that can help prepare accounting students for their careers is problem solving. Management accountants need to be able to work cross-functionally to solve problems and provide meaningful analyses. Many colleges, universities, and accrediting bodies in academia incorporate strategic goals requiring curriculum that facilitates problem-solving skills.

As instructors, we teach technical accounting skills by demonstrating and providing practice with accounting concepts and structured problems, which we assess via homework and exams. Teaching soft skills, such as unstructured problem solving, poses greater challenges that are more difficult to incorporate into the curriculum. How can students learn and approach unstructured problem solving?

A SLOW-THINKING APPROACH

Recent scientific discoveries into the brain reveal that humans employ fast and slow thinking to solve problems. The brain especially prefers making decisions and solving problems quickly based on recognized patterns, visual and verbal cues, prior knowledge, routines, familiar preferences, prejudices, and emotions.

In contrast, decision making and problem solving often require slow thinking to digest new information, hypothesize alternatives, employ quantitative mathematical and statistical analysis, overtly recognize and break free from cognitive biases, challenge preconceived notions, synthesize ideas, and create new knowledge. To support this kind of slow, rational thinking, accountants can learn a methodical process for problem solving (see Table 1).

Many common business models—such as Six Sigma, A3 Lean, and Appreciative Inquiry—and the Association of American Colleges and Universities value problem solving, and critical-thinking grading rubrics describe specific steps for rational (i.e., slow thinking) problem solving. Business students, however, learn and apply these models in various courses, typically with no thread that ties them specifically to the accounting profession. Students learn bits and pieces of rational thinking throughout their undergraduate coursework, but instructors often don’t teach a common framework to apply these skills in a relevant and value-added way (see “Survey of Practitioners”).

To help address this issue, we developed a problem-solving rubric for accounting students (see Table 2). The three of us are faculty members from Metropolitan State University in Minneapolis/St. Paul, Minn., and represent three different parts of the curriculum (auditing, business taxation, and management accounting), so it was important that it could be used across the entire accounting program.

The rubric assesses learning in an organized way, providing a common framework (criteria) for students to consistently approach problem solving. The criteria include problem identification, analysis, and communication of results. It guides students through a series of problem-solving steps using terms and vocabulary specific to the accounting profession. The rubric also reminds us, as instructors, to create a learning environment where problem solving can occur (see “Setting the Tone”).

STEP 1: PROBLEM IDENTIFICATION

The iterative and looping nature of problem solving confounds inexperienced accountants. Where does one begin? Students tell us using a rubric provides a starting point.

To implement the rubric, we assign students projects with unclear goals, incomplete information, and more than one possible solution. Assignment topics vary. It could have students develop a cost-benefit analysis between adding employees or adopting Lean manufacturing techniques, analyze tax outcomes of business decisions, create a risk assessment and audit response for a fictitious client, or some other accounting-related issue.

Students begin by developing one or several hypotheses as to the nature of the problem. To generate ideas, we assist students in their brainstorming discussions. The rubric leads students to consider the environment, strategy, unexpected observations, overall importance, and risk assessment. At this stage, the identified problem may change, but the original hypothesized problem gives direction for next steps. Upon completing the assignment, we assess students on how they identified the problem.

Metropolitan State University’s business taxation course used the rubric in a case study that involves assessing the implication of the Wayfair v. South Dakota U.S. Supreme Court decision on a company’s sales tax collection. Prior to Wayfair , companies operated under a physical presence nexus established in Quill v. North Dakota . The Quill decision required companies to have a physical presence in a taxing jurisdiction in order to require collection and remittance of sales taxes on transactions.

In Wayfair , the U.S. Supreme Court overturned Quill in favor of an economic nexus standard, where companies only needed to have a certain level of economic activity. For example, in South Dakota, the threshold economic activity is 200 transactions or $100,000 in sales. The change from Quill to Wayfair was a major development in how companies operate and collect sales tax. It required companies to assess all jurisdictions in which they operate and evaluate how the change in the nexus standards impact its operations.

To apply this rubric to the change, students learn about a fictitious company that sells inventory to multiple states and collects and remits sales tax under the Quill physical presence nexus standard. We give students a subledger with all sales data for the given year. The rubric leads students to ask about implications of the Wayfair decision on the company, how the ruling impacts the company’s strategic objectives, and risks to the company because of the change in the law. Using the rubric, students are guided to discover the issue at hand, which is whether the company will have a significant number of new sales tax jurisdictions requiring collections and remittance from its customers.

Students tell us that without the rubric, they often feel like they have no road map at the beginning of a project or case study; identifying the problem seems too big and undefined to tackle. Many students initially resist engaging with unstructured problem-solving assignments because they differ from past assignments. Similar to what one might find in cross-functional teams opposed to change, students show their displeasure with crossed arms and distant body language.

Many college courses still rely on testing facts and use formulas and calculations, an approach that doesn’t put the student in the decision-making role but is familiar to them. With a rubric, students see smaller doable steps, where the assignment is heading, and how they can move forward and loop backward, when necessary. The rubric breaks down the initial intimidation students feel with unstructured problems.

STEP 2: ANALYSIS

Next, the rubric guides students through analyzing the problem using accounting-specific skills they’ve acquired in each course. For example, students consider tax laws, financial reporting and audit principles, or cost accounting techniques.

Continuing the sales and use tax example, at this stage, students apply the rubric to perform a complete analysis, enabling them to form a conclusion to communicate. What are the relevant facts to determine Wayfair ’s impact? What facts are irrelevant? What primary and secondary tax authority is needed to conduct research? Are there alternatives and exceptions to applying Wayfair ? Have all states adopted an economic nexus standard? Have all states adopted South Dakota’s transactional thresholds? What’s the quantitative impact to the company? Are there financial accounting implications to the Wayfair decision? What’s the scope of the necessary research, and are there limitations, constraints, and so on? Through the rubric, students formulate and answer questions and perform analysis to solve the problem at hand.

We assess students on their ability to gather and identify relevant facts, research any applicable rules and laws, assess alternatives, and perform any needed qualitative and quantitative analyses. At this stage, students apply theories and best practices learned in specific course fields, such as management accounting, taxation, and auditing.

To encourage elaboration, the rubric uses words such as curious, skeptical, model, assumption, authoritative, best practices, relevant, and sufficient sources. Like many accountants, students want to get their work done quickly, but problem solving takes time and slow thinking. Thanks to the rubric, more students turned in papers with greater depth, less “cut and paste,” and more relevant supporting details.

As in the real world, students often discover their original hypothesis or identified problem is incorrect, incomplete, or irrelevant. They confront the iterative nature of problem solving as they work through the analysis stage and build evidence to support their hypothesis. When evidence doesn’t support an identified problem, students go back and redefine their problem, gather new evidence, explore new alternative solutions, and build a case for their conclusion.

STEP 3: COMMUNICATION

Finally, students present their results in a memorandum to a hypothetical manager or audit partner. The memorandum mirrors common styles, such as IFRAC (issues, facts, rules, analysis, and conclusion) and BLUF (bottom line up front). Students state the problem and include the conclusion (i.e., solution) up front along with a summary of relevant facts and assumptions. Supporting documentation presents additional in-depth analysis.

This format familiarizes students with a presentation style that allows management to quickly understand conclusions while also providing more depth to support the up-front conclusion. We expect students to write and present findings in a clear and concise manner as if in a professional accounting setting. The rubric grading criteria helps students solve problems using rational thinking and delivering a memorandum that directly supports management decision making.

In the Wayfair case study, students draft a memorandum to management addressing the implications of the sales tax nexus precedence change. The facts section should discuss the company’s current sales and use tax policies. Students identify the issue as the change from physical presence nexus to economic nexus. The up-front conclusion should identify new jurisdictions from which the company needs to register and collect sales tax and quantify the volume of sales tax it expects to collect. Finally, the analysis provides an in-depth discussion of the change from Quill to Wayfair . Students should discuss how they determined new jurisdictions, limitations, and further required resources for the company.

PREPARING STUDENTS FOR THEIR CAREERS

We use the rubric format for projects or cases at different stages throughout the accounting curriculum. The problem-solving rubric measures student learning and reinforces rational thinking with each assignment. The projects that use the rubric vary in length, depth, and complexity as students move from management accounting to tax and then finally to audit. We find the rubric flexible enough to adapt to an instructor’s needs, yet it provides consistent core steps—identify the problem, analyze, and communicate—to solve problems.

The rubric helps students organize their communication through the memorandum. Setting up a memorandum so the problem and solution appear “up front” highlights mismatches between the problem, evidence, and conclusion. Further, it encourages students to decide—rather than ramble and include information that isn’t relevant. We find students often get to the communication stage and realize that their analysis doesn’t support their conclusion or identified problem. Fortunately, the rubric allows them to loop back and redefine and reanalyze.

By using the same grading criteria in multiple courses, we provide students with a familiar approach to problem solving that turns fast thinking to slow, rational thinking. The process and steps become routine and less daunting for the student. While each step still requires arduous thinking, the approach itself is a recognized pattern for students.

From our point of view as accounting instructors, the rubric helps provide consistent and fair grading. We provide separate points for milestones in problem identification, analysis, and communication, which further encourages students to go through each step of the process. Metropolitan State University plans to expand the use of this rubric in the accounting curriculum. This common framework provides students with a process to identify problems, research and investigate facts, conduct analyses, and communicate results across all accounting disciplines.

This process reinforces the problem-solving skills that students will need in their professional careers. These capabilities will help them perform their roles in today’s strategic, fast-paced business environment. Solving problems is critical for today’s management accountant. Through implementing the rubric, instructors can help students systematically apply a problem-solving process that they can take with them as they move from student to management accountant.

About the Authors

August 2020

• Strategy, Planning & Performance
• Decision Analysis
• Negotiation
• Metropolitan State University

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• The joys of problem solving
• Student e-magazine

Many accountants enjoy problem solving more than number crunching. So what typical problems can you look forward to cracking at work? Iwona Tokc-Wilde reports

Problem solving is something that accountants and finance professionals deal with virtually every working day. In fact, a recent survey by Robert Half shows it is this part of working in the profession that they like best: 41% of accountants say solving problems gives them the most job satisfaction, compared to just 22% who prefer working with numbers.

‘Accountants are usually excellent at dealing with detail and spotting patterns, which makes them good at – and enjoy – problem solving,’ comments Andi Lonnen, founder and director of Finance Training Academy.

If you are at the beginning of your journey into the profession and enjoy tackling problems, you have a head start. Problem solving is also a skill that is one of the 10 most sought-after trainee skills globally (see 'Related links').

Why problem-solving skills are so important

‘The role of accountancy and finance has shifted from a pure focus on fiscal control to one where it has an impact on the business,’ says Phil Sheridan, managing director at Robert Half.

‘The requirement for problem-solving skills is part of this transition as, by mining data and analysing trends, accountants are now translating numbers into actionable insights for the business and are increasingly being seen as strategic partners.’ By putting their data skills and their problem-solving skills to work together, they also help uncover potential areas for concern.

It is vital for accountants in practice to correctly identify, analyse and solve problems too.

‘As trusted advisers, it’s our role to look at everything in detail to pick-up anomalies, patterns and correlations in order to advise our clients on how to take things forward,’ says Shahzad Nawaz of AA Accountants. If they fail to pick up and analyse problems correctly, the accounts could be wrong.

