PE Case Study - Revenue/Cost Assumptions
Hello everyone,
hope you are all doing we. Currently preparing for a typical PE case study for a MM fund - I expect a CIM, valuation guidance and debt indications with the task to build a three statement model and make a recommendation within 2-3 hours. Given the model build is quite challenging in such a short time, I am wondering how do you model the revenue and cost assumptions in such a setup.
I would probably use the management case as an upside case and model a more conservative case as the base. Since the time to do a proper operating model (sales: price/volume, market share or sales FTE driver; Costs: FTE, salary, COGS units etc.) is usually not sufficient, I lean to use a classical % revenue growth for the topline with some reasoning behind it (e.g. market grows by %, price increases % on top) and % of sales costs build-up for COGS/material, personnel, R&D, marketing costs, D&A, CAPEX etc. Of course, all with some basic reasoning and conservative (e.g. trend projection, normalization of highs/lows in recent years).
A unit based operating build-up would be more elegant of course, e.g. allowing to easily model salary inflation in etc. but I am afraid that this will end up eating too much time in the test situation.
Do you have any tips or caveats with the approach?
Thanks so much in advance.
Best,
Matt
Bump
Push
I would focus on having one sound case that is described within your write-up (make sure it deviates from management consensus to an extent with detailed rationale). In my experience with MM case studies, it was never expected to create multiple cases for a sub 3-hour test. I also would not worry about a complicated revenue or cost build. As long as your build is reasonable and you are able to articulate your investment thesis within the write-up, no one will judge the complexity of your build. At the end of the day, calculated simplicity seems to be the way to approach the timed case studies. If you feel that everything is down with ample time, feel free to add more detail to the model.
In iusto sit eum dolorem est. Provident voluptas aut saepe officia ratione sint modi. Incidunt cupiditate ipsum voluptatem. Ut est aliquam consequatur odit maxime sed. Officiis earum qui quae natus.
Vero dolorum eos qui quam nisi mollitia voluptatibus odio. Voluptatem et corporis quo. Atque ab tenetur autem et nostrum molestias nobis. Dolorum consequatur deserunt earum eius.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Et asperiores dolores eos recusandae eveniet praesentium. Sed sit occaecati quis excepturi eum explicabo vel. Dignissimos officia quo amet debitis qui. Et corrupti qui totam quasi tempora ut aliquid.
Hic dolorem fugit quod voluptatibus consequatur nostrum sunt ipsa. Voluptatibus nemo nesciunt sit labore. Nemo reprehenderit hic distinctio sit ut dolor. Blanditiis non temporibus quia. Alias provident quae occaecati id est.