Model Test Question
I recently took a model test for a MM analyst role. I received a 3 statement model for an anonymized company (no research given) and was instructed to build out quarterly and annual for four years.
It was a fully detailed IS, full BS, full CFS, etc. I had 60 mins to complete the full exercise and didn't even come close to finishing it. Does anyone have experience with this type of test? I think it could easily be done if I were allowed to collapse some of the random line items, but the fact that it was presented on such a detailed basis makes me think that's how they wanted me to model. Appreciate any insights and guidance.
Based on the most helpful WSO content, tackling a detailed 3-statement model test in 60 minutes is a significant challenge, especially when presented with a fully detailed IS, BS, and CFS. Here are some insights and strategies to approach such tests effectively:
Prioritize Key Drivers: Focus on the most critical line items that drive the model. For instance, revenue growth, margins, and key expense categories. Avoid getting bogged down in less impactful details unless time permits.
Simplify Where Possible: While the test may present detailed line items, it's often acceptable to group or collapse less material items (e.g., SG&A subcategories) to save time. The goal is to demonstrate your ability to build a functional and logical model, not necessarily to replicate every detail.
Start with the Income Statement: Build out the IS first, as it feeds into the other statements. Ensure you calculate operating income, net income, and any adjustments for non-cash items like D&A.
Link the Statements: Once the IS is complete, move to the CFS to calculate cash flow from operations, investing, and financing. Then, update the BS with changes in cash, debt, and equity.
Use Shortcuts for Balancing: If time is running out, use a plug for cash or debt to balance the BS. While not ideal, it shows you understand the mechanics of the model.
Practice Under Time Constraints: To improve, practice building 3-statement models with a timer. Focus on speed and accuracy, and gradually incorporate more details as you get faster.
Communicate Your Approach: If you don't finish, be prepared to explain your methodology and how you prioritized tasks. This can demonstrate your thought process and understanding of the model.
For more practice, consider using financial modeling templates or resources available on WSO, which can help you refine your skills and prepare for similar tests.
Sources: Seeking advice on Corporate Banking modeling, Help with 3-Statement Model Test, 1st Yr Banking Analyst Open for Questions, DCF Modeling Course ~ Pre-training text.pdf, How would you approach a 4 hour case study?
Bump!
Bump
My question is how extensive they need the model to be, given such a tight timeframe. Full three statement model with revenue and cost drivers enough? Need DCF/comps too? Short writeup about thesis? The latter seems impossible in 60 mins.
Use your intuition obviously they don’t want something super granular…
I recall doing one of these ~3 years back. It was in a weird online version of Excel (most of the keyboard shortcuts still worked, but a few annoying ones didn't). The test was all mechanical (i.e., calculate the latest DSO, then fill-right the entire line, and then build a simple formula in the B/S section for AR using that value). I had a practice version in Excel that I drilled on a few times beforehand. When I got to the online test I was shocked to see it was the exact same as the practice version. Not much in the way of critical thinking required...
Where did you find the practice models?
DM me... I'll dig them up
Hycalibre has these replica model tests for the MM pods. Meant to be very good
If I give someone a 1 hour three-statement modelling test it's for me to be able to gauge if:
1. Can you measure what matters in terms of model drivers. Just by looking at the financials good candidates should be able to gauge what type of company we're dealing with here... (Retail for SSS growth, Industrial cpx driven biz, SW licencing biz where WC and rev rec matters)
2. Can you quickly make the model KPI dependent and interpolate and extrapolate the residual part of the model (you don't need to forecast every CF + BS line item to get a flowing 3 statement model)?
3. Can you produce reasonable forecasts and spot trend shifts and/or inflection points based on the historical numbers provided, and maybe normalize (or at least question) where needed?
Information overload is a daily feature for an Associate or Analyst. You job is to filter that in to a few set of key drivers and form a view on it. It's a good exercise imo.
This is so useful, thanks! Any idea how one can get better at what you said? Is it just a matter of sitting down for 1 hr whenever I have the time and churning out as many 3FS models as you can? Not sure how to get feedback on whether I got things right though.
Each to their own as what works for them but generally I'm a promoter of 'practise by doing' over theory & frameworks put forward by others.
Actually investing > Reading about investing. Actual practise modelling > paying $100 for modelling guides/frameworks.
Sporadic self-assessment will take you a long way. Just be a bit creative with third party feedback. Do a few models on a few tickers in different sectors and compare to broker models summary page outputs to see if you got the gist of it.
Thanks!
"Actual practise modeling > paying $100 for modeling guides/frameworks" - I can't emphasize enough how helpful this approach has been for me as a junior analyst
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