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 / LBO functionality technical interview (Originally Posted: 11/18/2013)
Hello WSO,
Long time reader but rarely post. I am seeking advice on preparation for a technical interview. I met the CEO of a small but booming tech company and am now on a third round interview for their FP&A department. I consider this a dream job. Specifically I was told the following.
"In regards to the interview itself, we will be asking you to build a full 3 statement model (IS, BS, and CF), but we will also ask you to build in some other functionality. This could be either a leveraged recap, LBO, or something along those lines. Then at the end we’ll expect you to walk us through the model and present some high level outputs that will summarize your findings. We will be providing you with all the information you’ll need for the model (10k, 10q, research reports, etc..) and you will time upfront to ask us questions regarding any other assumptions you believe are necessary."
Preparation facts:
*I will be there all day (8-9 hours) but am not positive on how much actual modeling time. *I have no clue if I will be able to use the internet or a template or anything so I plan to build from scratch. *I do plan on creating a "checklist" of things to remember/model to bring with me as I think that would be okay. *My interviewers thus far are 2 people Harvard MBA, 2 people former GS, 2 from Bain, 1 from UBS *I am from a non-target school and a middle market accounting firm. *I have read almost the entire Rosenbaum book and completed 3 statement walk-through guides on Macabacus as well as other sites. *I can use excel without my mouse comfortably, so understanding is more important than speed currently. *I have 3 more days (8-12 hrs per day for studying). *I have one year of experience in Valuation for an accounting firm but I am learning LBO and leveraged recap from scratch. I mainly work with complex stock options and convertible debt, etc. *I have experience with 10-ks but could use advice on key things to look for. I haven't used research reports as we typically work with private companies.
My main concern is the level of sophistication they are seeking. The guides I am using to practice vary widely in the granular detail. Especially with LBO modeling. I admit I am intimidated that I will not be able to rebuild these 900 line models from scratch in the 4-8 hours I will have.
If anyone has been in this situation before, can you please offer me some advice or direction to take my studying.
The technicals required are similar to banking interviews from my understanding so I decided to post here.
Thank you all very much.
This sounds a bit overboard for just a FP&A position - why in earth do you need to know how to run an LBO?
Btw, leverage recap is not a distinct model; it can be built within a lbo model.
Good luck! I think you got the right study materials. All you need to do is practice!
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.
A You Tube video is the most cost effective
Definitely don't worry about 900 rows of detail. Just build a simple 3 statement model that flows correctly. They care that you understand the concepts, not every tiny minutia or that you project out 20 balance sheet items vs projecting out 6 important ones and flatlining the other 14
Sounds like you are well prepared, good luck!
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..."
Also if you guys are still following along, my 3 statement models are EVER SO SLIGHTLY off on the interest expense calcs.
Is this just due to slight variations on the iterative process? Or am I missing a detail?
How "ever so slightly" are they off? .000001?
Where does the error show itself? Does your BS not balance?
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.
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.
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!
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.
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