Answers / Financial Due Diligence
Describe a situation where you would consider using a 'collar' mechanism in a completion accounts process. How would you determine the appropriate range for the collar?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
I would consider using a collar mechanism in a completion accounts process when there is significant uncertainty around the target company's net working capital. I would determine the appropriate range for the collar by analyzing the company's historical NWC trends and negotiating with the seller.
WHAT INTERVIEWERS LISTEN FOR
- ✓Uncertainty around NWC
- ✓Analysis of historical NWC trends
- ✓Negotiation with seller
COMMON MISTAKES
- ✗Lack of understanding of collar mechanism
- ✗Inability to analyze NWC trends
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