Hey,
So for interviews I've ran into a slight problem. Some model case studies I am given have a model with NO HISTORICALS WHATSOEVER. Assumptions are included.
How would I go about building this? I know that I would have to make historical assumptions for some sections like the balance sheet, however when I do, my model sometimes doesn't balance unless I have and EXACT number in some sells (eg. constant equity at 76 and not 80, etc.)
Any advice would be great... I'm just not sure why a model won't balance in projected years if the historical year balances. For the projected years, it requires very specific numbers occasionally.
projecting a balance sheet is one of the shittiest things you'll do
Firstly make sure that you actually need a full 3 statement model. In many cases, all you need to build out is cash, debt, and change in NWC assumption.
Secondly, if you really have to project things out, there's no reason why it won't balance. The issue you're describing just sounds like you haven't done enough 3 statement model practices.
Just throw the unbalanced amount into goodwill and you're all set. :P
Can you explain this further? I've never actually done this before (build out a down and dirty projection vs. full statement projections). How do you project out your cash/debt/NWC if you don't project out your expenses and how they fall in line with the balance sheet?
I just mean that, your cash balance and debt schedule can both be derived from the income statement and cash flow statement after just making a simple assumption for NWC (% sales). Obviously this is not as accurate but in most cases there isn't enough information to project out a full balance sheet anyway.
It sounds like you don't fully understand the offsetting adjustments to the balance sheet. If you're projecting your Accounts Receivable to grow based on DRO, for example, you need to link that growth to a corresponding decrease in an offsetting asset account or an increase in liabilities. You can't just grow line items independently because it won't balance.
Without a specific model we can't really tell you what your problem is. I'm fairly certain you're not linking the financial statements properly, though.
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