‘This means the business owner would be relying on incorrect data, which could have a detrimental effect on the future of the business. And, of course, if external stakeholders are relying on the data, then we could potentially be misleading them too.’

Incorrect accounts could also have other serious knock-on effects.

‘If the accounting figures are incorrect, then the tax payments relating to the company will be incorrect too. Later on, the client could find themselves with additional tax to pay – with interest,’ says Tanya Addy of BHP Chartered Accountants. 

‘Inaccurate accounting can also land businesses in serious commercial difficulties especially if, as a result, directors/owners have been taking more salary or dividends from the business than they were entitled to. In the worst case scenario, it could even lead to closure of the business.’

Problem solving at work

There are many areas where trainee and new accountants can practise solving problems, depending on the job you are doing.

‘If it’s accountancy, you’ll be looking at helping a business with cash flow, debtors and improving their record-keeping,’ says Nawaz.

At the nitty-gritty level, you will be reconciling control accounts, trying to understand why an account might not be balancing and investigating and clearing old items on reconciliations.

‘The work to balance an account involves finding out what the problem is and then resolving it, for example identifying and correcting transposition errors,’ says Lodden.

If you work in tax, you’ll be involved in advising a client on how much tax they will need to pay (and how much tax they can save) in a particular year.

‘This will require a review of the information provided by the client, such as bank statements and expenses, analysing which expenses incurred are allowable and disallowable for taxation, quantifying the results and communicating them to the client and to tax authorities,’ explains Carolyn Napier, senior ACCA tutor at London School of Business and Finance. 

You will also be dealing with tax implications, and tax cost for both employer and employee, of providing benefits.

‘You will need to ascertain which benefits are taxable and which are tax-free, and then you’ll need to "solve the problem" of which tax or taxes are due and payable, and by what date,’ says Napier.

In industry, you may be given the opportunity to help analyse projects, and communicate your findings to various parts of the business.

‘This is where new and trainee accountants will need to be prepared to utilise their problem-solving skills – noting anomalies and seeking clarification on areas of uncertainly will ensure that a clearer picture can be obtained,’ says Sheridan.

Deborah Adigun-Hameed is an accountant and junior financial analyst at BlueBay Asset Management. By utilising her problem-solving aptitude and skills, she has been involved in major decisions that shape the company she works for.

‘I’ve contributed to key strategic discussions about which market and products are profitable, what we should be selling and how we compare with our competitors,’ says Adigun-Hameed.

‘I may be newly qualified, but my informed opinions and advice are really valued by the management.’

Both in practice and in industry, accountants are also increasingly called upon to help solve technology problems – for example, when a business intends to implement new business software solutions. They help with the evaluation and selection of a solution, and with planning and execution of the implementation process. They also assist in testing the new system and facilitate going live when the system is ready.

Hone your problem-solving skills

Problem solving is about using logic and your technical expertise to assess a situation and to come up with a workable solution. It is connected to other skills such as level-headedness and resilience, analytical skills and good teamworking skills.

It also requires creativity, which is best learnt through collaboration – brainstorming with others to clarify the problem, generate ideas and create as many potential solutions as possible. When putting forward ideas, be confident in your contributions.

‘Everyone, including those newly-qualified, has something to offer,’ says Adigun-Hameed.  ‘Always think outside of the box, as cliché as that may sound. No new idea is insignificant. Innovation can be incremental; change can be small or radical.’

Improving your listening and communication skills will also make you a better problem solver.

‘Learning to communicate well is vital as you need to build rapport with clients. If you have a good rapport with someone, you are confident to ask questions, which is how you can pin down problems and find answers to those problems,’ says Nawaz.

Above all else, getting practical on-the-job experience is how you can get really good at problem solving.

‘The first control account a trainee tends to tackle and perfect is the bank control account; every trainee accountant has had to look for that 1p difference – as painful as that sounds, it certainly helps you learn,’ says Lauren Burt, client manager at EST Accountants and Tax Advisers.

"Everyone, including those newly-qualified, has something to offer. Always think outside of the box, as cliché as that may sound. No new idea is insignificant. Innovation can be incremental; change can be small or radical" Deborah Adigun-Hameed - BlueBay Asset Management

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10 Accounting Problem Solving Skills and How To Improve Them

Discover 10 Accounting Problem Solving skills along with some of the best tips to help you improve these abilities.

Accounting is an important skill for anyone who wants to be financially successful. Without a basic understanding of accounting, it can be difficult to make sound financial decisions. However, even if you have a strong understanding of accounting principles, you may still encounter occasional accounting problems.

When these problems arise, it is important to have strong problem solving skills in order to find a resolution. In this guide, we will discuss some tips for solving accounting problems. We will also provide an overview of some common accounting problems so that you can be prepared in the event that one arises.

Financial Statements

Regulatory filings, revenue projections, account reconciliation, general ledger, business knowledge, problem solving.

Financial statements are important because they provide a snapshot of a company’s financial health. They can be used to make decisions about whether or not to invest in a company, and they can also be used to track a company’s performance over time. Financial statements include the balance sheet, income statement, and cash flow statement.

Payroll is an important skill for accountants because it allows them to process and manage employee compensation and benefits. Payroll processing includes calculating gross wages, deductions, and net wages; preparing payroll tax returns; and managing benefits such as health insurance, retirement plans, and paid time off.

Accountants who can effectively manage payroll can help businesses save time and money. They can also help businesses comply with federal and state tax laws and regulations.

Regulatory filings are important because they are required by law. Companies must file certain documents with government agencies in order to operate. These filings include tax returns, annual reports, and shareholder communications. Failure to file these documents can result in penalties or even the closure of a company.

Regulatory filings are important because they provide transparency. By law, companies must file certain documents with government agencies. These filings are public, which means that anyone can access them. This transparency allows investors and other stakeholders to see how a company is operating.

Revenue projections are important for businesses because they help businesses plan for future income. Revenue projections can be used to determine how much money a business will need to operate and grow. Revenue projections can also be used to help businesses raise money from investors.

Revenue projections are important because they help businesses plan for future income. Revenue projections can be used to determine how much money a business will need to operate and grow. Revenue projections can also be used to help businesses raise money from investors.

Account reconciliation is the process of ensuring that all transactions in a company’s books are accurate. This process is important because it helps ensure that the company’s financial statements are accurate and can be relied upon by investors, creditors and other stakeholders.

Account reconciliation involves comparing the company’s books with the records kept by its banks, vendors and other parties with whom it does business. If there are any differences, they need to be investigated and resolved. This process can be time-consuming, but it is important to ensure that the company’s books are accurate.

Compliance is the process of ensuring that you are in compliance with the laws and regulations that apply to your business. It is important for businesses to be compliant because it helps to protect them from penalties and fines. Compliance also helps to build trust with customers and regulators.

To be compliant, businesses need to understand the laws and regulations that apply to them and then take the necessary steps to ensure that they are following the rules. For example, businesses that sell products to consumers need to be aware of the consumer protection laws that apply to them. Businesses that operate in certain industries, such as healthcare, need to be aware of the regulations that apply to them.

General ledger is an important accounting problem solving skill because it is used to track and report financial information for a business. The general ledger is a summary of all of the accounts that make up the financial statements, and it is used to keep track of the money coming in and going out of the business. The general ledger is also used to prepare financial statements, and it is important that the information in the general ledger is accurate and up to date.

Quickbooks is an important skill for anyone in the accounting field. Quickbooks is a software program that helps accountants and business owners keep track of their finances. Quickbooks can help you track invoices, manage payroll, and create financial reports. Quickbooks is a valuable skill because it can save you time and make your job easier.

Business knowledge is important for accounting problem solving because it helps accountants understand the context of the problem they are trying to solve. It also helps them identify the root cause of the problem and develop a solution that will be effective in the real world.

Accounting problem solving often involves looking at a company’s financial statements and trying to identify where the company is spending too much money or where it is making mistakes in its accounting practices. To do this, accountants need to understand the company’s business and the industry in which it operates. They also need to be familiar with the latest accounting standards and best practices.

Problem solving is an important skill for accountants because they often have to solve complex problems. Problem solving requires the ability to identify the problem, gather information, develop a plan and implement the plan. Accountants must be able to think critically and creatively to solve problems.

Problem solving often requires good communication skills. Accountants must be able to explain the problem, gather information and develop a plan with the client. They also need to be able to follow up to make sure the plan is working and to troubleshoot if there are any issues.

How to Improve Your Accounting Problem Solving Skills

1. Understand the basics of accounting If you want to improve your accounting problem solving skills, it is important to have a strong foundation in accounting principles. You should be able to read and understand financial statements, as well as have a working knowledge of payroll, regulatory filings, revenue projections and account reconciliation.

2. Be well-versed in accounting software In order to be an effective problem solver, you need to be well-versed in accounting software. This will allow you to quickly and efficiently find solutions to accounting problems.

3. Stay up-to-date on accounting news and changes It is also important to stay up-to-date on accounting news and changes. This will help you anticipate problems and find solutions more quickly.

4. Be proactive in solving problems When you encounter an accounting problem, it is important to be proactive in solving it. This means taking the time to understand the problem and researching potential solutions.

5. Communicate effectively with your team When you are working on a team, it is important to communicate effectively. This means being clear about what you need from your team members and keeping them updated on your progress.

6. Be organized and efficient When solving accounting problems, it is important to be organized and efficient. This means having a system in place for tracking your progress and keeping your work area tidy.

7. Practice problem solving One of the best ways to improve your accounting problem solving skills is to practice. This can be done by working on practice problems or by taking on small projects in your personal life.

8. Seek out feedback When you are working on solving accounting problems, it is important to seek out feedback. This can be done by asking for feedback from your team members or by seeking out feedback from a mentor.

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26 Expert-Backed Problem Solving Examples – Interview Answers

Published: February 13, 2023

Interview Questions and Answers

Actionable advice from real experts:

Biron Clark

Former Recruiter

Contributor

Dr. Kyle Elliott

Career Coach

Hayley Jukes

Editor-in-Chief

Biron Clark , Former Recruiter

Kyle Elliott , Career Coach

Hayley Jukes , Editor

As a recruiter , I know employers like to hire people who can solve problems and work well under pressure.

 A job rarely goes 100% according to plan, so hiring managers are more likely to hire you if you seem like you can handle unexpected challenges while staying calm and logical.

But how do they measure this?

Hiring managers will ask you interview questions about your problem-solving skills, and they might also look for examples of problem-solving on your resume and cover letter. 

In this article, I’m going to share a list of problem-solving examples and sample interview answers to questions like, “Give an example of a time you used logic to solve a problem?” and “Describe a time when you had to solve a problem without managerial input. How did you handle it, and what was the result?”

• Problem-solving involves identifying, prioritizing, analyzing, and solving problems using a variety of skills like critical thinking, creativity, decision making, and communication.
• Describe the Situation, Task, Action, and Result ( STAR method ) when discussing your problem-solving experiences.
• Tailor your interview answer with the specific skills and qualifications outlined in the job description.
• Provide numerical data or metrics to demonstrate the tangible impact of your problem-solving efforts.

What are Problem Solving Skills? 

Problem-solving is the ability to identify a problem, prioritize based on gravity and urgency, analyze the root cause, gather relevant information, develop and evaluate viable solutions, decide on the most effective and logical solution, and plan and execute implementation. 

