1.5 Hour LBO Test

Just had a modeling test and was given a CIM to build a 3-statement model in 1.5 hours. I tried my best to construct everything (i.e., debt schedule, operating model, etc.), but wasn't able to build out a clean BS and CFS.

Was able to get all my assumptions and IRR/MOIC. Wish I had more time. Has anyone had an experience like this in the past?

Private Equity Interview Course

  • 2,447 questions - 203 PE funds. Crowdsourced from 750k+ members
  • 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
  • Trusted by over 1,000 aspiring private equity professionals just like you.

Comments (10)

Best Response
Mar 23, 2018 - 3:01pm

This happened to one of my roommates on one of his modeling tests. I think it depends on how close you were. The BS is generally the least important part of an LBO so as long as you get NWC, I think you should be fine there. The CFS is more important, but it could be okay as long as you got to LFCF & cash available for debt paydown and flows through your debt schedule properly.

Did they give you a lot of the assumptions around the operating model and transaction assumptions? 1.5 hours for a full LBO where you have to go through the CIM, hard-code numbers, and apply your own assumptions sounds like a tall order to me. Also, if they gave you a lot of the assumptions and you got the IRR and MOI calculations right, I think that definitely helps your cause.

Mar 23, 2018 - 3:12pm

Appreciate the response. I was able to get LFCF and a proper debt schedule down. Everything else flowed well as well as some sensitivity tables at the end.

I had to come up with all my assumptions using the CIM. Their instructions were just two lines: Build a 3 statement model and create your assumptions using the CIM.

Was your roommate able to move forward in the process?

Mar 23, 2018 - 5:01pm

Agree here. Same thing happened to me, where i had a properly flowing LBO but did not build out a separate BS or CFS - only the model, debt paydown schedule, resulting LFCF, and resulting MOIC/IRRs.

Not sure how these models are reviewed after, but I imagine the Associates were too lazy to go into detail and just cared about the LBO itself.

I got the offer

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Mar 23, 2018 - 5:16pm

I incorporated this as part of the interview process for our associates. I also did this when I was interviewing at a couple different shops.

The expectation is to just jam something functional together. You will be judged on if it balances and is complete, not necessarily on your assumptions.

I'd say that when I was checking these about 2/5 were complete and correct. A lot of kids try getting too elaborate and don't finish

Mar 23, 2018 - 6:58pm

Feel like there are two schools of thought here.

In a situation like this, what do you guys think is best?

1) just getting a full 3 statement model that is balanced / working with very high level assumptions (e.g., revenue growth in-line with GDP, ~200 bps of margin improvement due to operating leverage)

2) being thoughtful about the drivers (e.g., splitting out revenue by price vs. volume and making assumptions on each) and making simplified assumptions on the things that are not as impactful (e.g., NWC as a % of sales)?

Mar 24, 2018 - 1:50pm

I think you will likely be fine. In my experience, the model is more of a implementation exercise and a pass / fail type effort - doing a great job won't get you the role but doing a bad job will keep you out. I think anything that is a higher than a B+ will probably get you to the next round.

At my previous fund, the important thing was that the model was dynamic and flowed correctly. For example, if the instructions said 2% transaction fees but a candidate put in 1% or 3% or whatever on accident and if the returns changed after we put in 2% - not that big of a deal. But if everything was right but we couldn't toggle assumptions / have returns move - that's probably below the B+.

Would be curious to hear how other funds score their model tests.

  • Analyst 2 in Consulting
May 7, 2020 - 5:49pm

Error quia provident eos alias possimus pariatur velit. Mollitia voluptatem nihil harum enim dolores et. Et aliquam eius et et iste est. Vel quis aliquid adipisci et. Vero enim et id autem. Qui explicabo ut impedit tempora esse laboriosam. Est qui enim nesciunt.

Start Discussion

Total Avg Compensation

September 2021 Private Equity

  • Principal (7) $694
  • Director/MD (18) $575
  • Vice President (67) $365
  • 3rd+ Year Associate (68) $270
  • 2nd Year Associate (139) $254
  • 1st Year Associate (284) $222
  • 3rd+ Year Analyst (25) $160
  • 2nd Year Analyst (61) $135
  • 1st Year Analyst (184) $118
  • Intern/Summer Associate (20) $67
  • Intern/Summer Analyst (218) $59