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Francesco

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4

Methodologically analyzing a balance sheet

Hello,

I've recently had my first round interviews with Oliver Wyman which unfortunately did not go well. My question is how to methodologically analyze a balance sheet? In one of the cases, interviewer presented me with balance sheet of a bank and ask me to identify issues and propose solutions to solve them. Although I found and tackled a few issues, the case felt pretty unstructured for me and I sometimes felt lost. Do you have any recommendations?

Thanks in advance

Hello,

I've recently had my first round interviews with Oliver Wyman which unfortunately did not go well. My question is how to methodologically analyze a balance sheet? In one of the cases, interviewer presented me with balance sheet of a bank and ask me to identify issues and propose solutions to solve them. Although I found and tackled a few issues, the case felt pretty unstructured for me and I sometimes felt lost. Do you have any recommendations?

Thanks in advance

(edited)

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Hi Serdar,

a possible structure to analyze a balance sheet to identify problems and possible solutions could be the following:

  1. Clarify the goal of the bank. The analysis of a balance sheet could be different according to the fact that the company is worried about revenues, costs or profits
  2. Structure some macroareas of the balance sheet relevant for the goal. Guennael provided an example of such methodology with a division in assets and liabilities and long and short term - you may use others so far that your are MECE in your analysis
  3. Structure possible reasons for problems in the different macroareas and formulate a hypothesis on which is the actual cause. Let's say you notice a lack of deposits. You may investigate the reason for the problem as potentially external (eg economic trend) or internal (eg lack of marketing for the products). Then you can formulate a hypothesis on which is the actual cause for it
  4. Ask for information related to the hypothesis you formulated to verify it. Keeping our previous example, if your hypothesis is that there is an internal problem, ask if we have any information on any change that happened on the bank proposal for short-term deposits to its clients. If you verify this is indeed the cause, move to provide a solution, otherwise update your hypothesis.
  5. Provide a solution to the identified problem. According to the specific issue you have found, you can lay down a solution structure (eg increase the number of customers for deposits or the amount per deposit).

Hope this helps,

Francesco

Hi Serdar,

a possible structure to analyze a balance sheet to identify problems and possible solutions could be the following:

  1. Clarify the goal of the bank. The analysis of a balance sheet could be different according to the fact that the company is worried about revenues, costs or profits
  2. Structure some macroareas of the balance sheet relevant for the goal. Guennael provided an example of such methodology with a division in assets and liabilities and long and short term - you may use others so far that your are MECE in your analysis
  3. Structure possible reasons for problems in the different macroareas and formulate a hypothesis on which is the actual cause. Let's say you notice a lack of deposits. You may investigate the reason for the problem as potentially external (eg economic trend) or internal (eg lack of marketing for the products). Then you can formulate a hypothesis on which is the actual cause for it
  4. Ask for information related to the hypothesis you formulated to verify it. Keeping our previous example, if your hypothesis is that there is an internal problem, ask if we have any information on any change that happened on the bank proposal for short-term deposits to its clients. If you verify this is indeed the cause, move to provide a solution, otherwise update your hypothesis.
  5. Provide a solution to the identified problem. According to the specific issue you have found, you can lay down a solution structure (eg increase the number of customers for deposits or the amount per deposit).

Hope this helps,

Francesco

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You were asked to be methodical? Why not say "first Assets, then Liabilities; in the Assets, I will first look at Short Term Assets, then Long Term, then Off balance; once I am done with the Assets, I will go on the Liabilities side and follow the same structure; last but not least, I will compare the duration to ensure we have the right short term assets to match short term / maturing liabilities and not be opened to a liquidity event"

You were asked to be methodical? Why not say "first Assets, then Liabilities; in the Assets, I will first look at Short Term Assets, then Long Term, then Off balance; once I am done with the Assets, I will go on the Liabilities side and follow the same structure; last but not least, I will compare the duration to ensure we have the right short term assets to match short term / maturing liabilities and not be opened to a liquidity event"

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Hi,

This question is quite specific for Oliver Wyman and I doubt that you will have anything similar at any other company. So just forget about this.

If you are really interested in analyzing a balance sheet you can google tons of resources.

Best

Hi,

This question is quite specific for Oliver Wyman and I doubt that you will have anything similar at any other company. So just forget about this.

If you are really interested in analyzing a balance sheet you can google tons of resources.

Best

Seconding Vlad's opinion here - Bank balance sheets are a totally different beast than any other balance sheet. So unless you have specifically trained those, you will always struggle.

Seconding Vlad's opinion here - Bank balance sheets are a totally different beast than any other balance sheet. So unless you have specifically trained those, you will always struggle.

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