Trying to get started on PE interview modeling prep. Got a basic understanding of accounting, three statement modeling (basic). Wondering if I should be learning DCF, M&A modeling before learning LBO as a prerequisite. Want to make sure I got a solid foundation before starting. Are there hard prerequisites to learning LBO?
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Ignore this stupid hater. It’s a really valid question. So the order of mastery should absolutely be 3 statement > DCF > M&A > LBO.
This is for the following reasons…
3 Statement: Your LBO will, at the very least, require a forecasted income statement (and LFCF build). More advanced tests will require you to forecast out a balance sheet to get your changes in NWC. Forecasting working capital line items is something you get good at after doing 3 statement modelling.
DCF: Everyone needs a foundational knowledge of the time value of money. Will help you also build forecasting competency.
M&A: You’ll need to know the basics of creating a PF Balance Sheet. There are differences between this and LBO, but it’s good prep.
LBO: The final goal.
Good luck man, I’m sure you’re gonna kill it.
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