Nuts and Bolts Analysis

Welcome! As a follow-up to the latest newsletter, where we discussed key diligence items – it’s now time to dive into evaluating historical and forecasted financial performance. This is probably unlike any other newsletter you’ve come across from FinMeme guys. This is something you can stash away, use as a template, and update sporadically as you think about your own personal list when initially evaluating a transaction.

This is a continuation of my Private Credit, Direct Lending, and High Yield Course Materials. As a Non-Target, this is how you get up to speed and earn the best private credit and high yield jobs in New York City.

Okay, so we’re going to go from Revenue to the ending Cash Balance. The lens of this newsletter is to zone in on what areas of the financial statements you should be picking apart/getting answers on when you’re at the early read/initial diligence stage of the transaction. The CIM, Lender Presentation, other items in the data room, or the Sponsor or Banker should be able to address almost of all these items. These are important pieces in building a well-rounded investment memorandum, but also to address all the questions, comments, and concerns your investment committee may present.

We’re breaking this up into several sections 1) Revenue 2) COGS 3) Operating Expenses 4) Interest and Taxes 5) Add-backs 6) FCF 7) Change in Cash and 8) Qualitative Questions. The qualitative questions are meant to help you work through how you think the margin profile of the business relative to where they sit in the industry and what headwinds or tailwinds they’re facing in the overall business.

Every business starts at the top line and as you can see above, there’s so many different ways to slice and dice things. Obviously, a software business is very different from a manufacturing business, so there’s different nuances for different types of businesses.

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