Many companies these days will include a technical Excel modeling skills test as part of their interviewing process for financial analyst and associate roles. The nature of the test can vary. Here are the basics:
Length given for completion: anywhere from 1 hour to 6 hours (in some cases you will be given 24 hours)
Expectation of deliverable: a completed analysis with 100% calculation accuracy, presented in a clean, professional, print-ready format
Turf: in the company’s office, or not
What you will get: a set of key underwriting assumptions and financial data related to the property. Depending on the property and transaction type, this can include:
- (if development) development budget and timeline
- capital structure set-up detailing the layers of financing
- rent roll or market rent
- exit cap rate
- market leasing assumptions for when tenant leases end
Tasks:
- (if development) sources and uses of funds projection modeling
- property operating cash flow projection
- integration of debt financing, either interest-only or amortizing
- integration of sale event and debt repayment
- calculation of deal-level unlevered and levered IRRs, equity multiple and average cash-on-cash return
- joint venture equity waterfall construction and calculation of IRRs and equity multiples to each of the partners
- answers to the questions: “Should we do this deal? Why or why not?”
How you can pick up bonus points:
- abide by these best practices:
- one formula per row
- inputs are formatted in bold blue font
- inputs are not hard-keyed in the formulas
- use IF statements so your projections can be run for different length hold periods
- include a 2-way sensitivity table showing at what intersections of key variables the deal starts to look great/weak
- annotate your model with Comments (Alt+I+M) describing key assumptions you made
- make your completed work extra clean and extra crisp visually.
We have a free sample test here for a ground-up apartment development analysis. The solution set can be purchased here.
If you want to learn more about private equity job interviewing from someone who successfully went through it, see here.
Bruce,
Really great insight here. Thanks for sharing!
My pleasure, good luck out there!!