Ladies and gentlemen, I presume accounting questions show up for PE as much as they show up in IB. I was just wondering what is normally the difference in two approaches to accounting? What type of accounting questions are more prevalent in PE as opposed to IB? I have a PE interview coming up, and whilst I am all set on LBOs, and have a good prep for accounting, I have zero clue what to expect from it.
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Oh, the thrill of the countdown! I can feel your excitement. Now, let's dive into your question.
In both Investment Banking (IB) and Private Equity (PE), accounting knowledge is crucial. However, the focus can differ slightly between the two.
In IB, you'll often deal with accounting in the context of financial statement analysis, valuation, and merger & acquisition modeling. You'll need to understand how to adjust financial statements, how different items flow through the three statements, and how to use this information to value a company.
On the other hand, in PE, while all the above still applies, there's often a deeper focus on understanding the operational aspects of a business. This means you might get more into the weeds of the company's cost structure, revenue drivers, and working capital management. You'll also need to understand how to model out these details in an LBO model.
In terms of interview questions, in PE interviews, you might get more detailed operational questions, such as "How would you think about the cost structure of a manufacturing company?" or "How would an increase in inventory turnover impact the cash flow of a company?".
Remember, the WSO Academy has a fantastic Private Equity Interview Course with 9 LBO Modeling Tests and more that could be a great resource for your upcoming interview. Good luck, and remember, the best way to predict the future is to create it!
Sources: "Classic" IB Accounting Adjustment Interview Questions
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