Financial Appraisal Test

Everything You Need to Know About Financial Appraisal Test

Last Updated on October 11, 2022

The financial appraisal test is commonly used by companies in the finance and banking sectors to evaluate their candidates. Designed to test candidates’ grasp of mathematical and financial concepts as well as their ability to work under time constraints and under pressure, the test includes questions that feature charts, graphs, and passages of text.

If you’ve been asked to undergo a financial appraisal test and want to know what to expect, keep reading, and we’ll explain more about the test format as well as how you can best prepare yourself.

What Is the Financial Appraisal Test?

If you want to have a career in the banking industry, you might be asked to undergo the Financial Appraisal test. Whether it’s financial companies or investment banks, many financial institutions and companies often use this test to evaluate candidates for managerial roles.

Other target roles that might use the financial appraisal test include accountants, graduates, business analysts, and business consultants.

In short, the Financial Appraisal test was created to evaluate skills such as a candidate’s grasp of financial terms and language, their decision-making skills, how they pick up new financial ideas and concepts as well as how they analyse and draw conclusions from financial statistics and data.

Which Employers Use the Financial Appraisal Test?

You can expect companies to use the financial appraisal test as part of their hiring process, such as:

  • Investment firms
  • Insurance companies
  • Banks

However, some other companies might also use this test. For example, any firm that requires its employees to have a good grasp of mathematical or financial concepts may utilise the financial appraisal test to choose the right applicants.

Ultimately, it’s important to understand that the point of the test is not to stump its candidates but to ensure that potential employees will be employed for the right roles.

Before you even embark on the hiring process, ensure that you’ve read and understood the job description. Ensure that you are a suitable candidate with the right qualifications and skills. Otherwise, you might apply for a job that’s unsuitable and find yourself struggling with the test.

What Is Included in the Assessments?

During the test, you’ll be given a lot of financial information that requires you to comprehend, analyse and make decisions. For example, you’ll be given elaborate data about a fictional company, and you’ll have to decide whether you will invest and how you will invest in the company.

Overall, the test will require you to analyse from the perspective of a venture capital company that has to make decisions about speculative investments.

Besides data and information about the fictional company, you’ll also get a booklet that gives you more information about some other factors as well as financial theories and principles. Some information featured will revolve around cash risk, negative asset risk, and financial cover ratio.

Part of the booklet will also give you some recommendations that you can use as your answer. In total, this booklet will have five guidance notes together with four other extra notes.

Using all of this information given to you, you’ll have to make financial decisions and make recommendations relating to the potential of returns, risk assessment, and more.

In total, you’ll have 21 cases in the question and answer booklet that you will need to read closely, evaluate and answer. You’ll be given 45 minutes to answer all the questions. However, the test administrators should give an additional 15 minutes before the test starts to give a briefing to the candidate.

This 15 minutes also includes time for two sample questions that the candidate will complete before the actual test starts. Hence, the entire process will take one hour, which includes the initial briefing, practice questions, the actual test, and collection.

Skills Evaluated in Financial Appraisal Test

Young Boy using laptop

To give you a better understanding of the financial appraisal test, here are some skills that the test will evaluate:

  • Understanding of financial terminology
  • Making decisions and drawing conclusions from financial statistics and data
  • Ability to draw relevant information to make financial decisions
  • Analytical thinking
  • Ability to pick up and apply financial concepts and indicators

Difference Between Financial Test and Numerical Test

You might be wondering if there’s a significant difference between a numerical test and this type of financial appraisal test. While they do have similarities, they are not the same and don’t focus on the same skills.

The main difference is that financial appraisal tests come with a lot of text that requires you to comprehend and evaluate before forming your answer. On the other hand, numerical tests revolve around numbers and require a good grasp of mathematical equations.

Ultimately, if you want to work in the finance industry, it’s not enough to just be good with numbers. Employers also want to know that you’d have good comprehension skills and are able to pick out useful information while disregarding irrelevant or misleading information.

Sample Questions

You should expect graphs, tables, and charts of data to accompany the questions. Then, you’ll have to pick out relevant information and do your own calculations.

Here’s a look at some sample questions:

– What is the actual enterprise value of a specific company?

– What is the next number in the sequence?

– Looking at the data given, which retailer experienced the highest revenue increase?

– Looking at the chart, which model of the machine should you purchase to keep the company’s expenses at a minimum?

Tips for the Test

A Student working on laptop

Time Management

Good time management is a key part of taking any test. If you spend too much time on one question, you won’t be able to complete the entire test on time. This is why employers also want to see how well you can manage your time.

To manage your time well, it helps to think about how much time you can spend on each question. This way, you’ll have a rough guide for how long you should take for each question and won’t end up being stuck on one for too long.

Paying Attention to the Text

As mentioned, the financial appraisal test revolves around a lot of text, data, and financial information that you have to evaluate. In order to do well, you’ll really have to pay attention and read very carefully. Pay careful attention to detail and ensure you understand the text and what’s required of you before you answer.

The last thing you’d want is to give a completely irrelevant answer that shows a lack of comprehension and analytical skills.

Also, pay attention to interesting details in the questions. You might think some details are irrelevant, but sometimes, they’re included for a reason and can be the clue you need to help you get the right answer.

Know What to Focus On

With such an emphasis on data and information in passages, half of the battle is won in being able to comprehend it all. If you can’t pick out information that’s relevant, you can’t proceed to the calculations. Read the information carefully and highlight or underline important numbers.

Expect a lot of passages to come with tables and graphs, too, so ensure that you’re familiar with how to read them.

Know What the Question Is Asking for

Don’t be overwhelmed by all the figures, data, and information. If you do, you might not even understand what exactly the question is asking for. Don’t dive in and rush through your answer. Check that you’ve understood the question correctly before proceeding to craft your answer.

Don’t Leave Any Question Blank

Even if you’re unsure of the correct answer, don’t leave any questions blank. It helps to still venture a good, educated guess, and you might still get a mark or two.

Stay Calm

In your nervousness, you might accidentally overcomplicate things. Most of the time, the equations are not that difficult. While you should have a basic level of understanding, you won’t be asked to solve extremely complex equations. Most of the time, the focus here is just on being able to pick out the relevant information.

How to Prepare for It?

Finance

Lots of Practice

The importance of practising can’t be underestimated. The most effective way to prepare for your financial appraisaltest is to practice under time constraints. Have a look at Job Test Prep’s resources that will help you practice and get familiar with the test.

Get Familiar with Financial Concepts

You need to have a good grasp of financial concepts and terminology, so focus on getting familiar with them during your preparation. Revise and practice mathematical concepts as well. Ensure that you understand common financial concepts such as ‘equity’, ‘risk’, ‘bonds’, and more.

Conclusion

Ultimately, the financial appraisal test won’t feature as many mathematical questions as a numerical test. Employers are more interested in seeing how you comprehend data and information, how you analyse it, and arrive at conclusions.

To give yourself the best shot at scoring well for this test, it’s essential to give yourself enough practice under time constraints. Practice with Job Test Prep and get familiar with the exact types of questions and test format today, and you’ll be able to undergo the test with more confidence.

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