In-house HF Case Studies - Estimates

Hi -

as most of us go through case studies (both equity and credit) I wanted to discuss how you approach estimates in in-house case studies. Usually, candidates have between 3 to 6 hours depending on the shop to set-up model / thesis / recommendation.

One can develop a view on the asset and come up with indicators for long or short. Yet, returns materially depend on estimates one derives during the case.

- What financial items do you estimate?
- What kind of key sensitivities do you run?
- What is your strategy for forecasts given time contraint?
- Do you estimate year-on-year or simply use a mid-cycle metric (eg mid-cycle EBITDA and CF items)?

Have done a case and this was the point that challenged me most.

- Thank you

 
Best Response

For your projections, you want to get a sense for 1) the several different revenue drivers (volume * price * FX or rates * utilization, etc), 2) operating leverage (breakdown of fixed vs variable costs and how each of these move through the cycle), and 3) normalized earnings power (putting a mid cycle multiple on NTM EBITDA or FCF that is clearly above mid cycle is a good way to lose money in cyclical businesses ... ask yourself is there a reason why the company's earnings power is structurally higher than the 10 yr avg? ie due to consolidation, growth capex, etc).

Key here is not reinventing the wheel in a few hours, but to understand why your projections are reasonable, where you can be wrong, what your additional time would be spent focusing on, etc.

 

I would look at EV/EBITDA if it's a levered company or P/E as well as FCF Yield to Equity, what mid cycle multiples it typically trades at, and compare that to your estimate. FCF is the biggest thing to focus on and how this trends through a cycle - the others are just imperfect proxies for it. Look at this both relative to equity and EV. I'd also look at ROIC vs its cost of capital to see if the company creates value over time.

 

Soluta et voluptas quis et. Ullam reprehenderit unde nisi alias molestias. Et dolorem asperiores voluptatem consequatur magnam explicabo. Quia natus velit cum odit a sunt placeat. Qui iure sunt culpa quasi. Non maxime unde neque iste architecto quas vitae.

In quas ipsam est et quo eaque quo. Iure magni id natus dolorum ut quam id. Necessitatibus ad ut repellendus soluta voluptate vel.

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”