This is an earnest appeal for advice on getting my finance chops up to speed as I am trying to make up for past laziness and learn what I need to to get out of the hell that is consulting and into finance. Because I have 1y of PE DD for MM/MF under my belt, I have judged that entering MM PE is my best entry point.
The context is that I majored in something fluffy so I could have my 4 year Rumspringa (think art history/education/poetry/underwater basketweaving etc.) and went to a good consulting firm because I didn't want to work the banking hours and now I'm regretting it because I have no idea how finance works and I realize I have to play catch up for my prior laziness.
I've made my way through a couple of guides like multiple expansion and TTS, but I just don't get any of it. I go through the motions and can do things like a paper LBO or struggle through a three statement LBO from scratch, but when it comes to brain teasers you might as well ask me to translate a paragraph to Chinese because I don't actually know what any of it means. I can build the model, but not explain it, because it's gibberish.
I am wondering the best way to make up for lost ground since I now have 2 HHs saying they'll send my resume over to 2 MM funds and I need to start taking this more seriously than just a few hours of modeling a week. I am thinking about hiring a Stern bschool student. I also have a copy of this corporate finance textbook but I don't know if that's a great idea since I potentially need to get up to speed quickly.
tl;dr To be frank I need to get interview ready and although I'm putting in the time and doing the practice models, none of it clicks because of a lack of fundamental knowledge, and I'm soliciting this forum's help as you guys have been wildly helpful in the past.
Thank you much as always.
Does this stuff actually interest you?
I'm an accounting major so I unfortunately can't offer any advice. But I agree - I tried online videos of financial modeling and I just couldn't get it.
Swing and a miss there, cap'n.
The reason you are seeing cash in some working capital calculations and not others is because in calculations of net working capital, you do ALL current assets (including cash) - all current liabilities.
However, for cash flow purposes, we want to know the net OPERATING working capital. This is calculated via all current assets (excluding cash) - all current liabilities (excluding debt). In short, these are the items relevant to the operational aspect of the business, not the financial (interest-bearing) side of the business.
Working capital is current liabilities - current assets. If working capital increases, it means liabilities increased, or assets decreased. Hence, the business has either lost an asset, or agreed to pay out cash at a later point in time. In both scenarios, the business loses money.
Not quite
Net working capital is non cash current assets less non debt current liabilities. We subtract out the change because if only AR goes up then that’s less cash than you were getting before because more is being put into credit sales meaning you have to collect the cash later. If you were to lay down a greater amount of payables then that’d still be a cash outflow, same if you buy inventory. The reverse is true in that if you collect more receivables, replace less inventory, put more of your purchases on credit then your working capital balance would go down (you have less net value for the things mentioned above) and you would have more cash than the previous period.
The reason it’s non cash/non debt is because this should only be related to short term operational capital. Cash and debt are much more flexible than that and also much more likely to fluctuate so by removing them, we get a good look at what the business needs to keep running. ****