Credit HF Case study - annual or quarterly forecasts?
All,
Next week I have a 5 hour in person case study for a credit HF. I have been prepping and I have 2 questions, will I need to build out quarterly or annual forecasts?
And for quarterly, for a heavy seasonal business, how do you project working cap? Just as a % of revenue based on previous year?
P.S. do you usually get an excel file with the historical financials?
For a credit HF I would have last 3 historical years, LTM, and then project out eight quarters. The idea is to quickly determine if it is a leveraging or deleveraging situation and how cash flow / liquidity evolves. Project working capital using DSO/DPO/DIO historicals, but if w/c is a material part of what is happening with liquidity at any given time build yourself in some ability to sensitize for stretching or contracting of vendor/customer terms etc.
I guess what's not super clear to me on NWC is how in a quarterly forecast you treat DSO etc. Take a building material distribution business, where they stock up until May and then destock. Huge intra year swings. How do I model that with days? Just extrapolate the previous year days and tweak up/down according to my assumptions?
And by previous year I mean, the same quarter in the previous fiscal year
Yeah why not? It takes less than 5 minutes to grab quarterly rev, cogs, AR, inven, and AP over a three year period. Just use the trend for each quarter and adjust as needed
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