Modeling Test - Quarterly

Hi Guys,

I have an upcoming modeling test in person at a well known sell side firm for research. I've done the WSP models and CFA 1 but have never done model with quarterly projections/data. Can someone advise how the modeling tests are generally set up and how to model quarterly?


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Comments (10)

Dec 20, 2018

What sector?

Dec 20, 2018


Dec 20, 2018

Did they specifically say you'd have to do a quarterly model? Most of the research interviews I've had in the past with modeling test generally only wanted annual.

In any event, it's not all that different except certain things you'd be forecasting y/y whereas others are q/q. Hard to answer without knowing the sector.

Dec 20, 2018

They didn't state it would be quarterly. They just said it would be an inperson modeling test and writing test lasting around 2 hours. I have access to their research and I see that some companies they valued by P/E comparables and other multiples and other's DCF. Any advice how to prepare or what to expect?

Dec 20, 2018

In that case, I'd recommend prepping by getting the earnings release for some companies they cover and time yourself in basically quickly analyzing the release and being able to draft a one page, 3-5 bullet first take / flash note. You have to be able to do this within 1 hour - do it before you read the actual first reads they put out and then compare your work. After you go through about 3 earnings releases you'll either be ready or you'll realize there just wasn't enough time for you to prep.

For the models, if you've done any kind of prep package you should be good enough. Since you know what kind of valuation methodologies they use for their current coverage just memorize the key things you need (e.g. if valuing off 2020 earnings with P/E, be sure to note it's a YE19 PT and such). This assumes you can slap together a quickie 3-stmt model of course. I won't say it's impossible for them to require quarterlies, but as noted previously by myself and other posters, it just comes down to whether there's any obvious seasonality in the historicals.

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Dec 20, 2018

So the earnings release update what that be only a quick summary of what happened or would I have to update the model? For example update the EPS for the quarter and remaining quarters in the year, which would base a P/E valuation? Would I have the information on the consensus expectations? That's really my main concern as in the prep packages it was only annual DCF. A 2 hr test seems like it would be extensive, I'm concerned about having to build out a model from scratch.

Most Helpful
Dec 23, 2018

First off, you will have everything you need. Consensus figures, 'house estimates' of any, press release, etc. I've worked for some fairly psychotic people over the years and even they all provided this to prospective hires.

From what I can gather, it seems you don't have any work experience in this field, which is fine, but you're going to have to do a bit of extra leg work - e.g. not knowing what a first read note is.

I described above in multiple ways because every firm calls it something different, but it's basically as you say, a note that talks through the main things that happened in a quarter. Every analyst is pretty delusional in thinking their note adds any value if they're not literally first to publish. The first bullet is always something about adjusted EPS/EBITDA vs consensus. Here you will literally say, company XX delivered EPS of YY, vs cons. of ZZ. The main drivers were a beat/miss on XYZ. Second through fourth bullet (depending on size of note) talk about whatever nonsense management is peddling and other interesting stuff. Could be volumes, operating leverage, margins, Trump, anything. This is your opportunity as an analyst to add value by noticing interesting stuff or calling out oddities. 95% of the time, there isn't anything interesting. Your last bullet in the business will always be some rehashing of your thesis like "this reinforces our buy/sell rating for all the aforementioned reasons" (note: regardless of how good/bad a quarter is, you always claim victory because you're a sell side monkey). And you provide the dial information (time, phone number, conference code).

As for your modeling test, they may have you update one of their models for a quarter by giving you an incomplete model and a press release - the name of the game is accuracy. Your forecasts aren't worth squat to them because you seem fairly green. Make absolutely sure your EPS and/or Adj EPS ties out to what is reported. This is an auto ding if you fuck it up (as are any other important metrics like revenue or CFO). Be fast, methodical, and don't fuck up.

They can also make you build a model from scratch. This seems less likely based on my evaluation ofyou as someone with relatively little experience, but to prep, you should build from scratch a 3 stmt model and make sure your B/S and C/F tie out and that your I/S stuff is flowing properly into the C/F. Sky's the limit here in terms of variability - I've seen kids have to build two models and then a merger overlay after we reviewed the two models; dummy models with dummy information and you having to be able to do some quick and dirty analysis on what the trends mean; normal modeling with real companies; literally anything. Since you seem junior, just make sure your shit ties out and your numbers are accurate agains the source material provided - again, your forecasts don't really matter so long as they're not wildly stupid.

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Jan 11, 2019

Thanks for all your tips! With regards to the first read note, I noticed the press release mentions to consult the 10-Q for more info. Generally some press releases are more high level and don't have an abundance of info. In this case, from my understanding the 10-Q would have a lot more especially management commentary, sector/geography breakdown etc. Just wondering if that would be something that I would be given?


Jan 12, 2019

There are some companies that like to be coy by reporting minimal information in their PR and leaving everything to their 10-Q/K which may be released that same day or weeks later.

For your purposes, you probably don't need to worry about it. I've yet to hear of an analyst who is going to make any prospective hire (junior or experienced) go through a 10-Q/K in person (obviously if you had to develop your own stock pitch over a weekend or something you'd go to these sources). For the junior it'd obviously be so overwhelming that they'll just fail and for most experienced people, they'd probably flip off the analyst right before leaving.

With that in mind, literally every PR will say to refer to the Q/K because that's where the regulatory disclosures are and the companies don't want to get sued for securities law violations. As for the detailed information, none of this will go into your typical first read note. Your first read note is just that, a first read of the PR and what's interesting / important for your HF clients. A lot of analysts put out something like a 10-Q or 10-K review later on if their coverage typically releases it well after earnings. If instead it is released same day, they'll usually refer to it in the conference call note or model update note (assuming they don't lump these together).

Bottom line, don't worry about it too much since you probably aren't in a position to prepare for this specific eventuality. Focus on the things in your control which I detailed above.

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Dec 20, 2018