{ "media_type": "text", "post_content": "Hi, I have a PE case study interview in the coming week and was wondering whether there's an accepted rule for modelling returns - should you use the FY21E figure (assuming some rationale to the run rate) or just use the most recent actual? Motivation for asking is partly as I know lots of deals are being traded off forward EBITDAs so thought maybe using the next year expected figure would be common? Thanks in advance!", "post_id": "61a2a3fa8a0afd0025f7c89d", "reply_count": 12, "vote_count": 1, "bowl_id": "5b7c3919448e9300186d3deb", "bowl_name": "Private Equity and the Buy Side" }

Hi, I have a PE case study interview in the coming week and was wondering whether there's an accepted rule for modelling returns - should you use the FY21E figure (assuming some rationale to the run rate) or just use the most recent actual? Motivation for asking is partly as I know lots of deals are being traded off forward EBITDAs so thought maybe using the next year expected figure would be common? Thanks in advance!

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I would use 21E EBITDA for leverage estimates and 22E EBITDA for valuation. Both are necessary for modeling returns

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You are not being tested on being able to do a precise valuation, but on being able to model out the financials based on info provided to you, determining a range of valuation, recommending appropriate capital structure and making a recommendation based on IRRs and MOIC. But, most of all you are being tested on whether you get the business model. Good luck getting into weeds on the valuation in your interview. If it were me interviewing you, I would cut you off if you went on and on about valuation.

No one is buying off TTM numbers, or rather no one is selling based off TTM. It’s all about NTM (next twelve month) EBITDA. So, you are right, use F21 and may want to average F21 & F22 to calculate a more “normalized” EBITDA

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You won’t have enough info to build your own base case scenario. Just do a sensitivity analysis on exit year EBITDA for IRRs and that should suffice.

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