Problem-solving encompasses other skills that can be showcased in an interview response and your resume. Problem-solving skills examples include:

• Critical thinking
• Analytical skills
• Decision making
• Research skills
• Technical skills
• Communication skills
• Adaptability and flexibility

Why is Problem Solving Important in the Workplace?

Problem-solving is essential in the workplace because it directly impacts productivity and efficiency. Whenever you encounter a problem, tackling it head-on prevents minor issues from escalating into bigger ones that could disrupt the entire workflow. 

Beyond maintaining smooth operations, your ability to solve problems fosters innovation. It encourages you to think creatively, finding better ways to achieve goals, which keeps the business competitive and pushes the boundaries of what you can achieve. 

Effective problem-solving also contributes to a healthier work environment; it reduces stress by providing clear strategies for overcoming obstacles and builds confidence within teams. 

Examples of Problem-Solving in the Workplace

• Correcting a mistake at work, whether it was made by you or someone else
• Overcoming a delay at work through problem solving and communication
• Resolving an issue with a difficult or upset customer
• Overcoming issues related to a limited budget, and still delivering good work through the use of creative problem solving
• Overcoming a scheduling/staffing shortage in the department to still deliver excellent work
• Troubleshooting and resolving technical issues
• Handling and resolving a conflict with a coworker
• Solving any problems related to money, customer billing, accounting and bookkeeping, etc.
• Taking initiative when another team member overlooked or missed something important
• Taking initiative to meet with your superior to discuss a problem before it became potentially worse
• Solving a safety issue at work or reporting the issue to those who could solve it
• Using problem solving abilities to reduce/eliminate a company expense
• Finding a way to make the company more profitable through new service or product offerings, new pricing ideas, promotion and sale ideas, etc.
• Changing how a process, team, or task is organized to make it more efficient
• Using creative thinking to come up with a solution that the company hasn’t used before
• Performing research to collect data and information to find a new solution to a problem
• Boosting a company or team’s performance by improving some aspect of communication among employees
• Finding a new piece of data that can guide a company’s decisions or strategy better in a certain area

Problem-Solving Examples for Recent Grads/Entry-Level Job Seekers

• Coordinating work between team members in a class project
• Reassigning a missing team member’s work to other group members in a class project
• Adjusting your workflow on a project to accommodate a tight deadline
• Speaking to your professor to get help when you were struggling or unsure about a project
• Asking classmates, peers, or professors for help in an area of struggle
• Talking to your academic advisor to brainstorm solutions to a problem you were facing
• Researching solutions to an academic problem online, via Google or other methods
• Using problem solving and creative thinking to obtain an internship or other work opportunity during school after struggling at first

How To Answer “Tell Us About a Problem You Solved”

When you answer interview questions about problem-solving scenarios, or if you decide to demonstrate your problem-solving skills in a cover letter (which is a good idea any time the job description mentions problem-solving as a necessary skill), I recommend using the STAR method.

STAR stands for:

It’s a simple way of walking the listener or reader through the story in a way that will make sense to them. 

Start by briefly describing the general situation and the task at hand. After this, describe the course of action you chose and why. Ideally, show that you evaluated all the information you could given the time you had, and made a decision based on logic and fact. Finally, describe the positive result you achieved.

Note: Our sample answers below are structured following the STAR formula. Be sure to check them out!

EXPERT ADVICE

Dr. Kyle Elliott , MPA, CHES Tech & Interview Career Coach caffeinatedkyle.com

How can I communicate complex problem-solving experiences clearly and succinctly?

Before answering any interview question, it’s important to understand why the interviewer is asking the question in the first place.

When it comes to questions about your complex problem-solving experiences, for example, the interviewer likely wants to know about your leadership acumen, collaboration abilities, and communication skills, not the problem itself.

Therefore, your answer should be focused on highlighting how you excelled in each of these areas, not diving into the weeds of the problem itself, which is a common mistake less-experienced interviewees often make.

Tailoring Your Answer Based on the Skills Mentioned in the Job Description

As a recruiter, one of the top tips I can give you when responding to the prompt “Tell us about a problem you solved,” is to tailor your answer to the specific skills and qualifications outlined in the job description. 

Once you’ve pinpointed the skills and key competencies the employer is seeking, craft your response to highlight experiences where you successfully utilized or developed those particular abilities. 

For instance, if the job requires strong leadership skills, focus on a problem-solving scenario where you took charge and effectively guided a team toward resolution. 

By aligning your answer with the desired skills outlined in the job description, you demonstrate your suitability for the role and show the employer that you understand their needs.

Amanda Augustine expands on this by saying:

“Showcase the specific skills you used to solve the problem. Did it require critical thinking, analytical abilities, or strong collaboration? Highlight the relevant skills the employer is seeking.”  

Interview Answers to “Tell Me About a Time You Solved a Problem”

Now, let’s look at some sample interview answers to, “Give me an example of a time you used logic to solve a problem,” or “Tell me about a time you solved a problem,” since you’re likely to hear different versions of this interview question in all sorts of industries.

The example interview responses are structured using the STAR method and are categorized into the top 5 key problem-solving skills recruiters look for in a candidate.

1. Analytical Thinking

Situation: In my previous role as a data analyst , our team encountered a significant drop in website traffic.

Task: I was tasked with identifying the root cause of the decrease.

Action: I conducted a thorough analysis of website metrics, including traffic sources, user demographics, and page performance. Through my analysis, I discovered a technical issue with our website’s loading speed, causing users to bounce. 

Result: By optimizing server response time, compressing images, and minimizing redirects, we saw a 20% increase in traffic within two weeks.

2. Critical Thinking

Situation: During a project deadline crunch, our team encountered a major technical issue that threatened to derail our progress.

Task: My task was to assess the situation and devise a solution quickly.

Action: I immediately convened a meeting with the team to brainstorm potential solutions. Instead of panicking, I encouraged everyone to think outside the box and consider unconventional approaches. We analyzed the problem from different angles and weighed the pros and cons of each solution.

Result: By devising a workaround solution, we were able to meet the project deadline, avoiding potential delays that could have cost the company $100,000 in penalties for missing contractual obligations.

3. Decision Making

Situation: As a project manager , I was faced with a dilemma when two key team members had conflicting opinions on the project direction.

Task: My task was to make a decisive choice that would align with the project goals and maintain team cohesion.

Action: I scheduled a meeting with both team members to understand their perspectives in detail. I listened actively, asked probing questions, and encouraged open dialogue. After carefully weighing the pros and cons of each approach, I made a decision that incorporated elements from both viewpoints.

Result: The decision I made not only resolved the immediate conflict but also led to a stronger sense of collaboration within the team. By valuing input from all team members and making a well-informed decision, we were able to achieve our project objectives efficiently.

4. Communication (Teamwork)

Situation: During a cross-functional project, miscommunication between departments was causing delays and misunderstandings.

Task: My task was to improve communication channels and foster better teamwork among team members.

Action: I initiated regular cross-departmental meetings to ensure that everyone was on the same page regarding project goals and timelines. I also implemented a centralized communication platform where team members could share updates, ask questions, and collaborate more effectively.

Result: Streamlining workflows and improving communication channels led to a 30% reduction in project completion time, saving the company $25,000 in operational costs.

5. Persistence 

Situation: During a challenging sales quarter, I encountered numerous rejections and setbacks while trying to close a major client deal.

Task: My task was to persistently pursue the client and overcome obstacles to secure the deal.

Action: I maintained regular communication with the client, addressing their concerns and demonstrating the value proposition of our product. Despite facing multiple rejections, I remained persistent and resilient, adjusting my approach based on feedback and market dynamics.

Result: After months of perseverance, I successfully closed the deal with the client. By closing the major client deal, I exceeded quarterly sales targets by 25%, resulting in a revenue increase of $250,000 for the company.

Tips to Improve Your Problem-Solving Skills

Throughout your career, being able to showcase and effectively communicate your problem-solving skills gives you more leverage in achieving better jobs and earning more money .

So to improve your problem-solving skills, I recommend always analyzing a problem and situation before acting.

 When discussing problem-solving with employers, you never want to sound like you rush or make impulsive decisions. They want to see fact-based or data-based decisions when you solve problems.

Don’t just say you’re good at solving problems. Show it with specifics. How much did you boost efficiency? Did you save the company money? Adding numbers can really make your achievements stand out.

To get better at solving problems, analyze the outcomes of past solutions you came up with. You can recognize what works and what doesn’t.

Think about how you can improve researching and analyzing a situation, how you can get better at communicating, and deciding on the right people in the organization to talk to and “pull in” to help you if needed, etc.

Finally, practice staying calm even in stressful situations. Take a few minutes to walk outside if needed. Step away from your phone and computer to clear your head. A work problem is rarely so urgent that you cannot take five minutes to think (with the possible exception of safety problems), and you’ll get better outcomes if you solve problems by acting logically instead of rushing to react in a panic.

You can use all of the ideas above to describe your problem-solving skills when asked interview questions about the topic. If you say that you do the things above, employers will be impressed when they assess your problem-solving ability.

More Interview Resources

• 3 Answers to “How Do You Handle Stress?”
• How to Answer “How Do You Handle Conflict?” (Interview Question)
• Sample Answers to “Tell Me About a Time You Failed”

About the Author

Biron Clark is a former executive recruiter who has worked individually with hundreds of job seekers, reviewed thousands of resumes and LinkedIn profiles, and recruited for top venture-backed startups and Fortune 500 companies. He has been advising job seekers since 2012 to think differently in their job search and land high-paying, competitive positions. Follow on Twitter and LinkedIn .

Read more articles by Biron Clark

About the Contributor

Kyle Elliott , career coach and mental health advocate, transforms his side hustle into a notable practice, aiding Silicon Valley professionals in maximizing potential. Follow Kyle on LinkedIn .

About the Editor

Hayley Jukes is the Editor-in-Chief at CareerSidekick with five years of experience creating engaging articles, books, and transcripts for diverse platforms and audiences.

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6: Mathematics of Finance

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• Page ID 37818

• Rupinder Sekhon and Roberta Bloom
• De Anza College

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Learning Objectives

In this chapter, you will learn to:

• Solve financial problems that involve simple interest.
• Solve problems involving compound interest.
• Find the future value of an annuity, and the amount of payments to a sinking fund.
• Find the future value of an annuity, and an installment payment on a loan.
• 6.1.1: Simple Interest and Discount (Exercises)
• 6.2.1: Compound Interest (Exercises)
• 6.3.1: Annuities and Sinking Funds (Exercises)
• 6.4.1: Present Value of an Annuity and Installment Payment (Exercises)
• 6.5.1: Miscellaneous Application Problems (Exercises)
• 6.6.1: Classification of Finance Problems (Exercises)
• 6.7: Chapter Review

Five routes to more innovative problem solving

Rob McEwen had a problem. The chairman and chief executive officer of Canadian mining group Goldcorp knew that its Red Lake site could be a money-spinner—a mine nearby was thriving—but no one could figure out where to find high-grade ore. The terrain was inaccessible, operating costs were high, and the unionized staff had already gone on strike. In short, McEwen was lumbered with a gold mine that wasn’t a gold mine .

