Explain the EBITDA bridge in variance analysis.
A core FP&A interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
An EBITDA bridge decomposes the movement between two EBITDA figures — budget vs actual, or year-on-year — into discrete, attributable drivers so management sees why it moved, not just that it moved. Typical components: volume effect (more/fewer units at standard margin), price and mix effect (selling-price changes and shift toward higher/lower-margin products), input-cost changes (raw materials, labour), overhead/cost-base variance, FX, and one-offs. Each bar should net to the total gap, have an identified root cause, and ideally an owner and action. The discipline is decomposition rigor: cleanly separating price from volume from mix (they interact), and isolating FX and one-offs so the underlying operating trend is visible. A good bridge turns a number into a conversation about what to fix.
WHAT INTERVIEWERS LISTEN FOR
- ✓Decomposes EBITDA gap into volume, price/mix, cost, overhead, FX, one-offs
- ✓Each component nets to the total and has a root cause/owner/action
- ✓Cleanly separate interacting price/volume/mix effects
- ✓Isolate FX and one-offs to see the underlying trend
COMMON MISTAKES
- ✗A bridge whose components don't reconcile to the total
- ✗Mixing price, volume, and mix together
- ✗No root cause or owner per driver
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