is there a difference between LBO and 3 statement model?

I've seen examples of DCF, trading comps and precedent transactions models but I've never seen a fully-integrated 3 statement model. Just wondering if building an lbo model is the same thing as doing the 3 statement model with more bells and whistles attached.

Are there any guides out there that talk about how to build a 3 statement model? Thanks!

 

3 statement model is the base financial model (IS/BS/CF) with projections. The LBO model is a type of valuation model/way to get to a projected IRR of a buyout deal; which typically uses a 3 statement model (need to understand how well the company can pay down debt and what exit value a company go for in the out years)..start with the 3-statement model...then learn LBO then M&A modelling...WS Prep and TTS have great programs (WS has a do-it yourself kit on the pricey side) to learn this stuff

 

Well i've interviewed with the CEO CFO and most of the key finance team. I think they just want to make sure I have the horsepower and understand financial fundamentals so I won't be lagging behind.

 

Thanks you guys I appreciate it, I'm still going to practice and study and read non-stop before the interview but I have been oscillating between "Man I'm picking all these details up!" to "OMG I am so screwed I'm going to miss something obvious that they will all see immediately..."

 
MoneyBadger:

The totals that are part of the circular reference are off by about 0.16%

You might just need to jack up your iterations.

I have no idea why in the fuck you would need to build an LBO for an FP&A position. It makes zero sense. They would be better served having you create a bottoms up operating model for a hypothetical new product line/division or something.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

First of all congrats on your upcoming interview!

You can perhaps email the HR and ask him/her how much actual time you would be getting to perform the modelling. Also are they providing you with the laptop? You can say something like "I like to be prepared for a meeting. Thus for this interview can I confirm the amount of time allowed for modelling/presentation/etc..."

In addition, you may want to bring: - your own stationeries including some white A4 paper (for model conceptualization). - mints to stay alert - tisses for running nose in case the air is too cold - anyother things

On the point of your modelling being off, may be you can share it here. Its easier to visualize and explain if we can see it.

Cheers!

 

@ Duff: "I have no idea why in the fuck you would need to build an LBO for an FP&A position."

This is due to a couple or reasons: 1. That position is a FP&A + Strategic Analyst + Biz Development Analyst. We can name the position whatever we want but most importantly, its the job responsibilibities that matter. If the responsibilities include LBO, then it will be tested. 2. The ex-IBers just want to show off. 3. The "squeeze-the-max-value-out-of-a-new-hire" mentality

I think reasons 1 and 3 sound more plausible.

 
KlydeKeen:

@ Duff: "I have no idea why in the fuck you would need to build an LBO for an FP&A position."

This is due to a couple or reasons:
1. That position is a FP&A + Strategic Analyst + Biz Development Analyst. We can name the position whatever we want but most importantly, its the job responsibilibities that matter. If the responsibilities include LBO, then it will be tested.
2. The ex-IBers just want to show off.
3. The "squeeze-the-max-value-out-of-a-new-hire" mentality

I think reasons 1 and 3 sound more plausible.

I'd say #2 or #3 is more likely. There is no reason why they would want to use an LBO over Accretion/Dilution. Even if they are planning to use debt, they should only care about the credit stats, not IRR.

 

HELP!

Hey Guys,

I am starting to heavily despair.

I can do the practice guide 3-statement models but as soon as I am trying with a real 10-k (netflix). I cannot get the balance sheet close to balancing.

There are so many items on the statement of CF. I am trying setting them to % of sales, holding them flat, nothing is working. I can follow the guides but they have so few lines and depreciation is always neatly broken out to be added back in on the CF statement.

Does anyone have a recommended guide. I feel like I am right on the verge of making a simple 3 statement from a 10k but am missing just the last piece. The interview is tomorrow and I have been at this 12 hours a day at least.

I am frustrated and I know I can do this job but I work in derivative valuation and they are doing this LBO banking test for corp finance.

I would be willing to get on skype and share screen if there are any pros out there who could help for 15 minutes this evening.

Thank you all for your comments and wish me luck!

 
Best Response
MoneyBadger:

To be more specific, what is the minimum you have to have linked where the model should balance? So I know to check there before moving on.

Checklist: Every asset and liability on your BS needs to be linked to your CFS. Every non-cash adjustment you make to your CFS needs to have a corresponding effect on your BS (e.g. depreciation reduces PPE, stock based comp will be reflected in equity, etc). Check to see if your PP&E is represented on a gross or net basis. Make sure you adjust for asset sales and factor in depreciation when calculating the out years. PP&E is usually the first place I check for errors.

You need to think about how everything flows through the 3 statements. If you are adding back something to CFO, you need to immediately think about where that item would affect the BS. If you had an asset sale during the period, you need to make sure the gain/(loss) is reflected in PP&E and on the CFS (non-cash).

One way to think about it that might help - look at your CFS and BS as one gigantic BS, but with cash broken out into it's individual components/drivers. Any addition to cash needs to either increase a liability account, increase equity, or decrease a different asset account (or some combination thereof).

I apologize that this is an incredibly confusing attempt at help, but there are so many moving parts it's difficult to articulate. Trust me though - eventually it will just click.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

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