An LBO modeling test is a timed build of a leveraged buyout model that proves you can turn a short prompt into a credible investment case. A paper LBO is the fast mental math version – no spreadsheet, just free cash flow, leverage, and IRR on paper. A live Excel test is the compact, keyboard-only build that links sources and uses, cash flow, debt, and returns into a one pager fit for a partner.
This guide explains what New York teams are testing and how to pass under time pressure. You will learn the components that matter, how scoring works, and a 60 minute plan that delivers a partner ready one pager with a recommendation and sensitivities.
What interviewers evaluate and why it matters
Teams in New York use these tests to see whether you anchor assumptions to the exhibits, think cleanly under a clock, and communicate a tight recommendation. Formats typically span a 10 to 15 minute paper LBO, a 60 to 90 minute live Excel build, and a 2 to 4 hour take home with a short memo. Training providers set similar timeframes, and you can find representative drills at Wall Street Prep and Breaking Into Wall Street. If you interview in New York, expect live builds and short presentations with pushback.
As a practical benchmark, you can rehearse with training tests such as the one hour practice test from Wall Street Prep or the simple LBO walkthrough at Breaking Into Wall Street. Matching your speed and layout to those drills will keep you on pace.
Scope: what belongs in a passable model
A credible build includes a complete capital picture, a conservative cash flow forecast, a debt schedule, and a clear returns view. It is not an audit or a full valuation library. Sponsors focus on investability and risk; banks want clean structure and credit math; private credit underwriters care most about downside protection, FCCR, and liquidity.
- Sources and uses: Show purchase price, fees, and funding. Tie out the equity check and debt proceeds. For a line by line walkthrough, see sources and uses.
- Cash flow build: Bridge EBITDA to pre financing free cash flow with taxes, working capital, and capex. A simple EBITDA to FCF bridge builds credibility fast.
- Debt schedule: Build tranches, rates, amortization, and the cash sweep. If needed, refresh mechanics in this debt schedule guide.
- Returns math: Compute equity IRR and MOIC with exit debt balances and transaction costs.
- Sensitivity: Present a labeled grid and a recommendation supported by ranges.
Formats and timing expectations
- Paper LBO (10-15 minutes): Estimate free cash flow, leverage, and IRR from simple inputs. Move fast and round sensibly.
- Live Excel (60-90 minutes): Build a compact one worksheet model with keyboard only navigation and an output that prints to one page.
- Take-home (2-4 hours): Use more exhibits and submit a short memo or 5 to 8 slides. Presentation polish counts.
- Case plus presentation: Spend 2 to 3 hours modeling, then present for 10 to 20 minutes and take Q&A. Be ready to defend assumptions and downside.
How your deliverables are scored
Minimum deliverables include a capital table, a debt schedule with rates and amortization, a cash sweep, a free cash flow build, IRR and MOIC, a sensitivity grid, and a recommendation. Interviewers score three things above all.
- Correctness: The model ties, cash is conserved, and signs are consistent. Risk is controlled by checks and guardrails.
- Traceability: Each input ties to an exhibit or an assumptions block the reviewer can audit.
- Presentation: A readable one pager with labeled scenarios and a clear, specific recommendation.
Core mechanics you cannot skip
Sources and uses that reconcile cleanly
List equity, rollover, seller notes, term loans, second lien or mezz, and a revolver. Capture transaction and financing fees and cash to balance. Financing fees reduce proceeds and amortize over debt life. Do not run financing fees through operating expenses.
Flow of funds and minimum cash
Uses equal purchase price plus fees plus any initial debt paydown. Sources equal equity and debt. Maintain minimum cash and model draw repay behavior on the revolver. If needed, review how cash sweeps and revolvers work in compact LBOs.
Bridge EBITDA to cash without shortcuts
Start with EBIT, subtract cash taxes, add back D&A and other non cash items, include changes in net working capital, and subtract capex. Do not include synergies unless stated. Keep working capital conservative and tie maintenance capex to depreciation if nothing else is given.
