What are the most important financial metrics for a PE investor?
Doing an IB SA stint and never really cared to give much deep thought into financial metrics specifically those of import to investors.. But I'm going to interview for a few PE shops and figured it would be good to actually think through some of the financial metrics I come across and what it means to them.
So I am reading through Mckinsey's Valuation which is really interesting, and came across the first formula in chapter 2 which essentially says that company value is determined by cash flows and the cost of capital to generated that cash flow, and cash flow in turn is decided by roic and revenue growth. My impression is that there is a lot of financial engineering of capital structure that is important to PE, and that creating value of the portfolio company isn't exactly the primary goal.
In the context of PE, would it be fair to say roic is important to PE investors? It's hard to conceptualize this because it isn't an item on the financial statement and I am still unsure as to what metrics specifically are of the most importance to PE investors, if you had to choose (I'm sure it's a mix and not a strict hierarchy, but I suspect I'll get asked this in an interview and just want to make sure I am prepared). Any thoughts would be greatly appreciated, thanks!
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