How to Answer “In a PE case study, how do you build base/upside/downside operating cases?” in Private Equity Interviews

Start by stating what “base / upside / downside” mean for this specific business. In investment thesis development, cases should map to (a) your underwriting view (base), (b) a credible “things go right” path (upside), and (c) a plausible but not catastrophic “things go wrong” path (downside).

Make them thesis-driven: list the 2–4 thesis pillars (e.g., price increases stick, mix shift to higher margin products, procurement savings, footprint optimisation) and the 2–4 key risks (customer churn, competitive pricing pressure, input cost inflation, delayed capacity ramp). Then explicitly assign each pillar/risk to the case design. This is how you show you’re answering PE case study questions like an investor—each case is a story with measurable drivers.

Quick rule: base = most likely with reasonable execution; upside = execution + tailwinds (not “perfect world”); downside = setbacks and/or mild recession dynamics, with management reacting (not “business shuts down”).

Pick a small set of drivers that explain most of the economics, then keep the structure identical across cases. A typical driver tree: revenue = volume × price (or units × ASP), COGS = variable % + fixed costs, operating expenses split into semi-fixed vs variable, and then working capital and capex linked to sales or capacity.

For financial modeling for PE, focus on the few lines that move value: growth (volume/price), gross margin, opex leverage, and reinvestment (capex + NWC). Change assumptions at the driver level (e.g., churn rate, conversion, price realisation, plant utilisation), not by hardcoding EBITDA.

Consistency checks matter: if downside has lower growth, you may also see less capex but worse fixed-cost absorption; if upside has faster growth, NWC and capex often increase to support it. Keep accounting and logic consistent (no plug-driven margin expansion) so the model reads like an operating model, not a spreadsheet exercise.

In a PE case, scenario quality is judged by how cleanly it flows into cash generation and deleveraging. Build (or sanity-check) unlevered FCF from EBITDA: taxes (with a simple effective rate), changes in NWC (preferably % of revenue or days), capex (maintenance vs growth if you can), and other recurring items.

Then link to the capital structure: interest expense driven by average debt balances and pricing (base rate + margin), mandatory amortisation if relevant, and a clear cash waterfall (FCF to debt paydown, then optional prepay). This is where “operating cases in PE interviews” become decision-useful—downside isn’t just lower EBITDA; it’s potentially slower deleveraging, higher leverage at exit, and tighter covenant headroom.

If time is limited, prioritise: revenue, EBITDA margin, capex, NWC, and debt schedule integrity. These five typically explain the majority of MOIC/IRR movement.

Keep exit mechanics stable across cases unless there’s a thesis-based reason to change them. For valuation in private equity, most interviewers prefer: same exit multiple across scenarios (to isolate operational impact), plus a sensitivity table around exit multiple and exit year. If you do vary the multiple, justify it (e.g., downside implies weaker growth/quality → de-rating; upside implies better mix/recurring revenue → re-rating).

Show the bridge from operating performance to returns: (1) entry EV, (2) equity cheque, (3) interim deleveraging, (4) exit EV, (5) equity value at exit, (6) MOIC/IRR. Then summarise what drives dispersion: EBITDA level, margin, reinvestment intensity, and leverage at exit.

A crisp deliverable in a case study is a one-slide narrative: base/upside/downside assumptions, resulting EBITDA and FCF, leverage at exit, and MOIC/IRR—plus a note on what would need to be true to underwrite the upside.

Close by demonstrating judgement: are your assumptions in-range versus history, peers, and constraints (capacity, salesforce productivity, inflation pass-through)? In private equity technical questions, interviewers often probe your downside realism: does it reflect how management would respond (cost actions, capex deferral), and does it still avoid “double counting” (e.g., lower volume and big price cuts and margin compression without explaining why).

Add 2–3 explicit checks: implied CAGR vs market growth, margins vs prior cycle trough, capex as % of sales vs maintenance needs, and NWC days vs historical. Then state what you’d recommend: proceed, proceed with conditions (price, structure, covenants), or pass—and what diligence would focus on.

This last step is what turns scenario math into an investor answer: a clear view on risk/reward, underwriting confidence, and key diligence questions.