When you’re giving a set of historical financial statements, it will be necessary to reconstruct the historical with a model. This is necessary step in order to understand how the numbers fit together. This is the science part.
The art is extending the financial model and forecasting the future performance of the company based on assumptions. Every line item on the income statement and balance sheet can be changed by changing assumptions.
** Interview Tip – When you’re expected to build a financial model, it is very important to get the math right, but it is just as important to be able to explain your assumptions.