Build a disciplined debt schedule
Separate tranches, set base rate and spread, include OID and amortization, and reflect mandatory prepayments and any PIK toggle. For a refresher on toggle mechanics, skim this note on PIK interest. Revolvers need interest on average balance and commitment fees on undrawn commitments. Prioritize the cash sweep according to the term sheet.
Returns and sensitivities that stand up to pushback
Show equity IRR and MOIC at labeled exit years. Sensitize entry and exit multiples and EBITDA growth. Include the exit debt balance and specified transaction costs. If time allows, add a deleveraging table with net debt and leverage by year, which most credit cases expect.
Conventions and controls that keep you safe
Use one timeline with a switchable start date. Build an assumptions block that includes growth, margins, working capital days, capex as a percent of sales, taxes, base rate, spreads, OID, and exit multiple. Add hard checks for balance sheet tie out, sources equal uses, minimum cash respected, revolver within limit, and no circular references beyond cash interest if iteration is on. If time allows, include a circularity switch. Format an output that prints cleanly to one page with entry, operating plan, leverage path, FCF, returns, and a 2×2 or 5×5 sensitivity.
Debt costs and market anchoring
Use the provided term sheet. If none is given, anchor to a base rate plus a defendable spread. As of September 2024, 1 month Term SOFR was 5.33 percent, which tightens capacity and magnifies small errors. Sponsors often assume 1 to 5 percent amortization on term loans and a full sweep of excess cash. If OID appears, reduce proceeds in sources and uses and amortize if requested. Amortize financing fees straight line unless there is time for effective interest.
Taxes, working capital, and capex without heroics
Model cash taxes as a flat rate on pre tax income before NOLs unless instructed otherwise. If relevant, cap interest deductibility at 30 percent of EBIT per Section 163(j) and carry forward any disallowed amount. For working capital, use a days based approach when history is available; otherwise hold working capital as a percent of sales. Negative working capital models generate cash as they grow while inventory heavy models consume it. If you need a quick refresher, revisit working capital drivers. Set capex at or above maintenance in steady state. Tie maintenance to depreciation and add growth capex only when growth outruns history.
Returns math and a professional sensitivity
Compute IRR from entry equity outflow and exit equity inflow plus interim dividends if applicable. MOIC equals exit equity divided by invested equity. Present both at a base exit multiple and as a labeled grid. Show a value creation bridge that splits returns among EBITDA growth, multiple change, and net debt paydown. As time allows, add a second grid for base rate vs exit multiple when financing risk is central. If you need a template for layout and formulas, this guide to Excel sensitivity tables helps.
Common New York case patterns and what to watch
- Sponsor to sponsor B2B services: Expect modest growth and recurring revenue. Emphasize deleveraging and FCF conversion. Watch customer concentration and churn.
- Industrial carve out: Add a TSA expense and a path to remove it. Working capital often rises on separation. Include dis synergies and separation costs if given.
- Healthcare multi site: Model same store growth, new site ramps, maintenance capex, and working capital build. Reimbursement mix drives margins.
- SaaS/software: Split subscription and services. Working capital and maintenance capex are low. Emphasize retention and NRR without over engineering cohorts.
- Consumer cyclical: Note seasonality and raise minimum cash. Only build monthly or quarterly cash if explicitly asked.
What the packet usually contains
Expect a trimmed CIM, a KPI table, a historical summary, a debt term sheet, and a management or base case. Some cases include QoE adjustments with pro forma EBITDA. Treat the term sheet as binding unless inconsistent. If a base rate or floor is missing, say so and state your assumption. If told to use the management case, do it. If asked for a sponsor case, temper growth and raise investment needs, and label the change.
An execution plan for a 60 minute build
- 5 minutes: Read the prompt, list deliverables and missing data, and sketch assumptions.
- 10 minutes: Build sources and uses and opening stubs.
