Top 10 FDD Interview Questions (And How to Answer Them Like a Deal Professional)

Why FDD Interviews Are Different from Every Other Finance Interview

Most finance interviews test whether you know things. FDD interviews test whether you can do things.

The questions are designed to assess not just your accounting knowledge, but your judgment, your communication under pressure, and your ability to think commercially about a financial problem. Generic interview preparation—memorising definitions, rehearsing generic answers about "attention to detail"—will not get you through.

What follows are the ten questions I have seen asked most frequently in TS interviews at Big 4 firms and boutiques, together with the principles behind a strong answer. Study these not to memorise scripts but to internalise the way a deal professional thinks.

Question 1: Walk me through what a Quality of Earnings (QoE) analysis involves.

What they are testing: Whether you understand the most fundamental deliverable in FDD. This is a baseline question. If you cannot answer it fluently, the interview is over.

Strong answer structure: QoE is the process of determining the sustainable, recurring earnings power of a business—as opposed to the reported accounting profit. It involves three main steps. First, starting with the reported EBITDA and removing non-recurring items—management's own adjustments and any others that do not represent the run-rate of the business. Second, applying further normalisation adjustments: expenses that are above or below market rate (like below-market owner compensation), related-party transactions at non-arm's length pricing, and accounting treatments that inflate or deflate reported earnings. Third, arriving at an adjusted, normalised EBITDA that a buyer can use as the basis for their valuation and purchase price.

The output is an EBITDA bridge—a waterfall that shows every adjustment from reported to normalised EBITDA, with supporting analysis and a clear justification for each line.

What to avoid: Do not define QoE as just "checking the numbers." Show that you understand it is a judgment exercise, not a mechanical calculation.

Question 2: What is the difference between EBITDA and adjusted EBITDA?

What they are testing: Whether you understand normalisation at a conceptual and practical level.

Strong answer: Reported EBITDA is derived directly from the financial statements and may include one-off gains or losses, non-recurring costs, and expenses that are specific to the current ownership structure. Adjusted EBITDA removes these items to arrive at a sustainable earnings figure that is relevant to a new owner.

Common adjustments include: removing a one-off insurance settlement or litigation gain; adding back above-market owner salary that will not continue post-acquisition; removing a one-time restructuring charge; and adjusting for below-market rent paid on a property owned by a related party.

The adjustment is only credible if it is genuinely non-recurring and clearly evidenced. "Management says it is non-recurring" is not sufficient justification on its own—FDD has to pressure-test every add-back.

Question 3: What are debt-like items and how do they affect deal pricing?

What they are testing: Your understanding of the mechanics of deal pricing beyond the EBITDA multiple.

Strong answer: Debt-like items are obligations that behave economically like financial debt but do not always appear on the face of the balance sheet. They reduce the equity value paid to a seller because a buyer effectively assumes these obligations at closing.

Common examples include: unfunded pension deficits, deferred revenue (which represents services still owed to customers), earn-out obligations from prior acquisitions, committed but unfunded capex, environmental remediation liabilities, and factored receivables.

The formula is: Enterprise Value (based on EBITDA multiple) minus Net Debt minus Debt-Like Items equals Equity Value (what is actually paid to the seller). Getting the debt-like items wrong—missing a significant item or including items that are not genuinely debt-like—can shift the equity price by millions.

Question 4: What is a working capital peg and why does it matter?

What they are testing: One of the most deal-specific concepts in FDD—and one that causes more post-closing disputes than almost any other.

Strong answer: The working capital peg is the agreed "normal" level of working capital that the seller is expected to deliver at closing. If the actual working capital at closing is above the peg, the seller receives additional consideration. If it is below the peg, the buyer deducts the shortfall from the equity price.

The peg is typically set based on an LTM (last twelve months) average of the target's working capital, though the precise methodology is negotiated. FDD's role is to determine what the appropriate peg level should be—taking into account seasonality, growth, and any working capital items that are not genuinely operational.

Why it matters: working capital disputes are the most frequent source of post-closing litigation in M&A. A peg set too high benefits the seller; set too low, it benefits the buyer. FDD needs to be rigorous in establishing what is and is not working capital, and what the LTM average genuinely represents.

Question 5: You see a significant revenue spike in one quarter of the historical data. How do you investigate it?

What they are testing: Your analytical instinct and your ability to structure an investigation.

Strong answer: A revenue spike is a flag, not a finding—it could be explained by something entirely legitimate, or it could indicate a problem with revenue quality.

I would start by disaggregating the spike: Is it driven by volume, price, or mix? Is it in a specific customer, product, or geography? Does it correspond to a disclosed event—a new contract, a price increase, or a seasonal pattern that was unusually strong in that period?

I would then request the underlying sales data for that quarter: customer-level revenue, contract documentation if it was a major customer win, and the corresponding cash flow to verify that revenue recognised translated to actual cash receipts.

If the revenue is real, legitimate, and non-recurring, it becomes a normalisation candidate in QoE. If it reflects pulled-forward revenue from future periods, or revenue recognised on a contract that has since been cancelled, it is a revenue quality risk that could significantly reduce adjusted EBITDA.

Questions 6–10: Rapid-Fire with Answer Principles

Question 6: What is the difference between FDD and an audit?

Key principle: FDD is buyer-side advisory—it provides insights, not assurance. The auditor verifies compliance with accounting standards. The FDD advisor independently assesses financial quality and commercial risk on behalf of the buyer. FDD professionals are not bound by auditing standards and are free to challenge management representations.

Question 7: Tell me about a time you found an error or inconsistency in a financial analysis.

Key principle: Be specific. Use a real example—even from academic work or internship experience. Show that you flagged it, investigated the root cause, corrected it, and communicated the finding. What they are looking for is attention to detail plus the judgment to know when something matters commercially.

Question 8: How would you present a finding to a client that significantly reduces the deal value?

Key principle: Factually, clearly, and without editorialising. Your job is to report what the analysis shows—not to manage the client's reaction to it. Frame the finding in terms of its commercial implication (what it means for valuation or deal structure) and its evidential basis (where the data comes from and why the conclusion is supported).

Question 9: What sectors or deal types are most active in Indian M&A right now?

Key principle: Do your research before every interview. Know the major transactions in the past twelve months, the most active PE funds in India, and the sector trends driving deal activity. Generic answers here are a red flag. Specificity signals genuine engagement with the market.

Question 10: Why transaction services rather than investment banking?

Key principle: Answer honestly and specifically. "I want to learn how businesses really work" is weak. "I am drawn to the analytical depth of FDD, and I find the challenge of forming an independent financial view under commercial pressure more interesting than the deal origination focus of investment banking" is a credible answer that reflects actual self-awareness.

📌 The FDD Masterclass at Investyn Advisors prepares you for every one of these questions with live deal case studies. Stop memorising definitions. Start thinking like a deal professional. Enroll now.

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