Tips for mental math (for paper LBO)?
I really struggle with mental math, and it's a miracle I've made it this far. How do you mentally compute quickly?
e.g., "do a paper LBO on company A with $20M revenue, growing 25% p.a., 30% EBITDA margin, 5% D&A, etc., etc.)
Mentally, I think "25% of $10M = 2.5M, so 25% of $20M = +5.0M. So year 2 revenue = $25M. Year 3... idk... guestimate $31M (+$6M), Year 4 $38M (+$7M), Year 5, $47M (+$9M)
EBITDA margin: 30% of 25M = ... 30% of 10M = 3M, 30% of 20M = 6M, so maybe... ~$8M? 30% of 31M = ~$10M, etc. etc.
Oh and then once I get into net income, I need to add D&A and all the rest back in, to get to FCF
You get the point. I'm really slow.
I know they're not testing mental math and it doesn't need to be perfect. But with this rate I'll take forever, and my rounding will be so off, it's gonna affect the MoM
I'm so slow the interviewers are staring at me like I'm stupid. LOL
Super basic tip - just ignore the decimals and multiply the numbers across in the easiest way possible, then logic towards what makes sense. Here's what I mean:
Your Example #1: 25% of $20M --> I'd do 2.5 x 2 = $5 --> Are my decimals logical or do I need to add/remove a 0? --> Yes correct.
Your Example #2: 30% of $25M --> I'd do 3 x 2.5 = $7.5 --> Are my decimals logical or do I need to add/remove a 0? --> Yes correct.
This is helpful!! Granted, I might be a bit stupid because I need to break out your example into 1 more step
If I wanted to forecast growth or something...
30% of $25M --> 3 X 2 = +6
0.5 X 3 = 1.5
Total = +7.5
$25 + ~8 = $33
________________
Year 2
30% of $33 --> 3 X 3.3 = 9.9 ~= +10
$33+10 = $43
________________
Year 3
30% of $43 = 3 X 4 = ~+12
________________
Now just need some practice to get faster!
Here you go:
https://visaldiary.files.wordpress.com/2011/07/secrets-of-mental-math.p…
And then there's also lots of collateral around preparing for the GMAT math section that touches on "tricks" to speed up computation and accuracy.
In general most "tricks" to mental math are just really understanding the basic properties (commutative, associative, distributive) until you get comfort reframing math problems in your head (or on paper) in ways that are easier to calculate quickly. Then practicing that until it becomes second nature.
Wow - where has this been my whole life. Some great tricks in here.
What a gem. Thanks for sharing
You're probably not as slow as you think you are. It sounds like you're nervous, and the nerves are distracting you from the math. "The interviewers are staring at me like I'm stupid" suggests to me you're not as locked into the actual task as you could be and are concerned with being judged. The solution is confidence, and that comes from doing a ton of reps and doing paper LBOs successfully. You got this! To get to this point you have likely jumped several hurdles that have been more difficult than this one. Good luck to you.
Related tip - try to limit the amount of computation you do where multiple steps are required. not directly relevant for the problem you posed BUT used this a lot on consulting case studies and think it’s underrated.
Lets say a question requires you to calculate one quarter of one third of two times 20 - this may be in the form of some business case - but let’s say that’s the computation.
In most interview scenarios, especially in heat of moment, a lot of people will calculate
2x 20 = 40, 40/3 = 13.3, 13.3/4 = 3.3
However, if you leave everything as a mathematical expression and solve everything together at the end, it’s just way less work
2 x 1/3 x 1/4 x 20
= 1/3 x 1/2 x 20
= 1/3 x 10
= 3.3
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