- 15 minutes: Build revenue, margins, working capital, capex, and taxes.
- 15 minutes: Build the debt schedule, interest, sweep, revolver, fees, and minimum cash checks.
- 10 minutes: Compute returns, populate the sensitivity, sketch a quick downside, and write the headline recommendation.
- 5 minutes: Run error checks, set the print area, and format the one pager.
As a fresh angle for pacing, consider a 30-25-25-20 rule of thumb for a 90 minute test: spend 30 percent on clean assumptions and sources and uses, 25 percent on the cash flow engine, 25 percent on the debt and sweep, and 20 percent on returns, sensitivities, and polishing. This allocation naturally leaves time at the end for checks and improves your odds of a first time print.
Quality gates, communication, and common mistakes
Sanity check leverage and FCF before you build. If EBITDA is 100, capex plus working capital uses 30, cash taxes 15, and interest 60, little equity value remains. Reduce price or leverage. Avoid plans that rely on multiple expansion to clear the hurdle IRR under flat EBITDA unless there is a catalyst. Keep cash above minimum and revolver usage within commitments; if not, resize debt. If near break even EBIT, consider interest deductibility limits and the cash tax effect.
Communicate concisely. Lead with one sentence: buy, pass, or conditional. Support with three drivers and three risks, and show how price or leverage adjusts for each risk. In credit roles, show DSCR or FCCR by year and minimum liquidity. A short covenant headroom table helps when maintenance tests exist. Wherever possible, label inputs as given, inferred, or assumed.
- Frequent misses: Forgetting a cash sweep or using end period interest without disclosing it.
- Fee errors: Ignoring OID and financing fees in sources and uses or failing to amortize them as requested.
- Rosy assumptions: Unjustified working capital improvements or capex below depreciation.
- Hardcoding: Plugging numbers instead of referencing an assumptions block.
- Messy output: Formatting that buries errors. Color inputs, isolate error checks, and keep line count tight.
Preparation that actually works
Rebuild a compact LBO from scratch three times in under an hour. Then add a carve out layer with a TSA and a mezz tranche. Practice on Windows with iteration off unless needed. Build a personal template with Assumptions, Sources and Uses, IS and CF, Debt, Returns and Sensitivities, and Output. Keep line count low to reduce error surface. If you need a time trial, follow this framework for a lean LBO model.
Private credit lens and FCCR
For credit roles, show FCCR by year as (EBITDA minus maintenance capex minus cash taxes) divided by (cash interest plus scheduled amortization). Add minimum liquidity and any undrawn revolver. Present pro forma leverage and note any springing covenant thresholds if listed. If call protection or prepayment fees apply, reflect them in equity exit proceeds and in loan returns if asked. For a ratios refresher, see a quick guide to credit ratios.
Minimal numeric anchor to frame your math
Entry at 10.0x on 100 EBITDA equals a 1,000 EV. Debt of 600 and equity of 400 with 40 of fees produces 1,040 of uses. By Year 5, EBITDA of 120, an exit multiple of 10.0x, and exit net debt of 300 yields exit equity of 900. MOIC is roughly 2.25x and IRR sits in the mid 20s depending on fee timing and any dividends. Present this as a value creation bridge, not a promise.
When data are missing and how to proceed
If the tax rate is missing, assume a conservative blended statutory rate and say so. If working capital history is absent, hold it flat as a percent of sales. If no exit multiple guidance exists, use entry with plus or minus 1.0x sensitivity. If the term sheet omits a base rate or floor, cite a benchmark like SOFR and state your assumption. If the management case looks optimistic, show both management and sponsor cases and quantify the IRR and covenant headroom impact.
Key Takeaway
In a timed LBO, speed with control wins. Anchor assumptions to the packet, build a cash conservative engine, prioritize a traceable debt schedule and sweep, and print a one pager with labeled sensitivities and a decision. Clean mechanics and transparent assumptions beat sprawling detail, especially with base rates near 5 percent where small interest errors compound quickly.