My CFM Exam Preparation

It seems that sharing my experience about the AFM exam was very useful for the readers. So, here are my thoughts about my CFM exam preparation (I took the exam last Saturday). The Chartered Financial Modeler is the 2nd level qualification of the new world-wide certification that has been launched and is administered by the Toronto-based Financial Modeling Institute. Last year I have passed the first level of the program (AFM) and last Saturday I was sitting for the Level 2 exam (CFM).

As the program is new (the whole financial modeling discipline actually is), then I can’t yet count on having a test center in a small country like Latvia where I live. But this just adds to the excitement, as every time I can choose another test center in another city (London, Zurich, Frankfurt and even Moscow work well for me). My choice this time fell on Frankfurt. I’ve been to Frankfurt numerous times, but never outside the airport. It was a great idea to combine the exam with some sightseeing.

 

CFM Exam Preparation

The Body of knowledge was well-prepared by the FMI. I have reviewed it carefully at the start of my preparation and found that all of the topics are quite familiar to me. Most of them have been a part of my work during the last 17 years. The organizers provided 2 sample questions and I did quite well with these too. So I felt pretty comfortable going to the exam.

On the other hand, I was expecting to get more practice cases – and I believe many other candidates too. Financial modeling requires hands-on experience and the best way to learn is to solve similar cases. I am sure that next time the candidates will receive a much wider variety of sample cases to solve.

 

The Exam Day

The Frankfurt test center was located in a nice office building – in computer labs that are usually used for IT learning. I have chosen the hotel within some 10 minutes walking distance, so my morning was not too stressed. Other candidates had to wake up much earlier – people were driving to the test from Munich, Hamburgh and even Prague.

The setup was more convenient than the last time in Zurich. The table was wide and the monitors were ve-e-ery wide. Thumbs up for the setup provided! The best of all – each computer had 2 keyboards attached, so you could choose the one that suits you best.

The very last minute before leaving the office on Friday, I decided to leave my own Microsoft NEK 4000 keyboard as it is really huge and would take too much space in my cabin-size luggage. I regret that to a great extent! The keyboard that was offered in the office center was good, but the left “Shift” key was much shorter than I am used to. So I was constantly hitting “Z” button instead of “Shift”. Another guy had similar problems with his “Enter” key. So, my advice – whenever you are time-constrained – get the setup that you are most accustomed to.

The proctors announced that it was 4 hours and 4 questions – OK, it’s 1 question per hour. When the test started I quickly looked through the questions and decided the sequence. Q1 (Debt) for the start, then Q4 (Sales), then Q3 (model audit) and finally Q4 (taxes).

The debt case and the sales projections

The debt case turned out to be time-consuming and probably took me slightly less than 2h. A great difference between ModelOff financial modeling world championships and the CFM exam was in the fact that you are not given the multiple-choice options and you can’t be sure if you are correct with your answers.

In my opinion it was quite tricky – the interest rates for the Senior debt and for the revolver were given on an annual basis but it was not clear whether the monthly interest should be calculated on the 30/360 on the actual/365 or, maybe on the actual/360 basis (as it is the case in the Nordic countries). It was not even possible to derive this from the historical data set that was given. I have chosen the actual/365 basis but I hope that high marks would be given to the people who chose other options as well.

The sales projections (Case 4) was a walk in the park for me, as this is something that we do for the clients on a daily basis. Saved some 20 minutes here.

The tax case and model audit

But then it was 1h and some 15 minutes left and 2 cases in front of me. I understood that the LBO model that needs to be audited is just too big to leave time for the tax case. It was also fragmented – you don’t have to build complex schedules to find the first mistake and to get the first points, as the task was to find as many mistakes as possible. So I have decided to change the plan, concentrating on the tax case first and then to just try to do as much as possible in the LBO model.

I really hope that the tax case was done OK – just didn’t take the time to check it for errors, as I was rushing to audit the model. I had some 30 minutes left for this case and was able to find some 8 mistakes out of 20+. In real life I would probably fire the analyst 😊, especially for putting a huge model all on one worksheet and linking e.g. row 700 to row 200. Imagine the amount of scrolling you need to do to check the model.

And funniest part started after that!

So, the exam was over, I have solved some 3.5 cases out of 4. I could have done better/faster, but the inner feeling was OK about my progress. The proctors requested us to stop working and to choose the 3 cases to be graded. WHAT?! OMG, it turned out that we were supposed to solve only 3 cases out of 4! What a bad luck to notice that right after the exam was over!

I believe the confusion arised due to the fact that at Frankfurt testing center the materials were turned down before the test. So, instead of looking at the first page with instructions for some 10 minutes before the start, when I turned it up after the start of the test, I just skipped it and rushed to solve the cases. Probably the proctors were either supposed to read these instructions aloud before the start, or at least not to turn down the cover page of the materials.

Anyway, the good news for me are that I actually managed to do everything on time. I should have even had some extra 30 minutes left to check the tax case.

 

After the exam

Uff, that was tough! – that was the overall impression about the exam among the candidates. Honestly, I was expecting something a bit easier as well. Which is essentially good, as FMI sets a very high standard for financial modeling around the world. At the end of the day, the pass rates for the CFA designation, which has some 50 years of history, are now probably less than 30%. This gives even more credibility to those who have passed it.

Now let’s wait for 2 months and cheer the new CFM designation holders some time in December. Hope that my CFM exam preparation turns out to be fruitful and I will see my name on the list as well. If not, then I know what I will do on April 27, 2019. Just have to choose where now. It might be a great tradition for myself to fly into another test center every time.