Preparing for a Timed Template Based PE Case Study
Does anyone have experience completing a timed three-statement template-based PE case study? Would appreciate any tips / advice!
Largely, what assumptions do you traditionally have to make on your own vs given and what types of qualitative information did you have to include in your recommendation (e.g., risks, etc.)
Hi Analyst 2 in Consulting, whoops, looks like nobody chimed in here.... maybe one of these discussions below is relevant:
More suggestions...
If those topics were completely useless, don't blame me, blame my programmers...
It really depends on how much time you are given. I had a 60 minute test, and was given the basic leverage assumptions, operating assumptions, entry and exit multiples. I knew that a 60 minute test was unlikely to include all of the bells and whistles (i.e., no financing fee amortization, no revolver). I did not have to make an investment memo.
It is important to know the process like the back of your hand going into it, and not have to "think through" the basic steps. I got it to where I could crank one out on muscle memory in ~40 mins, which left me ~15 minutes to problem solve / work through any difficulties. I also practiced on my laptop / without my quick access toolbar - which ended up being invaluable, as they gave me no mouse and a random laptop with different default settings.
unless stated specifically, my rule of thumb is: FCF and debt schedule (including revolver cash sweep) with three statements being very abbreviated IS, CF, and a BS that only highlights cash, debt, working capital, and PP&E (nothing on other LT assets/liabilities or equity balances). anything >2hrs i would do full three statements.
usually they'll give you some basic assumptions that will be all you need, like purchase multiple. you can make your own assumptions about senior/sub leverage (eg 8x purchase multiple i would do something like 4x senior 1x sub or 4x senior or 2x sub). for interest rates just make sure senior is cheaper than sub, and that sub will likely have a PIK component.
at the end of the day, what they're really testing you for are the ability to take instructions and build a model around it, with some bells and whistles (depending on time constraints) like full three statements with balancing BS, cash flow sweeps, PIK interest, and returns analyses. you need to get to the point where you do that quickly with reasonable assumptions, and to identify any mistakes before submitting (does it make sense for an investment under typical deal assumptions and timeline of 5 years or so to return 4x MOIC and 5% IRR or 1.5x MOIC and 1,000% IRR?).
Thanks for the responses. I definitely got rocked by mine. Completely agree with everything that has been said. I merely did not have enough time to QC / make sure everything made sense. I needed to prep / practice more to speed up my ability to make assumptions and go with it.
Good luck going forward!
(nothing on other LT assets/liabilities or equity balances)
What items would you include for full 3 statements on the BS?
I usually just hold those flat unless they amortize - then that gets more nuanced and outside of the scope of a short test. Equity would be previous period plus net income minus dividends.
Cash, AR, Inventory, other current assets, other LT assets, AP, accrued liabilities, other current liabilities, other LT liabilities, debt, equity. Simple so that you don't get bogged down in too much detail. Don't worry about APIC or RE or common stock accounts. Not enough time.
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