Then inspiration struck. Attending a conference about recent developments in IT, McEwen was smitten with the open-source revolution. Bucking fierce internal resistance, he created the Goldcorp Challenge: the company put Red Lake’s closely guarded topographic data online and offered $575,000 in prize money to anyone who could identify rich drill sites. To the astonishment of players in the mining sector, upward of 1,400 technical experts based in 50-plus countries took up the problem. The result? Two Australian teams, working together, found locations that have made Red Lake one of the world’s richest gold mines. “From a remote site, the winners were able to analyze a database and generate targets without ever visiting the property,” McEwen said. “It’s clear that this is part of the future.” 1 1. See Linda Tischler, “ He struck gold on the Net (really) ,” fastcompany.com, May 31, 2002.

McEwen intuitively understood the value of taking a number of different approaches simultaneously to solving difficult problems. A decade later, we find that this mind-set is ever more critical: business leaders are operating in an era when forces such as technological change and the historic rebalancing of global economic activity from developed to emerging markets have made the problems increasingly complex, the tempo faster, the markets more volatile, and the stakes higher. The number of variables at play can be enormous, and free-flowing information encourages competition, placing an ever-greater premium on developing innovative, unique solutions.

This article presents an approach for doing just that. How? By using what we call flexible objects for generating novel solutions, or flexons , which provide a way of shaping difficult problems to reveal innovative solutions that would otherwise remain hidden. This approach can be useful in a wide range of situations and at any level of analysis, from individuals to groups to organizations to industries. To be sure, this is not a silver bullet for solving any problem whatever. But it is a fresh mechanism for representing ambiguous, complex problems in a structured way to generate better and more innovative solutions.

The flexons approach

Finding innovative solutions is hard. Precedent and experience push us toward familiar ways of seeing things, which can be inadequate for the truly tough challenges that confront senior leaders. After all, if a problem can be solved before it escalates to the C-suite, it typically is. Yet we know that teams of smart people from different backgrounds are more likely to come up with fresh ideas more quickly than individuals or like-minded groups do. 2 2. Lu Hong and Scott Page, “Groups of diverse problem solvers can outperform groups of high-ability problem solvers,” Proceedings of the National Academy of Sciences of the United States of America , 2004, Volume 101, pp. 16385–89. For more on the benefits of open innovation, see John Seely Brown and John Hagel III, “ Creation nets: Getting the most from open innovation ,” McKinsey Quarterly , May 2006. When a diverse range of experts—game theorists to economists to psychologists—interact, their approach to problems is different from those that individuals use. The solution space becomes broader, increasing the chance that a more innovative answer will be found.

Obviously, people do not always have think tanks of PhDs trained in various approaches at their disposal. Fortunately, generating diverse solutions to a problem does not require a diverse group of problem solvers. This is where flexons come into play. While traditional problem-solving frameworks address particular problems under particular conditions—creating a compensation system, for instance, or undertaking a value-chain analysis for a vertically integrated business—they have limited applicability. They are, if you like, specialized lenses. Flexons offer languages for shaping problems, and these languages can be adapted to a much broader array of challenges. In essence, flexons substitute for the wisdom and experience of a group of diverse, highly educated experts.

To accommodate the world of business problems, we have identified five flexons, or problem-solving languages. Derived from the social and natural sciences, they help users understand the behavior of individuals, teams, groups, firms, markets, institutions, and whole societies. We arrived at these five through a lengthy process of synthesizing both formal literatures and the private knowledge systems of experts, and trial and error on real problems informed our efforts. We don’t suggest that these five flexons are exhaustive—only that we have found them sufficient, in concert, to tackle very difficult problems. While serious mental work is required to tailor the flexons to a given situation, and each retains blind spots arising from its assumptions, multiple flexons can be applied to the same problem to generate richer insights and more innovative solutions.

Networks flexon

Imagine a map of all of the people you know, ranked by their influence over you. It would show close friends and vague acquaintances, colleagues at work and college roommates, people who could affect your career dramatically and people who have no bearing on it. All of them would be connected by relationships of trust, friendship, influence, and the probabilities that they will meet. Such a map is a network that can represent anything from groups of people to interacting product parts to traffic patterns within a city—and therefore can shape a whole range of business problems.

For example, certain physicians are opinion leaders who can influence colleagues about which drugs to prescribe. To reveal relationships among physicians and help identify those best able to influence drug usage, a pharmaceutical company launching a product could create a network map of doctors who have coauthored scientific articles. By targeting clusters of physicians who share the same ideas and (one presumes) have tight interactions, the company may improve its return on investments compared with what traditional mass-marketing approaches would achieve. The network flexon helps decompose a situation into a series of linked problems of prediction (how will ties evolve?) and optimization (how can we maximize the relational advantage of a given agent?) by presenting relationships among entities. These problems are not simple, to be sure. 3 3. For more on network analysis, see Robert L. Cross, Roger D. Martin, and Leigh M. Weiss, “ Mapping the value of employee collaboration ,” McKinsey Quarterly , August 2006. For more on the role of brokers in filling organizational gaps, see Ronald S. Burt, Structural Holes: The Social Structure of Competition , first edition, Cambridge, MA: Harvard University Press, 1992. But they are well-defined and structured—a fundamental requirement of problem solving.

Evolutionary flexon

Evolutionary algorithms have won games of chess and solved huge optimization problems that overwhelm most computational resources. Their success rests on the power of generating diversity by introducing randomness and parallelization into the search procedure and quickly filtering out suboptimal solutions. Representing entities as populations of parents and offspring subject to variation, selection, and retention is useful in situations where businesses have limited control over a large number of important variables and only a limited ability to calculate the effects of changing them, whether they’re groups of people, products, project ideas, or technologies. Sometimes, you must make educated guesses, test, and learn. But even as you embrace randomness, you can harness it to produce better solutions to complex problems.

That’s because not all “guessing strategies” are created equal. We have crucial choices to make: generating more guesses (prototypes, ideas, or business models) or spending more time developing each guess or deciding which guesses will survive. Consider a consumer-packaged-goods company trying to determine if a new brand of toothpaste will be a hit or an expensive failure. Myriad variables—everything from consumer habits and behavior to income, geography, and the availability of clean water—interact in multiple ways. The evolutionary flexon may suggest a series of low-cost, small-scale experiments involving product variants pitched to a few well-chosen market segments (for instance, a handful of representative customers high in influence and skeptical about new ideas). With every turn of the evolutionary-selection crank, the company’s predictions will improve.

Decision-agent flexon

To the economic theorist, social behavior is the outcome of interactions among individuals, each of whom tries to select the best possible means of achieving his or her ends. The decision-agent flexon takes this basic logic to its limit by providing a way of representing teams, firms, and industries as a series of competitive and cooperative interactions among agents. The basic approach is to determine the right level of analysis—firms, say. Then you ascribe to them beliefs and motives consistent with what you know (and think they know), consider how their payoffs change through the actions of others, determine the combinations of strategies they might collectively use, and seek an equilibrium where no agent can unilaterally deviate from the strategy without becoming worse off.

Game theory is the classic example, but it’s worth noting that a decision-agent flexon can also incorporate systematic departures from rationality: impulsiveness, cognitive shortcuts such as stereotypes, and systematic biases. Taken as a whole, this flexon can describe all kinds of behavior, rational and otherwise, in one self-contained problem-solving language whose most basic variables comprise agents (individuals, groups, organizations) and their beliefs, payoffs, and strategies.

For instance, financial models to optimize the manufacturing footprint of a large industrial company would typically focus on relatively easily quantifiable variables such as plant capacity and input costs. To take a decision-agent approach, you assess the payoffs and likely strategies of multiple stakeholders—including customers, unions, and governments—in the event of plant closures. Adding the incentives, beliefs, and strategies of all stakeholders to the analysis allows the company to balance the trade-offs inherent in a difficult decision more effectively.

System-dynamics flexon

Assessing a decision’s cascading effects on complex businesses is often a challenge. Making the relations between variables of a system, along with the causes and effects of decisions, more explicit allows you to understand their likely impact over time. A system-dynamics lens shows the world in terms of flows and accumulations of money, matter (for example, raw materials and products), energy (electrical current, heat, radio-frequency waves, and so forth), or information. It sheds light on a complex system by helping you develop a map of the causal relationships among key variables, whether they are internal or external to a team, a company, or an industry; subjectively or objectively measurable; or instantaneous or delayed in their effects.

Consider the case of a deep-sea oil spill, for example. A source (the well) emits a large volume of crude oil through a sequence of pipes (which throttle the flow and can be represented as inductors) and intermediate-containment vessels (which accumulate the flow and can be modeled as capacitors). Eventually, the oil flows into a sink (which, in this case, is unfortunately the ocean). A pressure gradient drives the flow rate of oil from the well into the ocean. Even an approximate model immediately identifies ways to mitigate the spill’s effects short of capping the well. These efforts could include reducing the pressure gradient driving the flow of crude, decreasing the loss of oil along the pipe, increasing the capacity of the containment vessels, or increasing or decreasing the inductance of the flow lines. In this case, a loosely defined phenomenon such as an oil spill becomes a set of precisely posed problems addressable sequentially, with cumulative results.

Information-processing flexon

When someone performs long division in her head, a CEO makes a strategic decision by aggregating imperfect information from an executive team, or Google servers crunch Web-site data, information is being transformed intelligently. This final flexon provides a lens for viewing various parts of a business as information-processing tasks, similar to the way such tasks are parceled out among different computers. It focuses attention on what information is used, the cost of computation, and how efficiently the computational device solves certain kinds of problems. In an organization, that device is a collection of people, whose processes for deliberating and deciding are the most important explanatory variable of decision-making’s effectiveness. 4 4. See Dan Lovallo and Olivier Sibony, “ The case for behavioral strategy ,” McKinsey Quarterly , March 2010.

Consider the case of a private-equity firm seeking to manage risk. A retrospective analysis of decisions by its investment committee shows that past bets have been much riskier than its principals assumed. To understand why, the firm examines what information was transmitted to the committee and how decisions by individuals would probably have differed from those of the committee, given its standard operating procedures. Interviews and analysis show that the company has a bias toward riskier investments and that it stems from a near-unanimity rule applied by the committee: two dissenting members are enough to prevent an investment. The insistence on near-unanimity is counterproductive because it stifles debate: the committee’s members (only two of whom could kill any deal) are reluctant to speak first and be perceived as an “enemy” by the deal sponsor. And the more senior the sponsor, the more likely it is that risky deals will be approved. Raising the number of votes required to kill deals, while clearly counterintuitive, would stimulate a richer dialogue.

Putting flexons to work

We routinely use these five problem-solving lenses in workshops with executive teams and colleagues to analyze particularly ambiguous and complex challenges. Participants need only a basic familiarity with the different approaches to reframe problems and generate more innovative solutions. Here are two quite different examples of the kinds of insights that emerge from the use of several flexons, whose real power emerges in combination.

Reorganizing for innovation

A large biofuel manufacturer that wants to improve the productivity of its researchers can use flexons to illuminate the problem from very different angles.

Networks. It’s possible to view the problem as a need to design a better innovation network by mapping the researchers’ ties to one another through co-citation indices, counting the number of e-mails sent between researchers, and using a network survey to reveal the strength and density of interactions and collaborative ties. If coordinating different knowledge domains is important to a company’s innovation productivity, and the current network isn’t doing so effectively, the company may want to create an internal knowledge market in which financial and status rewards accrue to researchers who communicate their ideas to co-researchers. Or the company could encourage cross-pollination by setting up cross-discipline gatherings, information clearinghouses, or wiki-style problem-solving sites featuring rewards for solutions.

