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Methodologically analyzing a balance sheet

Serdar asked on Nov 17, 2018 - 4 answers

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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Guennael replied on Nov 18, 2018
Ex-MBB, Experienced Hire; I will teach you not only the how, but also the why of case interviews

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"

Vlad replied on Nov 18, 2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

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

Francesco replied on Nov 18, 2018
#1 Expert for coaching sessions (2.100+) | Ex BCG | 1.000+ reviews with 100% recommendation rate

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

Elias
Expert
replied on Nov 19, 2018
Experienced strategy consultant, now running own consulting business

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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