How to Prepare for an LBO Modelling Test (The Take-Home Kind)

What the Test Looks Like

A take-home LBO modelling test is typically given after the first round interview. You receive a brief (1-3 pages) describing a target company, its financials, and some operating assumptions. You have 2-4 hours to build an LBO model in Excel and present your investment recommendation.

Some firms give you 24-48 hours with a longer brief. Others give you 3 hours in a room with a laptop. The format varies, but the core test is the same: can you build a functional LBO and form an investment view?

What They Actually Grade On

Most candidates think the test is about getting the "right" IRR. It is not. Here is what PE firms actually evaluate:

• Model structure and logic: Is the model clean, well-organised, and easy to follow? Can they change an assumption and see the output update correctly?
• Debt mechanics: Does the debt schedule work? Is interest calculated correctly? Does the cash sweep logic make sense?
• Investment judgement: Your recommendation matters more than your model. Can you articulate why you would or would not invest, and what the key risks are?
• Sensitivity awareness: Have you tested what happens if growth is lower, margins compress, or the exit multiple contracts?

A structurally clean model with a thoughtful recommendation will beat a technically complex model with no investment view.

Time Management

If you have 3 hours:

• Minutes 0-15: Read the brief. Understand the company, the assumptions, and what they are testing.
• Minutes 15-90: Build the model. Sources and uses, operating model, debt schedule, returns. Do not build anything fancy — keep it functional.
• Minutes 90-120: Run sensitivities. What if EBITDA growth is 0%? What if exit multiple drops by 1x? What is the downside case?
• Minutes 120-150: Write your recommendation. One page: investment thesis, key risks, returns summary, your decision.
• Minutes 150-180: Check your work. Verify the balance sheet balances. Verify the returns make sense. Format cleanly.

Common Errors That Fail Candidates

Circular references: Interest depends on debt, debt depends on cash, cash depends on interest. If you do not know how to handle this, your model will break. Use an iterative toggle or hardcode interest on opening balances.

Forgetting to subtract debt at exit: Exit equity = Exit EV minus remaining debt. Sounds obvious. Under time pressure, candidates forget.

No investment recommendation: The model is a tool. The recommendation is the output. If you submit a model with no recommendation, you have missed the point.

Over-engineering: You do not need a 15-tab model with scenario toggles and macros. You need a clean 4-tab model that works. Simplicity under time pressure is a strength, not a weakness.

Take Your Preparation Further

Practise with our LBO Model Template — a PE-ready model with debt schedule, returns analysis, and value creation bridge. For complete PE interview prep, get the PE Prep Bundle.

Ready for personalised feedback? Book a 1-on-1 mentoring session with an experienced IB/PE professional.