Evolution. By describing each lab as a self-contained population of ideas and techniques, a company can explore how frequently new ideas are generated and filtered and how stringent the selection process is. With this information, it can design interventions to generate more varied ideas and to change the selection mechanism. For instance, if a lot of research activity never seems to lead anywhere, the company might take steps to ensure that new ideas are presented more frequently to the business-development team, which can provide early feedback on their applicability.

Decision agents. We can examine in detail how well the interests of individual researchers and the organization are aligned. What financial and nonfinancial benefits accrue to individuals who initiate or terminate a search or continue a search that is already under way? What are the net benefits to the organization of starting, stopping, or continuing to search along a given trajectory? Search traps or failures may be either Type I (pursuing a development path unlikely to reach a profitable solution) or Type II (not pursuing a path likely to reach a profitable solution). To better understand the economics at play, it may be possible to use industry and internal data to multiply the probabilities of these errors by their costs. That economic understanding, in turn, permits a company to tailor incentives for individuals to minimize Type I errors (by motivating employees to reject apparent losers more quickly) or Type II errors (by motivating them to persist along paths of uncertain value slightly longer than they normally would).

Predicting the future

Now consider the case of a multinational telecommunications service provider that operates several major broadband, wireless, fixed, and mobile networks around the world, using a mix of technologies (such as 2G and 3G). It wants to develop a strategic outlook that takes into consideration shifting demographics, shifting technologies for connecting users with one another and with its core network (4G), and shifting alliances—to say nothing of rapidly evolving players from Apple to Qualcomm. This problem is complicated, with a range of variables and forces at work, and so broad that crafting a strategy with big blind spots is easy. Flexons can help.

Each view of the world described below provides valuable food for thought, including potential strategic scenarios, technology road maps, and possibilities for killer apps. More hard work is needed to synthesize the findings into a coherent worldview, but the different perspectives provided by flexons illuminate potential solutions that might otherwise be missed.

Decision agents. Viewing the problem in this way emphasizes the incentives for different industry players to embrace new technologies and service levels. By enumerating a range of plausible scenarios from the perspective of customers and competitors, the network service provider can establish baseline assessments of future pricing, volume levels, and investment returns.

Networks. This lens allows a company or its managers to look at the industry as a pattern of exchange relationships between paying customers and providers of services, equipment, chips, operating systems, and applications, and then to examine the properties of each exchange network. The analysis may reveal that not all innovations and new end-user technologies are equal: some provide an opportunity for differentiation at critical nodes in the network; others do not.

System dynamics. This flexon focuses attention on data-flow bottlenecks in applications ranging from e-mail and voice calls to video downloads, games, and social-networking interactions. 5 5. The information-processing flexon, which focuses attention on the computational tasks required to give users access to assured data streams, is also relevant for evaluating bottlenecks and facilitating predictions about how networks and operators will fare in the future. The company can build a network-optimization map to predict and optimize capital expenditures for network equipment as a function of expected demand, information usage, and existing constraints. Because cost structures matter deeply to annuity businesses (such as those of service providers) facing demand fluctuations, the resulting analysis may radically affect which services a company believes it can and cannot offer in years to come.

Flexons help turn chaos into order by representing ambiguous situations and predicaments as well-defined, analyzable problems of prediction and optimization. They allow us to move up and down between different levels of detail to consider situations in all their complexity. And, perhaps most important, flexons allow us to bring diversity inside the head of the problem solver, offering more opportunities to discover counterintuitive insights, innovative options, and unexpected sources of competitive advantage.

Olivier Leclerc is a principal in McKinsey’s Southern California office. Mihnea Moldoveanu is associate dean of the full-time MBA program at the University of Toronto’s Rotman School of Management, where he directs the Desautels Centre for Integrative Thinking.

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Example Accounting Problems

These sample problems are intended as a supplement to my book Accounting Made Simple: Accounting Explained in 100 Pages or Less .

Chapter 1: The Accounting Equation

Question 1: Define the three components of the Accounting Equation.

Question 2: If a business owns a piece of real estate worth $250,000, and they owe $180,000 on a loan for that real estate, what is owners’ equity in the property?

Answer to Question 1:

• Assets: All the property owned by a business.
• Liabilities: A company’s outstanding debts.
• Owners’ Equity: The company’s ownership interests in its property after all debts have been repaid.

Answer to Question 2: $70,000

Chapter 2: The Balance Sheet

Question 1: Categorize the following accounts as to whether they’re Asset, Liability, of Owners’ Equity accounts.

• Common Stock
• Accounts Receivable
• Retained Earnings
• Notes Payable

Question 2: For each of the following assets or liabilities, state whether it is current or non-current:

• Accounts Payable
• Property, Plant, and Equipment
• Note Payable
• Common Stock: Owners’ Equity
• Accounts Receivable: Asset
• Retained Earnings: Owners’ Equity
• Cash: Asset
• Notes Payable: Liability

Answer to Question 2:

• Accounts Payable: current liability
• Cash: current asset
• Property, Plant, and Equipment: non-current asset
• Note Payable: non-current liability (Though if a portion of the note is due within the next twelve months, that portion should be shown as a current liability.)
• Inventory: current asset

Chapter 3: The Income Statement

Question 1: Given the following information, calculate ABC Corp’s Net Income:

• Sales: $260,000
• Cost of Goods Sold: $100,000
• Salaries and Wages: $20,000
• Rent Expense: $15,000
• Advertising Expense: $35,000
• Cost of repairs resulting from fire: $50,000

Question 2: Using the above information, calculate ABC Corp’s Operating Income.

Question 3: Using the above information, calculate ABC Corp’s Gross Profit.

Answer to Question 1: $40,000 (Sales of $260,000 minus $220,000 of total expenses.)

Answer to Question 2: $90,000 (Operating Income is intended to represent income from typical business operations.  As a result, expenses resulting from a fire would certainly not be included when calculating Operating Income.)

Answer to Question 3: $160,000 (Sales minus Cost of Goods Sold)

Chapter 4: The Statement of Retained Earnings

Question 1: Using the following information, calculate the ending balance in Retained Earnings:

• Beginning Retained Earnings: $10,000
• Net Income: $5,000
• Dividends Paid: $4,000

Question 2: Calculate Net Income given the following information:

• Consulting Revenue: $50,000
• Rent Expense: $5,000
• Software Licensing Fees: $3,000
• Dividends Paid: $6,000
• Advertising Expense:$20,000

Question 3: Using the following information, calculate how much was paid out in dividends during the year:

• Beginning Retained Earnings: $40,000
• Net Income: $15,000
• Ending Retained Earnings: $30,000

Answer to Question 1: $11,000

Answer to Question 2: $22,000 (Remember, dividends are not an expense! They are a distribution of net income rather than a reduction of net income.)

Answer to Question 3: $25,000

Chapter 5: The Cash Flow Statement

Question 1: Calculate cash flow from operating activities using the following information:

• Cash sales: $10,000
• Credit sales: $15,000
• Cash received from prior credit sales: $8,000
• Rent paid: $3,000
• Inventory purchased: $6,000
• Wages paid:$5,000

Question 2: Categorize the following cash flows as to whether they are operating, investing, or financing activities:

• Dividends paid to shareholders
• Interest paid on loans
• Dividends received on investments
• Purchase of new office furniture

Answer to Question 1: Net cash inflow of $4,000. (Remember not to include the $15,000 of credit sales when calculating cash flow.)

• Taxes paid: Operating Activities
• Dividends paid to shareholders: Financing Activities
• Interest paid on loans: Operating Activities (Note: Principal paid on loans is a financing activity.)
• Dividends received on investments: Operating Activities
• Cash sales: Operating Activities
• Purchase of new office furniture: Investing Activities

Chapter 6: Financial Ratios

Questions 1-3: Use the following income statement and balance sheet to answer the following questions.

Question 1: Calculate the company’s current ratio and quick ratio.

Question 2: Calculate the company’s return on assets and return on equity.

Question 3: Calculate the company’s debt ratio and debt to equity ratio.

Answer to Question 1: Current ratio = 1.5 (30,000 current assets ÷ 20,000 current liabilities). Quick ratio = 0.75 (15,000 non-inventory current assets ÷ 20,000 current liabilities).

Answer to Question 2: Return on assets = 21.4% (60,000 net income ÷ 280,000 total assets). Return on equity = 27.3% (60,000 net income ÷ 220,000 shareholders’ equity)

Answer to Question 3: Debt ratio = 21.4% (60,000 liabilities ÷ 280,000 assets). Debt to equity ratio = 27.3% (60,000 liabilities ÷ 220,000 shareholders’ equity).

Chapter 7: What is GAAP?

Question 1: Who is required to follow GAAP?

Question 2: Who creates the rules for GAAP?

Question 3: What is the purpose of Generally Accepted Accounting Principles (GAAP)?

Answer to Question 1: Publicly-traded companies. (Governmental entities are required to follow GAAP as well, but the rules that make up GAAP for governmental entities are significantly different from the rules for publicly-traded companies.)

Answer to Question 2: The Financial Accounting Standards Board (FASB)

Answer to Question 3: To purpose of GAAP is to ensure that companies’ financial statements are prepared using a similar set of rules and assumptions. This helps to enable meaningful comparisons between the financial statements of multiple companies.

Chapter 8: Debits and Credits

Questions 1-3: Show how the following transactions would affect the Accounting Equation

Question 1: James purchases a $5,000 piece of equipment.

Question 2: James writes his monthly check for rent: $3,000.

Question 3: James takes out a $25,000 loan with his bank.

Questions 4-6: Create journal entries to record the following transactions

Question 4: James purchases a $5,000 piece of equipment.

Question 5: James writes his monthly check for rent: $3,000.

Question 6: James takes out a $25,000 loan with his bank.

Answer to Question 3:

Answer to Question 4:

Answer to Question 5:

Answer to Question 6:

Chapter 9: Cash vs. Accrual

Questions 1-5: Prepare journal entries to record each of the following events.

Question 1: Tom’s Tax Prep’s monthly rent is $3,500. At the end of February, they had not yet received their monthly rent invoice.

Question 2: In early March, Tom’s Tax Prep receives and pays their rent bill for February.

Question 3: Marla, a marketing consultant, performs services for a client. The agree-upon price was $10,000, due 30 days from the date the services were completed.

Question 4: ABC Hardware makes a sale (on credit) for $2,500 worth of lumber. The lumber originally cost them $1,300.

Question 5: Julie takes out a $10,000 loan for her business. Repayment is due in one year along with $1,200 interest.

When the loan is taken out:

At the end of each month during the year:

When the loan is repaid:

Chapter 10: The Accounting Close Process

Prepare closing journal entries for Mario’s Mobile Products, which has the following end-of-year trial balance:

Alternatively, the above can be combined into one journal entry:

In either case, the following closing journal entry is also required in order to close out the Income Summary account and transfer the balance — representing the business’s net income for the period — into Retained Earnings:

Chapter 11: Other GAAP Concepts and Assumptions

Question 1: Andy runs a real estate development firm. Five years ago, he purchased a piece of land for $250,000. This year, an appraiser tells Andy that the land is worth $300,000. At what value should Andy report the land on his balance sheet? Why?

Question 2: Andy is the sole owner of his firm. In June, he moves $30,000 from his business checking account to his personal checking account. If Andy wants his financial records to be in accordance with GAAP, should he record the transaction or not? Why?

