financial analysis in consulting jobs

I think the amount of financial modeling/number crunching depends on the type of MC job that one gets. However, I would guess that one would be able to do some basic financial analysis regardless which MC job they get into.

This type of MC job comes to mind right away.

M&A/Restructuring - Specialty - MC:

Many MC's recommend deal making as an extension of a company's growth strategy. Deals fuel a company's growth under various circumstances such as when they strengthen a company's current core business in a stable industry or when they provide a means for a company to expand into highly related businesses that reinforce the core.

A clear understanding of a company's basis of competition in its industry should guide deal-making decisions. In simple terms, a basis of competition is how a company makes money (income statement and balance sheet analysis), and how it competes. In most industries, it represents the single most important factor for making the best recommendation to one's clients.

In order to articulate growth aspirations and understand the basis of client's competition, decide where to invest and where to divest, to prioritize growth opportunities (such as organic, M&A, joint ventures/partnerships) and to develop an M&A program-objectives, frequency, size and timing of deals - MC's must know basic financial analysis.

Basic financial analysis in this case can involve:
* Do a detailed analysis on company's balance sheet to decide whether the company's balance sheet is strong enough to take on new acquisitions
* Develop detailed profile, investment analysis/thesis and numerical valuation for top-priority targets (valuation - estimate all future cash flows, etc)
* Compare two companies (client and acquisition target) financial statements to determine the target's standalone value based on a rigorous understanding of cash flows
* Determine the right debt to equity structure or b-sheet leveraging to assess how much to borrow for the acquisition, etc
* Analyze the company's working capital to decide whether to issue stocks or negotiate for a bank loan in order to raise funding
* Estimate the client's ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations.
* Cash flow analysis to calculate liquidity and solvency

Awesome ninkorn - thanks for sharing!

more questions:
1) I'm guessing for post-MBA MC jobs, you would have learned how to do this analysis in b-school right?
2) Does this type of analysis ever come up during case interviews or as part of the MC recruiting process?

Just wondering

thanks,
isa.

I can't answer your (2) question since I've never been through post MBA MC interviews, but from what I hear (especially schools that teach by case methods - such as HBS, Darden etc), bschools do a wonderful job teaching students how to dissect company's financial statements and etc.

For example, when my cousin went through her MBA @ Booth (she was english literature major at UPenn as undergrad, didn't know a thing about financial statements), she told me that the basic financial accounting and finance class (both, part of the core) were 2 of the most important classes for her.

She told me that she spent countless hours debating, dissecting, analyzing balance sheets, income statement, pro-forma statements and etc in her first year alone (but more in her 2nd year in specific classes). Therefore, I don't think you should worry as long as your fundamentals are sound.

I only have a couple of minutes, ironically I am currently kidnapped by an excel beast about an acquisition. So my answers go like this:

1) Yes, it is true, along the lines of what ninkorn said.

2) No, you just have to know the language (accounting is paramount). Once you know that, your boss will teach you on an as-needed basis on how to build the model. Everyone builds it his own way but in the end there are just a few basic and easy ideas.

So don't worry at all about "financial modeling" (or whatever fancy analysis name you hear of), just clear the basic concepts of accounting in your head (concepts, not regulatory norms or whatever). Any minute you try to gain an edge by learning the contingencies, particular cases, advanced concepts, possible interview questions, is a minute you lose and a further thought that occupies your mind. Your edge will be to know the basics clearly.

Thanks for the insight Paradosso!!