MM - Model Tests

Based on the most helpful WSO content, a 30-minute model test typically focuses on a simplified version of financial modeling. Here's what you can expect and how to prepare:

What’s Generally Covered:

1. Three-Statement Model Basics:

   • You might be asked to build or update a basic three-statement model (Income Statement, Balance Sheet, and Cash Flow Statement).
   • The focus is often on ensuring the statements link correctly (e.g., Net Income flows into Retained Earnings, Depreciation adjusts Cash Flow, etc.).

2. DCF (Discounted Cash Flow):

   • If included, it will likely be a high-level DCF. You may need to calculate Free Cash Flow (FCF), apply a discount rate (WACC), and determine a terminal value using either the perpetuity growth method or exit multiple.

3. Key Metrics:

   • Expect to calculate and interpret metrics like EBITDA, Net Income, or ROIC.
   • You might also need to compute valuation multiples (e.g., EV/EBITDA, P/E).

4. Logical Assumptions:

   • The test will likely assess your ability to make reasonable assumptions for growth rates, margins, or working capital changes.

5. Time Constraints:

   • Given the short timeframe, the test will focus on accuracy, logical structuring, and simplicity rather than a fully detailed model.

Best Way to Prepare:

1. Master the Basics:

   • Ensure you understand the mechanics of linking the three financial statements.
   • Practice building a simple three-statement model from scratch.

2. DCF Training:

   • Familiarize yourself with calculating FCF, WACC, and terminal value.
   • Use templates or guides to practice creating a quick DCF.

3. Use WSO Resources:

   • Leverage the WSO Free Modeling Series for lessons on financial statement modeling and DCF.
   • Download the 27 financial modeling templates available in the WSO swipe file to practice.

4. Time Yourself:

   • Simulate a 30-minute test by setting a timer and building a basic model. Focus on speed and accuracy.

5. Logical Assumptions:

   • Practice making reasonable assumptions for revenue growth, margins, and working capital changes. Keep it simple and defensible.

Additional Resources:

• WSO Financial Modeling Training: Offers step-by-step guidance on three-statement models, DCF, and more.
• Templates: Use the financial modeling templates (.xlsx) available on WSO to practice.
• Community Threads: Check out WSO forums for insights from others who’ve taken similar tests.

Remember, the key is to stay calm, keep it simple, and ensure your model balances and flows logically. Good luck!

Sources: DCF Modeling Course ~ Pre-training text.pdf, 2-hour Modeling Test for HF (Fundemental Equities) - What to expect?, Ask me anything - MM PE Associate, 1 year in, Case Studies & Modeling Tests: How Exactly Are They Administered?