Answer to Question 1: Andy should report the land at its original cost: $250,000. Under GAAP’s “Historical Cost” assumption, assets are reported at their historical cost rather than at their current market value. This is done in order to remove subjective asset valuations from the reporting process.

Answer to Question 2: Yes, in order to be in compliance with GAAP, Andy must record the transaction. GAAP’s “Entity Assumption” considers businesses to be separate entities from their owners. As such, transactions between a business and its owners must be recorded as if they were between the business and an entirely separate party.

Chapter 12: Depreciation of Fixed Assets

Questions 1-6: Prepare journal entries to record each of the following events:

Question 1: Liliana spends $20,000 (cash) on a piece of equipment for use in her restaurant. She plans to use the straight-line method to depreciate the equipment over 5 years. She expects it to have no value at the end of the 5 years.

Question 2: After 4 years,  Liliana sells the equipment for $4,000.

Question 3: Same as question 2, except she sells the equipment for $6,000.

Question 4: Same as question 2, except she sells the equipment for $2,000.

Question 5: Oscar is a self-employed electrician. He purchases a piece of equipment for $30,000 cash. He plans to use it for 10 years, at which point he plans to sell it for approximately $4,000.He elects to use the straight-line method of depreciation.

Question 6: Sandra runs a business making embroidered linens for wedding receptions. She purchases a new piece of equipment for $15,000 in credit. She plans to use the units of production method of depreciation. The equipment is expected to produce approximately 5,000 linens, at which point it will be valueless. During the first year after buying the equipment, Sandra uses it to produce 1,500 linens.

To record the purchase:

To record depreciation every year:

(Depreciable value is $26,000. If depreciated over 10 years, that’s $2,600 depreciation per year.)

When the purchase is eventually paid for:

To record depreciation for the first year:

($15,000 depreciable value ÷ 5,000 units = $3 of depreciation per unit. 1,500 units produce x $3 per unit = $4,500 depreciation expense.)

Chapter 13: Amortization of Intangible Assets

Questions 1-2: Prepare journal entries to record each of the following events.

Question 1: Trent runs a business as an engineering consultant. He invents a new system for preparing bridges to deal with extreme weather conditions. He spends $28,000 securing a 14-year patent for his invention. He expects the system to be used for the next few decades at least.

Question 2: Tina runs a business creating medical supplies for surgeries. Her team develops a new tool for assisting in heart surgery. She spends $42,000 on getting it patented. She receives a 14-year patent, but she only expects the technology to be used for about 7 years before a newer technology comes along to replace it.

To record receiving the patent:

To record amortization expense each year:

Chapter 14: Inventory and Cost of Goods Sold

Question 1: Using the following information, calculate Cost of Goods Sold:

• Beginning Inventory: $3,000
• Ending Inventory: $4,500
• Purchases: $6,000

Question 2-4: Use the following information to answer questions 2-4.

• Beginning Inventory: 1,000 units at $4/unit.
• Purchases: 600 units at $5/unit.
• Ending Inventory: 900 units.

Question 2: Calculate Cost of Goods Sold using First-In-First-Out (FIFO)

Question 3: Calculate Cost of Goods Sold using Last-In-First-Out (LIFO)

Question 4: Calculate Cost of Goods Sold using the Average Cost Method

Answer to Question 1: CoGS = $4,500

Answer to Question 2: CoGS = $2,800

Explanation:

The first thing to calculate is how many units were sold. In this case, 700 units must have been sold. Now we just have to figure out the cost for each unit of sold inventory.

Using FIFO, we assume that the first units purchased were the first units sold. Therefore, all 700 sold units must have been from the older ($4 per unit) inventory. 700 units x $4 per unit = $2,800

Answer to Question 3: CoGS =$3,400

Again, we know that 700 units were sold. Under LIFO, we assume that the most recently purchased units are sold first. Therefore, all 600 of the $5 units must have been sold. The remaining 100 sold units must have been from the older ($4/unit) inventory.

(600 units x $5 per unit) + (100 units x $4 per unit) = $3,400

Answer to Question 4: CoGS =$3,062.50

Using the Average Cost Method, we have to calculate the average cost per unit of inventory. We know that there were a total of 1,600 units available for sale and that–in total–they cost $7,000. That gives us an average cost per unit of $4.38 (or $4.375 to be precise).

To calculate CoGS, we multiply this average cost per unit by the number of units sold. 700 units x $4.375 per unit = $3,062.50

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30 Head Of Finance Interview Questions and Answers

Common Head Of Finance interview questions, how to answer them, and example answers from a certified career coach.

Securing a position as the Head of Finance in any organization is no small feat. As you prepare to step into this pivotal role, it’s not just your years of experience or deep understanding of financial concepts that will be put under scrutiny during the interview process – but also your leadership skills, strategic thinking, and ability to navigate complex business challenges.

In this article, we’ve gathered some common questions likely to come up in a Head of Finance interview, along with insights on how to answer them effectively. Our aim? To help you articulate your expertise and vision, giving you the best chance at securing that coveted leadership role.

1. Please describe your experience in developing financial strategies for a company.

This question is posed by hiring managers to gauge your strategic thinking skills and your ability to align financial planning with wider business goals. As the Head of Finance, you’re expected to not just crunch numbers, but to use financial data to direct the company’s future strategies, investments, and growth. Your experience in this area will show if you have the capacity to fulfill this critical aspect of the role.

Example: “In my experience, developing financial strategies involves a comprehensive understanding of the company’s goals and resources. I’ve worked on creating budgets that align with strategic plans, ensuring efficient use of resources while pursuing growth.

Risk management has also been critical in my approach, identifying potential financial pitfalls and implementing measures to mitigate them.

Furthermore, I have leveraged data analytics for insightful decision-making, helping steer the company towards profitable ventures. My focus has always been on enhancing shareholder value through sustainable financial practices.”

2. How have you used financial data to drive strategic decision-making in your previous roles?

As the prospective head of finance, it’s paramount that you can demonstrate a solid track record of using financial data to influence and guide critical business decisions. Your role isn’t just about crunching the numbers; it’s about analyzing those numbers, identifying trends, and using that information to help the company make informed strategic moves. This question aims to assess your analytical abilities and your capacity to use financial data as a powerful decision-making tool.

Example: “In one instance, I analyzed our company’s sales and expense data to identify trends. I discovered that certain product lines were underperforming while others were generating significant revenue.

Based on this information, we reallocated resources from the underperforming products to those with higher demand. This led to increased profitability.

In another situation, I used financial forecasting models to predict future revenues and expenses. The insights derived helped us make informed decisions about potential investments and cost-saving opportunities.

Overall, using financial data strategically has been instrumental in driving growth and efficiency in my past experiences.”

3. Can you provide an example of a complex financial project you have managed from start to finish?

This question is a way for hiring managers to gauge your hands-on experience with managing comprehensive financial projects. They want to understand your ability to plan, execute, and oversee projects that require advanced financial knowledge and strategic thinking. It allows them to assess your problem-solving skills, attention to detail, and leadership abilities in a real-world context.

Example: “One complex financial project I managed was the implementation of a new enterprise resource planning (ERP) system. The goal was to streamline financial operations and improve efficiency.

I led a cross-functional team, coordinating between IT, finance, and external consultants. We started with an in-depth needs assessment, followed by vendor selection and contract negotiation.

The most challenging part was data migration and ensuring no loss of critical information. This required rigorous testing and troubleshooting.

Post-implementation, we conducted training sessions for all users and monitored the system’s performance closely. The successful completion of this project resulted in improved financial reporting accuracy and operational efficiency.”

4. What steps would you take to ensure the company remains financially healthy during an economic downturn?

This is a critical question because it tests your ability to think strategically and apply your financial knowledge in crisis management situations. Economic downturns can be challenging for any company, and as the head of finance, you would be expected to create and implement plans to navigate such times. Your response would shed light on your ability to make tough decisions, manage risks, and ensure the company’s financial stability.

Example: “In an economic downturn, it’s crucial to maintain a solid financial footing. I’d begin by conducting a thorough review of our financial health, identifying areas where we could potentially cut costs without compromising the quality of our services or products.

Next, I would focus on strengthening our cash reserves. This might involve renegotiating contracts with suppliers for better terms, delaying non-essential expenditures, and optimizing working capital management.

I’d also look at diversifying revenue streams if possible, exploring new markets or product lines that may be less impacted by the downturn.

Lastly, clear communication is key during such periods. I would ensure all stakeholders are kept informed about the company’s financial status and steps being taken to mitigate risks.”

5. How do you approach risk management in financial planning?

The head of finance is a critical role that directly impacts a company’s financial health. Therefore, understanding your approach to risk management is essential for the interviewer. They want to assess how you identify, analyze, and mitigate financial risks, whether it’s in investment decisions, budgeting, or financial reporting. This insight will allow them to determine if your approach aligns with the company’s objectives and financial strategies.

Example: “Risk management in financial planning involves identifying, assessing and prioritizing uncertainties that could impact financial goals. It’s crucial to develop strategies to mitigate these risks.

One approach is diversification of investments to reduce exposure to any single asset or risk category. This can help protect against market volatility and potential losses.

Another key strategy is ensuring adequate insurance coverage for unforeseen events like disability or death, which could significantly affect one’s financial plan.

Regular monitoring and adjustment of the financial plan is also essential as personal circumstances, market conditions and legislation changes.

Lastly, maintaining an emergency fund can provide a financial buffer during unexpected situations, further reducing financial risks.”

6. How would you handle a situation where your financial projections were significantly off target?

In the high-stakes world of finance, your ability to adapt, learn, and course-correct is critical. When a hiring manager poses this question, they’re gauging your ability to handle pressure and failure. They want to know how you react when things don’t go as planned. Can you adapt your strategies, learn from your mistakes, and implement changes to avoid similar errors in the future? Your answer will provide insight into your problem-solving skills, resilience, and leadership potential.

Example: “In such a scenario, I would first conduct an in-depth analysis to identify the root cause of the discrepancy. This could involve reviewing our assumptions, data sources, and calculation methods.

Once the issue is identified, I’d take immediate action to rectify it. If it’s due to inaccurate data or flawed methodology, we’ll need to refine our processes.

I believe in transparency, so I would communicate this situation honestly to stakeholders, explaining what went wrong and how we plan to correct it.

Moving forward, implementing regular check-ins on our financial projections can help us catch deviations earlier. It’s also crucial to continually improve forecasting accuracy by leveraging historical data and industry trends.”

7. What experience do you have in securing funding for company initiatives or expansion plans?

This question is critical as it probes your ability to drive financial growth and sustainability. As the head of finance, your role extends beyond managing daily financial operations. You’re expected to strategically lead the company towards its financial goals, which may involve securing funding for expansion plans or new initiatives. Your ability to demonstrate a successful track record in this area can indicate your potential effectiveness in the role.

Example: “I have extensive experience in securing funding for various business initiatives. In my previous role, I successfully raised $5 million through a series of equity and debt financing rounds. This involved creating compelling investment proposals, negotiating with potential investors, and ensuring compliance with financial regulations.

Furthermore, I’ve worked on securing government grants and tax credits to support expansion plans. My approach is always strategic; identifying the most suitable type of funding depending on the company’s needs and growth stage.

