Hey all, Came across below list of PE questions that I'm not sure what the answers would be, would appreciate peeps jumping in: You have accessed a data room for a company you are analyzing. You see a file that outlines, for the past 5 years, month by month projected budget against versus actual performance. You see that, consistently for all 5 of the years, from January to October, the business outperforms its projections. For November and December, the company misses its budget by a large margin.

Depents what sort of company this is. Could be employees achieving their targets by October --> increase targets. At least that you will sell to a strategic buyer If all one-offs: W/C reduction (after transaction) as you can cash that out 100%. One-time $10m of cost savings will be taxed. On $10m revenue you will make $10m EBITDA. When recuring: the cost savings as you will get paid a multiple on that additional profit at exit.

PE Technicals & situational questions

Hey all,

Came across below list of PE questions that I'm not sure what the answers would be, would appreciate peeps jumping in:

You have accessed a data room for a company you are analyzing. You see a file that outlines, for the past 5 years, month by month projected budget against versus actual performance. You see that, consistently for all 5 of the years, from January to October, the business outperforms its projections. For November and December, the company misses its budget by a large margin. What is going on?
A company is trading at 10x, and you acquire it in a take-private LBO at 12x. You project an exit at 12x. What does this imply?
If you could choose to have $10 million of incremental revenue, $10 million of incremental cost savings, or $10 million of decreased working capital needs, which would you choose, and why? o What if it was a one-time event, or a recurring event? What if it was toward the beginning or the end of a company’s investment horizon? How would these factors change your answer?
Suppose I am looking at a company that makes red tennis racquets and generates $100m of revenue. If I look at the balance sheet at 12/31/2009, what are the accounts receivable?

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Rover-S

PE

6y

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Depents what sort of company this is. Could be employees achieving their targets by October --> increase targets.
At least that you will sell to a strategic buyer
If all one-offs: W/C reduction (after transaction) as you can cash that out 100%. One-time $10m of cost savings will be taxed. On $10m revenue you will make $10m EBITDA. When recuring: the cost savings as you will get paid a multiple on that additional profit at exit. Beginnning vs end I find a vague question, but the W/C reduction in the month before a sale will not be taken into account as you will calculate a 12 or 24 month average to settle at closing.
I think they want to hear the word 'seasonality'. It depends if they sell mainly to Northern or Southern hemisphere. If Northern: most rackets will be sold in retail stores in spring (lets say March-May) so I would say as a producer you sell them between Jan-Mar and deliverries between Feb-Apr so accounts receivable at Dec probably low. Not sure if it's common to give rackets as a present during the holiday seasons tough...

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