LO RA case study/model test

For a 3.5-hour modeling test at a large LO (like Wellington or Capital) for a Research Associate (RA) program in a credit role, here's what you can expect based on the most helpful WSO content:

1. Modeling Expectations:

   • You may be asked to build an operating model from scratch or update a templated model. Credit roles often require a focus on Free Cash Flow (FCF) analysis, so ensure you're comfortable with that.
   • Advanced elements like tax schedules or Deferred Tax Liabilities (DTL) schedules might be included, depending on the complexity of the test.

2. Valuation Methods:

   • Expect to use DCF (Discounted Cash Flow) as a primary valuation method.
   • Other methods like P/E multiples or EV/EBITDA multiples could also be relevant, especially for quick valuation comparisons.
   • Sensitivity analyses on key metrics (e.g., revenue growth, margins, or discount rates) might be required to demonstrate your ability to assess risks and upside/downside scenarios.

3. Time Management:

   • Allocate time wisely. For example:
     • 1.5-2 hours: Build or update the model.
     • 1 hour: Analyze the outputs, clean up the model, and prepare exhibits like sensitivity tables.
     • 30 minutes: Draft a concise write-up or summary of your findings, including an investment thesis or recommendation.

4. Key Focus Areas:

   • Be prepared to model income statement items (e.g., revenue and cost builds) thoughtfully.
   • Highlight key risks, drivers, and assumptions in your model.
   • If the test involves a distressed or special situations company, focus on understanding the credit risks and downside protection.

5. Qualitative Component:

   • Some tests may include a qualitative aspect, such as writing a short investment memo or discussing your model's outputs and assumptions.

6. Preparation Tips:

   • Practice building models from scratch to ensure you're comfortable under time constraints.
   • Review financial statements and practice identifying key metrics for valuation.
   • Familiarize yourself with credit-specific risks and how they impact valuation.

By focusing on these areas, you'll be well-prepared to showcase your modeling skills and analytical thinking during the test. Good luck!

Sources: 2-hour Modeling Test for HF (Fundemental Equities) - What to expect?, How would you approach a 4 hour case study?, Citadel (Surveyor) Case Study/Modeling Test, Ask me anything - MM PE Associate, 1 year in, Credit Analyst Q&A