Investment Banking Interview Questions

How do you project expenses?

By January 27, 2022No Comments

The question we’re going to go over today is “How do you project expenses?” This question is very similar to what we covered previously about how we’d project revenue. You should check that out too if you haven’t seen that video yet. Anyways, let’s get into how we’d craft the answer to this interview question.

Interview Answer

“In general, there are three different ways to project cost. The first way is to project cost using a growth rate. We can take last year’s expense and increase it by the growth rate.  

The second way is to project cost by tying them to revenue. For example, we can calculate the cost as a percentage of revenue. By multiplying this percentage to the projected revenue, we’ll arrive at the projected cost.

And lastly, we can project cost through a more detailed expense build. For example, we can project out the different components that go into Cost of Goods Sold, such as direct materials, labor cost, shipping cost, and others and then add them up to calculate the future cost. 

So these are the three different ways we can we project expenses.”

Additional Tip

That’s how you can answer this interview question: “How do you project expenses”. You can also talk about factors that you would take into consideration when you make your forecast, but that’s generally not required.

Other IBD Interview Questions

Walk me through an LBO model

What are the major SEC filings?

How do you project revenue?

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