2 hour LBO modeling test. How simplified can the model be?
Hello all,
I have a few PE interviews coming up for smaller 500m > AUM firms, and am trying to seek assistance with preparation. I've been told there is going to be a 2 hour modeling test, apparently consisting of 1 hour of discussion/familiarising with the company in question and 1 hour of building an LBO model and reaching conclusions. Probably have to set up a few slides presenting as well.
If I assume that the model will have to be built from scratch, is it okay to go "bare bones" here? --> Skipping the Balance Sheet, building from previous year Revenue and assuming only % of Revenue for the main posts on the income statement, only a few tranches of debt max, no revolvers etc. and then setting up a few sensitivity tables.
I am fairly new to LBOs and PE recruiting in general, so don't really know what to expect here.
Thanks for any input!
If they give you a balance sheet then you should make it a 3 statement one. But keep it as simple as possible. The bulk of the time should be spent thinking about assumptions and justifying why you grow revenue at whatever percentage, etc.
not true. take the BS and calc working capital and that's it. don't need full 3 statements. you don't have time.
I've taken two tests so far and one explicitly asked for a balanced operating model.
The other one gave the full BS and then gave assumptions on write-ups of intangibles, PP&E and creation of DTLs along with specified years for capex depreciation and financing fee amort. I thought that meant I needed a full BS; is that a correct assumption to make or did I waste time doing that?
that's great you can do all of that in 60 minutes but it's my opinion that all you need to do is get the cash flow and debt paydown right to get a general idea of a return.
unless 100% stated you need to have a full balance sheet, I think a quick and dirty WC calc to get to cash flow will be just fine. during Q&A, they're not going to ask how you calculated debt paydown nor will they be impressed at bell and whistle in your model (it really doesn't matter). build your basic model, really think about assumptions and why and how you came up with them. this is far more impressive than having a full 3statement.
Thank you for the comments, I appreciate the insights
Which did you helpful to prep for this?
How common are modeling tests? Heard they're pretty rare, even the megafunds don't really do that.
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