My strong network within the finance industry also plays a crucial role in connecting with the right investors or lenders. It’s not just about securing funds but doing so under terms that are beneficial and sustainable for the company.”

8. Describe a time you had to make a difficult financial decision that was unpopular but necessary for the company’s survival.

When it comes to making tough calls, the Head of Finance is often in the hot seat. It’s not always about crunching numbers and delivering reports; sometimes it’s about making unpopular decisions that are in the best interest of the company’s health and longevity. This question is designed to gauge your decision-making skills, your ability to communicate and implement difficult changes, and your resilience in the face of potential backlash.

Example: “In a previous company, we were facing severe financial strain. After analyzing the situation, it became clear that our only viable option was to downsize.

This decision wasn’t easy or popular, especially since it meant letting go of dedicated employees. But it was necessary to prevent bankruptcy and give the company a chance at survival.

We implemented this with transparency, providing support for those affected. The result was significant cost savings, allowing us to stabilize and eventually return to growth. It underscored the importance of making tough decisions for long-term sustainability.”

9. How would you assess the financial health of our company?

This question is a test of your financial acumen and ability to apply it to real-world situations. The hiring team wants to know if you understand key financial health indicators like cash flow, debt levels, profit margins, revenue growth, and return on investment. They also want to see if you can analyze these factors in the context of the company’s industry, competitors, and market conditions.

Example: “To assess the financial health of your company, I would review key financial statements such as balance sheets, income statements, and cash flow statements. These provide insights into profitability, liquidity, and solvency.

I’d also consider ratios like debt to equity, current ratio, quick ratio, return on assets, and profit margin. These metrics offer a snapshot of your company’s ability to meet obligations and generate profits.

Furthermore, understanding trends in revenue growth, cost management, and capital expenditure is crucial. It helps identify potential issues or opportunities for improvement.

Lastly, it’s essential to compare these figures with industry benchmarks to gauge relative performance.”

10. Can you elaborate on your experience with mergers and acquisitions?

The financial ramifications of mergers and acquisitions are vast and complex. When hiring a Head of Finance, companies want to be sure that the person they’re bringing on board has the ability to navigate these waters effectively. Experience in managing mergers and acquisitions often signals a deep understanding of financial strategy, an ability to manage risk, and the foresight to capitalize on opportunities for growth.

Example: “In my career, I’ve been involved in several M&A transactions. My role was to lead financial due diligence, valuation analysis and integration planning. This required a deep understanding of the target company’s financial health and potential risks.

I also worked closely with legal teams to ensure regulatory compliance. Post-merger, I oversaw the financial integration process ensuring synergy realization.

My experience has taught me that successful M&As require meticulous planning, rigorous analysis, and effective communication across all stakeholders.”

11. How have you used technology or software to improve financial operations in your previous roles?

The modern financial world is a complex, fast-paced environment that relies heavily on technology for accuracy, efficiency, and strategic advantage. Hiring managers need assurance that you’re not only comfortable with technology, but that you can leverage it effectively to streamline operations, reduce costs, and provide insightful data analysis. Your ability to use technology as a tool to improve financial operations is essential to your potential as a Head of Finance.

Example: “In one of my roles, I implemented a cloud-based accounting software to streamline financial operations. This not only automated repetitive tasks but also reduced human error and improved efficiency.

Moreover, I introduced data analytics tools for better financial forecasting and decision-making. It provided real-time insights into our financial health, enabling us to make proactive decisions.

Lastly, by leveraging technology in risk management, we were able to identify potential threats early on and take necessary measures, thereby safeguarding the company’s assets and reputation.”

12. In your opinion, what are the most critical financial metrics for a company to monitor and why?

The head of finance is often the navigator of the company’s financial ship. Thus, the interviewer wants to know if you understand which key financial indicators are most important to keep a company steady and profitable. They’re interested in your ability to identify, monitor, and interpret these metrics to make informed business decisions that will contribute to the company’s overall financial health.

Example: “In my view, the most critical financial metrics for a company to monitor are revenue growth, gross margin, net profit margin, and cash flow.

Revenue growth is essential as it shows if the company’s sales are increasing over time. It indicates market demand and how well the company is capturing that demand.

Gross margin reflects the efficiency in production or service delivery. A high gross margin suggests strong competitive advantage and pricing power.

Net profit margin reveals the overall profitability after accounting for all expenses. This metric provides insight into operational efficiency, cost management, and pricing strategy.

Lastly, cash flow is crucial because it represents the company’s ability to sustain operations and invest in future growth. Even profitable companies can fail if they run out of cash. Therefore, monitoring these four metrics gives a comprehensive understanding of a company’s financial health.”

13. Describe your process for preparing and presenting financial reports to stakeholders.

Financial transparency is a cornerstone of good business, and as a head of finance, part of your responsibility is to ensure that all stakeholders understand the company’s financial health. Your ability to prepare and present clear, concise, and comprehensive financial reports can make or break a company’s trust with its investors, board members, and even its employees. By asking this question, hiring managers are looking for evidence of your communication skills, financial expertise, and ability to make complex financial data understandable to non-financial people.

Example: “My process begins with gathering all necessary financial data, ensuring its accuracy and relevance. I then analyze this information to identify trends or issues that need attention.

Next, I prepare the report, focusing on clarity and simplicity. I use visuals like charts and graphs for easy comprehension.

Before presenting, I rehearse to ensure a smooth delivery. During the presentation, I highlight key points and provide insights into what the numbers mean for our business.

Post-presentation, I encourage questions to ensure understanding and engage in discussions about potential strategies or solutions based on the findings.”

14. How would you handle disagreements with senior management regarding financial strategies or decisions?

Leadership is looking for candidates who can effectively balance the need for collaboration and consensus with the independence and integrity that their role requires. Finance is a critical business function, and the head of finance must be able to handle disagreements with tact, professionalism, and the ability to articulate and defend financial strategies and decisions based on data and expert insight.

Example: “In situations of disagreement with senior management, I would first ensure that I fully understand their perspective and the reasoning behind it. It’s crucial to approach such discussions with respect and an open mind.

If I still believe my strategy is more beneficial, I’d present a well-reasoned argument backed by data and analysis. This could involve demonstrating potential outcomes or risks associated with both approaches.

However, if the decision still goes against my recommendation, as long as it doesn’t breach any ethical or legal boundaries, I would support it and work towards its successful implementation. After all, disagreements are part of healthy business operations and often lead to better results through constructive debate.”

15. What strategies have you used to reduce costs and increase revenue in your previous roles?

As a Head of Finance, you’ll be at the helm of your company’s financial health, and your employer wants to know you can handle that responsibility. They want to understand your strategic thinking, your ability to see the bigger picture, and your aptitude for making decisions that are in the best interest of the company. By asking about specific strategies, they’re trying to get a sense of how you might approach similar situations in their organization and what kind of results they could expect.

Example: “In the past, I’ve implemented stringent budget control measures to reduce costs. This involved a thorough review of all expenditures and cutting unnecessary spending.

To increase revenue, I focused on improving cash flow management. By ensuring timely collection from customers and negotiating better terms with suppliers, we were able to improve our liquidity position.

I also initiated financial analysis projects to identify profitable areas and underperforming sectors. We then reallocated resources accordingly to maximize profitability.”

16. Can you describe a time when you had to navigate a company through a significant financial crisis?

Being at the helm of a company’s finance department means you’ll be expected to handle financial turbulence effectively and strategically. Your potential employer wants to know if you’ve been tested under these conditions before and, more importantly, how you’ve handled it. The way you’ve navigated past financial storms can provide valuable insight into your crisis management skills, decision-making process, and leadership abilities.

Example: “In a previous company, we faced a severe financial downturn due to market changes. I immediately initiated a comprehensive review of our financial health and identified areas where we could cut costs without compromising on quality or staff morale.

I also developed a revised forecast model that accounted for the new market conditions. This allowed us to make data-driven decisions about future investments and expenses.

Simultaneously, I worked with the sales and marketing teams to devise strategies to boost revenue. We focused on upselling to existing clients and tapping into new markets.

This multi-pronged approach helped us navigate through the crisis and return to profitability within 18 months. It was challenging but it honed my abilities in strategic planning and crisis management.”

17. How have you ensured compliance with financial regulations in your previous roles?

Financial leaders must not only be savvy with numbers, but they also must be well-versed in regulatory requirements and ensure their organizations are in compliance. This question is designed to assess your knowledge of financial regulations, your attention to detail, and your ability to implement processes that ensure compliance. It’s also an opportunity to demonstrate your integrity and commitment to ethical financial practices.

Example: “In ensuring compliance with financial regulations, I have always prioritized implementing robust internal controls. This includes regular audits and risk assessments to identify potential areas of non-compliance.

I also believe in the importance of training and development. Ensuring that all team members are up-to-date on regulatory changes is crucial for maintaining compliance.

Furthermore, I’ve used technology to automate reporting processes and improve accuracy. These systems can provide real-time updates on our compliance status, allowing us to address any issues promptly.

Lastly, fostering a culture of transparency and integrity has been key. By promoting these values, we ensure everyone understands their role in compliance and acts accordingly.”

18. What is your approach to budgeting and forecasting for a company of our size?

Budgeting and forecasting are the backbone of any finance department. They are essential for managing cash flow, anticipating financial needs, and making informed business decisions. As the head of finance, you would play a critical role in these processes. Therefore, employers want to understand your approach to these tasks to gauge your ability to manage the company’s finances effectively.

Example: “My approach to budgeting and forecasting involves a mix of quantitative analysis, strategic planning, and risk assessment. I start by analyzing historical data and current market trends. This forms the basis for accurate financial projections.

Next, I align these forecasts with the company’s strategic goals. It’s crucial that our financial plans support business objectives.

Lastly, I incorporate a risk management perspective. By identifying potential challenges or uncertainties in advance, we can develop contingency plans. This ensures the company remains resilient even in unexpected situations.”

19. Describe your experience in managing a finance team.

The essence of a Head of Finance role is not just about crunching numbers; it’s also about people management. This question helps interviewers understand your leadership abilities, your team-building skills, and how you handle conflicts or challenges within a team. They want to ensure you can inspire and guide a team effectively, as it’s essential to the overall productivity and performance of the finance department.

Example: “I have had the opportunity to manage a finance team of 15 members. My primary focus was on fostering an environment that encouraged collaboration and innovation. I believe in setting clear expectations, providing resources, and then allowing my team to execute their tasks.

One challenge we faced was streamlining our financial reporting process. By implementing new software and training the team effectively, we were able to reduce time spent on reports by 30%.

I also prioritized professional development for each team member. This not only improved individual performance but also increased overall team productivity.

My leadership style is about empowering others, promoting open communication, and driving results.”

20. How do you stay updated on changes in financial regulations and industry trends?

Keeping up with the constantly shifting landscape of financial regulations and industry trends is a must for a Head of Finance. Employers ask this question to ascertain if you are proactive and committed to continuous learning. They want to ensure that you can provide accurate, up-to-date financial advice and strategies that comply with current regulations and are aligned with the latest industry developments. This is essential to minimize risk and maximize the financial health and growth of the organization.

Example: “I keep myself updated through a combination of professional development and personal initiative. I subscribe to industry newsletters, attend webinars, and follow thought leaders on social media. This allows me to stay informed about the latest trends and regulatory changes.

In addition, I am an active member of several finance-related organizations. These platforms provide opportunities for networking and learning from peers in the field.

