Every concept, endless questions
Each concept is a small financial model. Read how it works, then draw a real interview question from it: forwards, backwards or what-if, with fresh numbers and a worked solution every time.
Forward runs a concept the usual way. Inverse runs it backwards, which is what separates understanding from memorizing.
Operating Model
5 conceptsOperating leverage and the margin bridge
When some costs are fixed, profit moves faster than revenue. Every extra dollar of sales brings in its contribution margin — revenue less variable cost — and none of it goes to the fixed base, so the whole contribution drops to EBITDA. The ratio of contribution to EBITDA is the degree of operating leverage: a business at 3x turns 10% revenue growth into 30% EBITDA growth, and a 10% decline into a 30% collapse. Sponsors love it on the way up and fear it on the way down, which is why the fixed-cost base is the first thing an operating partner asks about.
Revenue build: price, volume and mix
Revenue growth is not one number. It is the sum of three things: charging more for the same units (price), selling more units at the old prices (volume), and selling a different blend of units — more of the expensive product, say — at the old prices (mix). Sponsors split growth this way because the three are not equally valuable. Price drops straight to profit and tests pricing power; volume brings variable cost with it; mix can be a strategy or an accident. A plan built on price needs a reason customers will pay; one built on volume needs capacity.
Working capital as a cash lever
Working capital is cash the business has lent to its customers and tied up on its shelves, less cash its suppliers have lent to it. Each day of receivables is a day of revenue the company has not been paid for; each day of inventory is a day of cost of goods sitting in a warehouse; each day of payables is a day of purchases the company has not yet paid. Shorten the first two or lengthen the third and cash comes out — once, permanently, and without touching EBITDA. Sponsors pull this lever in the first hundred days because it repays debt faster than any operating improvement and needs no customers to cooperate.
Maintenance versus growth capex
Not all capex is equal. Maintenance capex is what the business must spend just to stand still — replacing worn machines, refreshing stores — and it is really an operating cost that the accounts happen to capitalize. Growth capex is a choice: spend now to earn more later. The distinction matters because a sponsor can cut growth capex to flatter free cash flow this year, at the cost of EBITDA next year and the exit value that multiplies it. The return on growth capex, measured against the exit multiple, tells you whether the cut is discipline or harvesting.
Cost-out programs
A cost-out program buys a permanent reduction in the cost base with a one-off payment — severance, consultants, plant closures. Three numbers describe it. The run-rate saving is what EBITDA gains every year once the program is complete. The cost to achieve is the one-off bill, usually quoted as a multiple of the run-rate. The phasing says how much of the saving lands in year one, because nobody fires everyone on day one. At exit the saving is capitalized at the multiple, which is why sponsors do it early: a dollar of run-rate saving is worth eight to ten dollars of exit value, against a cost to achieve of one to two.