Modeling tests
How to approach a modeling test
Plan, build and check a small three-statement model against a case pack in a fixed time — then do one.
Learning objectives
- Plan a timed modeling test: read the case pack, budget the time, and build in a fixed order
- Diagnose a balance-sheet imbalance from its size and sign
- Build and check a two-year three-statement model on Inputs, Model and Checks tabs
Many analyst processes include a modeling test: a case pack (a page or two of history and assumptions) and 60 to 180 minutes to build a model in a blank spreadsheet. The test isn't about speed typing. Assessors look for a model that balances, is linked (change an input and everything moves), is readable, and answers the question asked. A half-finished model that balances and is clearly laid out beats a complete one with a plug.
The candidates who do well follow a routine they've practised, so under pressure they don't have to decide what to do next.
A five-step routine.
- Read everything first and sketch the model on paper: which lines, which drivers, what the output question is. Note anything that creates circularity (interest on average debt, cash sweeps) and decide how to avoid it, usually interest on opening balances unless told otherwise.
- Inputs tab. Every number from the case pack, once, in blue, years in the same columns as the model.
- Build in order: income statement down to net income; working capital and PP&E; cash flow statement (outflows negative); balance sheet, with cash from the cash flow and equity rolled forward. No plugs.
- Checks. Balance (assets − liabilities − equity), cash (balance sheet cash vs opening + net change) and equity roll-forward, with one status cell.
- Outputs and a sense check: the figures the question asks for, and one line on whether they're plausible.
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That's the last lesson in Finance Interview Preparation
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