Lastly, I believe in continuous education. So, I often take online courses or certifications related to financial regulations. This not only keeps my knowledge current but also helps me understand how these changes can impact our organization’s financial strategies.”

21. How would you handle a situation where there is a significant discrepancy in the company’s financial reports?

The heart of the finance role is accuracy and integrity. Financial discrepancies can signal substantial problems, from simple human error to potential fraud. By asking this question, hiring managers aim to gauge your problem-solving skills, ethical standards, and ability to maintain transparency in tough situations. They want to know if you can handle the pressure, investigate the issue, and implement a solution to avoid such discrepancies in the future.

Example: “In the event of a significant discrepancy in financial reports, my initial step would be to conduct an internal audit. It’s crucial to identify and understand the source of the discrepancy.

After identifying the issue, I’d collaborate with relevant stakeholders to rectify it. This could involve adjusting entries, revising procedures or implementing new controls.

Communication is key during this process. I’d ensure all parties are informed about the situation and our action plan.

Lastly, we need to learn from such discrepancies. Post-resolution, I’d assess how we can prevent similar issues in future, possibly through training or system updates.”

22. Can you provide an example of a time you used financial data to influence a major company decision?

The essence of a Head of Finance role is to leverage financial data to guide strategic decisions within an organization. Interviewers ask this question to assess your ability to not just analyze financial data, but also use this data to provide actionable insights that steer the company in the right direction. This implies understanding the company’s goals, the industry landscape, and the financial implications of different strategic decisions.

Example: “At a former company, we were considering expanding into a new market. I conducted an in-depth financial analysis using data such as projected revenue, costs and potential risks involved. The results indicated that the expansion would not be as profitable as initially thought due to unforeseen market volatility.

I presented these findings to the executive team, emphasizing the financial risk versus reward scenario. This influenced their decision to postpone the expansion until we had a more favorable market condition. It was a significant decision that saved the company from potentially substantial losses.”

23. How have you improved financial efficiency in your previous roles?

This question is meant to probe your ability to drive positive financial changes and improvements. As a Head of Finance, your responsibilities aren’t just about managing budgets and crunching numbers. It’s also about crafting strategies that increase efficiency, reduce costs, and drive growth. The interviewer wants to see if you have the experience and skills to identify financial bottlenecks and implement effective solutions.

Example: “In one of my roles, I implemented a new budgeting process that increased transparency and accountability. This involved setting clear financial targets, regularly reviewing progress, and adjusting as necessary.

I also introduced an automated invoicing system which reduced errors, improved cash flow, and saved time.

Furthermore, by renegotiating contracts with key suppliers, I was able to achieve significant cost savings without compromising on quality or service levels.

Through these initiatives, we were able to improve the company’s financial efficiency significantly.”

24. Describe your experience in negotiating with banks or investors for better financial terms.

A key part of a Head of Finance’s role is managing relationships with banks, investors, and other financial institutions. This often involves negotiating terms for loans, investments, and other financial agreements. Therefore, hiring managers want to know if you have the skills and experience to effectively negotiate on behalf of the company to secure the best financial terms possible. This not only demonstrates your financial acumen but also your ability to represent and advocate for the company’s interests.

Example: “In my career, I’ve had numerous opportunities to negotiate with banks and investors. My approach is always rooted in preparation – understanding our financial position, market trends, and the stakeholder’s interests.

One instance involved negotiating a lower interest rate on a corporate loan. By demonstrating our improved creditworthiness through solid financial performance and future prospects, we achieved a significant reduction in interest costs.

On the investor side, I’ve negotiated terms for equity investments. Here, it was crucial to balance investor returns against maintaining control and flexibility for the company. Through constructive dialogue and presenting robust business plans, we secured funding while preserving strategic autonomy.

These experiences have honed my negotiation skills and ability to secure favorable financial terms, ultimately contributing to the organization’s bottom line.”

25. How would you ensure that the finance department supports the operational needs of the company?

The success of a finance head is often measured by how well they can use financial strategies to support the company’s operational needs and goals. Hiring managers ask this question to assess your understanding of the symbiotic relationship between finance and operations. They want to know if you can effectively use financial data to support operational decision-making, improve efficiency, and drive growth.

Example: “To ensure the finance department supports operational needs, I would prioritize communication and collaboration. By understanding the goals and challenges of different departments, we can align our financial strategies to support them.

I’d also advocate for technology adoption. Utilizing advanced financial tools can improve efficiency, accuracy, and provide real-time data that aids decision-making.

Lastly, it’s crucial to establish robust financial policies and procedures. This ensures consistency, reduces risk, and provides a clear framework for operations.”

26. What is your experience with tax planning and compliance?

As the head of finance, you’ll need to ensure the organization is compliant with all tax laws and regulations. Additionally, smart tax planning can save the organization money and reduce risk. Therefore, interviewers want to ensure you have the necessary experience and knowledge to manage these critical tasks.

Example: “I have over a decade of experience in tax planning and compliance. I’ve managed corporate taxation, ensuring adherence to laws while optimizing tax liabilities through strategic planning.

My expertise includes interpreting complex tax regulations, preparing tax returns, and coordinating audits with external agencies. I’m proficient in using advanced tax software for efficient processing and reporting.

In terms of compliance, I’ve implemented robust systems to ensure accurate and timely filing of taxes. This has involved staying updated on changing tax laws and advising management accordingly.

Through these experiences, I’ve developed strong analytical skills and an eye for detail which are crucial for effective tax planning and compliance.”

27. Can you elaborate on a time when you had to implement new financial policies or procedures?

Change management is a key component of a finance leadership role. Hiring managers ask this question to gauge your ability to handle transitions, make tough decisions, and guide your team through changes that might not be popular but are necessary for the company’s financial health. Your response will also reveal your strategic thinking, your understanding of the broader business implications, and your communication skills in explaining and enforcing new protocols.

Example: “In my experience, implementing new financial policies often requires a balance between strategic planning and effective communication. For instance, I once introduced a policy to streamline the budgeting process.

I started by conducting an in-depth analysis of our existing procedures, identifying areas for improvement. The new policy aimed at reducing redundancies and improving accuracy.

The next step was communicating this change effectively. I organized training sessions to ensure everyone understood the new process and its benefits. This not only helped in smooth implementation but also garnered support from the team.

Overall, it led to a 20% reduction in time spent on budgeting, allowing us more time to focus on strategic financial decisions.”

28. How do you manage the financial aspects of a company’s growth strategy?

This question is posed to gain insight into your strategic thinking and how well you understand the financial implications of business growth. The interviewer wants to know how you would balance the financial risks and rewards of expansion, whether it’s entering new markets, launching new products, or acquiring other businesses. Your ability to develop and execute growth strategies while maintaining financial health is critical for a head of finance role.

Example: “Managing the financial aspects of a company’s growth strategy involves careful planning and analysis. I would start by creating detailed financial forecasts, taking into account potential costs and expected revenue streams.

Risk management is also crucial. By identifying potential risks and developing contingency plans, we can ensure that unexpected events do not derail our growth objectives.

It’s important to monitor key performance indicators regularly to assess progress against targets. This allows us to make timely adjustments if necessary.

Lastly, securing adequate funding for growth initiatives is essential. Whether it’s through reinvested profits, external investors or loans, ensuring we have sufficient capital is key to executing our growth strategy effectively.”

29. What is your experience with financial modeling and analysis?

As the head of finance, you’ll be expected to create and interpret complex financial models that guide decision-making processes. This question is designed to gauge your proficiency in these areas. Additionally, your response will provide insight into your ability to effectively communicate financial information to other members of the leadership team, and potentially to investors or board members.

Example: “I have over a decade of experience in financial modeling and analysis. I’ve developed models for various purposes, including forecasting, valuation, scenario analysis, and strategic planning.

My proficiency in Excel and other business intelligence software has been instrumental in creating robust models that drive decision-making processes. My analytical skills allow me to interpret complex data and provide actionable insights.

In terms of financial analysis, I’ve conducted comprehensive reviews of company finances, identified trends, and evaluated financial performance against operational targets. This has helped guide strategy and improve overall business performance.

Overall, my experience enables me to lead financial operations effectively, ensuring alignment with organizational goals.”

30. Can you provide an example of a time you had to communicate complex financial information to non-financial stakeholders?

The essence of the finance role often extends beyond crunching numbers. It’s about translating those figures into actionable insights that stakeholders can easily understand. This question aims to determine your ability to distill complex financial data into simpler, digestible information, thus facilitating informed business decisions. It’s all about your aptitude for communication, empathy, and understanding the needs and knowledge levels of your audience.

Example: “In a recent project, we were implementing a new budgeting system. The team was diverse with members from different departments who didn’t have financial backgrounds.

I took the initiative to simplify complex financial jargon into layman’s terms. For example, instead of using ‘amortization’, I used ‘paying off debt over time in regular installments’.

I also used visual aids like graphs and charts to illustrate key points. This approach made it easier for everyone to understand the information and contribute effectively to the project. It proved successful as the project was implemented smoothly and within the set timeline.”

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Critical Thinking Skills.

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Critical thinking is the ability to analyze information objectively and make a reasoned judgment. It involves evaluating sources, such as data, facts, observable phenomena, and research findings. Developing critical thinking skills is essential for academic success and everyday decision-making. Here are strategies and examples to help enhance critical thinking skills.

1. Ask Questions

Asking questions is fundamental to critical thinking. Encourage curiosity and in-depth understanding by asking questions like:

• What evidence supports this claim?
• Are there alternative perspectives?
• What are the implications of this decision?

2. Analyze Assumptions

Identifying and analyzing assumptions helps in understanding underlying biases and beliefs.

• Example : When reading a news article, identify the assumptions the author makes and consider how they influence the argument.

3. Evaluate Evidence

Evaluating evidence involves assessing the reliability and validity of information sources.

• Example : When researching a topic, compare information from multiple sources and evaluate their credibility.

4. Develop Hypotheses

Formulating and testing hypotheses can strengthen analytical skills.

• Example : In a science experiment, develop a hypothesis, conduct experiments to test it, and analyze the results.

5. Reflect on Your Thinking Process

Reflection helps in recognizing and improving your thought process.

• Example : After making a decision, reflect on the steps you took, what you learned, and how you could improve in the future.

6. Engage in Discussions

Participating in discussions encourages the exchange of ideas and perspectives.

• Example : Join a debate club or discussion group to practice presenting and defending your viewpoints.

7. Practice Problem-Solving

Solving problems systematically can enhance critical thinking.

• Example : Use problem-solving frameworks, like SWOT analysis, to evaluate a business case study.

8. Use Critical Thinking Exercises

Incorporate exercises and activities designed to boost critical thinking skills.

• Example : Engage in brainteasers, puzzles, and logic games that challenge your reasoning abilities.

Examples of Critical Thinking in Action

• Case Study: Socratic Method : Used in law schools, the Socratic method involves asking a series of questions to help students think deeply about the subject matter.
• Example: Reflective Journals : Students keep journals where they reflect on their learning experiences, analyze their thinking processes, and develop insights.

Developing critical thinking skills is crucial for academic success and informed decision-making. By asking questions, analyzing assumptions, evaluating evidence, developing hypotheses, reflecting on thinking processes, engaging in discussions, practicing problem-solving, and using critical thinking exercises, individuals can enhance their ability to think critically.

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