3-Statement Model for Hedge Fund Case Studies
Guys, how detailed do you need to be when modelling for take-home case studies for hedge funds? Do you model out every balance sheet item and try to forecast out a company on a quarterly basis, or am I overthinking this?
Unless there's a big seasonal component I would think just an annual spread for last 3 years, then project out 5 years on an annual basis and run your numbers. Of course it all depends on the assignment so any color you can give would help (can PM me if you like).
You need to focus on what matters to the particular story.
Distressed situation? Make sure you have a good handle on commitments and contingencies (e.g. potential restructuring fees, litigation impact, etc.).
Turnaround? Need to make sure that they'll have enough cash to make it through (e.g. working capital dynamics) and they won't trip their covenants.
Quarterly is probably a good idea in both those cases. If it's a multiple arb story on future earnings, annual is probably fine.
Current assets/liabilities, deferred revenue, capital leases, debt, etc. are all important as they have cash implications. Goodwill, intangible assets, other assets, probably not so much.
When I was interviewing I spent way too much time on the accounting minutiae, trying to model out asset retirement obligations or something to the dollar. Don't get bogged down in the details and if you're spending too much time on something ask yourself if it really matters to the story.
You're over thinking it.
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