Private Equity interview preparation

Questions

100

Traced to a firm

83

Firms

40

Updated

September 2026

Asked at

All firmsAdvent International6Apollo Global Management6Audax Group6Carlyle Group6EQT6Silver Lake6Vista Equity Partners6WPWarburg Pincus6HIH.I.G. Capital5Oaktree Capital Management5Platinum Equity5TPTPG5General Atlantic4AMAres Management3Blackstone3Clayton Dubilier and Rice3GSGuggenheim Securities3Insight Partners3Invesco3Lazard3Neuberger Berman3NUNuveen3TSTruist Securities3Bain Capital2HWHarris Williams2Kohlberg Kravis Roberts2Millennium Management2Moody's2Rothschild & Co2WBWilliam Blair2Bessemer Venture Partners1Citi1Evercore1FTFranklin Templeton1Houlihan Lokey1HPS Investment Partners1KKR1Mizuho1MSMorgan Stanley1Sycamore Partners1

Topic

All topicsLBO mechanics7Value creation5Returns2Fund economics9Investment judgement18Valuation6Firm knowledge2Credit and financing9Operations4Due diligence8Career and fit11Sector knowledge4Accounting2Deal structuring7Industry knowledge3Brainteasers3

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1. 041If margin goes down by 5 percent, how much would you need to increase revenue to hold profit flat?Investment judgementIntermediatetechnicalSycamore PartnersConsumer and Retail · New York · 2026

   Say this

   It depends on whether the 5 percent is relative or absolute, so I would clarify first. If margin falls from 20 percent to 15 percent, an absolute 5 point drop, you need revenue to rise by a third to hold profit flat.

   Then walk it

   1. Take revenue of 100 and a 20 percent margin, so profit is 20.
   2. If margin falls 5 percentage points to 15 percent, you need revenue R where 0.15R equals 20, so R is 133. That is a 33 percent increase.
   3. If the 5 percent is relative, so margin goes from 20 percent to 19 percent, you need 0.19R equals 20, so R is 105. About a 5 percent increase.
   4. The general rule for the relative case: a relative margin decline of x percent requires roughly x percent more revenue, since profit is margin times revenue.
   5. The absolute case is far more punishing, and the lower the starting margin the worse it gets. At a 5 percent starting margin, losing 2 points means you need to grow revenue by two thirds.
   6. The commercial insight: this is why low-margin businesses cannot discount their way out of trouble. Volume almost never compensates for the price given up, which is the maths behind resisting a price war.

   Where candidates lose it

   Not clarifying absolute versus relative. The two answers differ by a factor of six and the interviewer is watching whether you ask. Then do the arithmetic with round numbers out loud.

   Expect next

   • What if the starting margin were 5 percent?
   • So would you ever discount to defend share?
   • How does operating leverage change your answer?

   Reported by candidates at Sycamore Partners (Consumer and Retail, New York, 2026). Source: Wall Street Oasis.

2. 042How does operating leverage affect debt holders versus equity holders?Credit and financingHardtechnicalOaktree Capital ManagementCredit · Los Angeles · 2024

   Say this

   High operating leverage amplifies the volatility of EBITDA, which is good for equity and bad for debt. Equity holds the upside option; debt holds a fixed claim and only experiences the extra volatility as risk.

   Then walk it

   1. Operating leverage is the share of fixed costs in the cost base. High fixed costs mean a small revenue change produces a large EBITDA change in both directions.
   2. For equity, that asymmetry is valuable. Upside flows entirely to shareholders, downside is capped at losing the equity. More volatility means a more valuable option.
   3. For debt, the payoff is capped at par plus coupon. Extra volatility adds no upside and materially increases the probability of default, so the lender is strictly worse off.
   4. This is the classic agency conflict between debt and equity: shareholders of a levered company prefer more risk than lenders would choose, and the conflict sharpens as the company approaches distress.
   5. Which is why credit documents restrict exactly these choices: covenants on leverage, restrictions on asset sales and dividends, and limits on acquisitions are all attempts to stop the equity taking risk with the lender's money.
   6. Practically for underwriting: a high-fixed-cost business supports less leverage than a variable-cost business with the same EBITDA, because the downside case is so much worse. That is why lenders price manufacturing and airlines differently from services.

   Where candidates lose it

   Describing operating leverage correctly but not linking it to the option payoffs. The debt-equity agency conflict is the intellectual content, and the practical conclusion, that fixed-cost businesses support less debt, is what shows you can underwrite.

   Expect next

   • So how much leverage would you lend to an airline?
   • What covenants would you want?
   • How does that conflict behave near distress?

   Reported by candidates at Oaktree Capital Management (Credit, Los Angeles, 2024). Source: Wall Street Oasis.

3. 043How does depreciation flow through the three statements?AccountingCorefirst roundOaktree Capital ManagementDebt Capital Markets · New York · 2026Moody'sGeneralist · New York · 2022

   Say this

   Take $10 at a 25 percent tax rate. Pre-tax income falls $10, net income falls $7.50, but cash rises $2.50 because depreciation is non-cash and the only real effect is the tax saved.

   Then walk it

   1. Income statement: $10 of depreciation reduces EBIT by $10, so net income is down $7.50 after tax.
   2. Cash flow statement: start at minus $7.50, add back the $10 non-cash charge, so cash from operations rises $2.50.
   3. Balance sheet: cash up $2.50, net PP&E down $10, total assets down $7.50. Retained earnings down $7.50. It balances.
   4. The economic point is the depreciation tax shield: a non-cash charge that generates real cash by reducing tax.
   5. For a sponsor this matters at entry, because purchase accounting writes assets up, which creates additional depreciation and amortisation and therefore an additional tax shield. That step-up is worth real money and gets negotiated.
   6. And for a credit analyst the point is the opposite direction: depreciation approximates the capital the business must eventually respend, so EBITDA overstates the cash available to service debt by roughly the maintenance CapEx.

   Where candidates lose it

   Saying cash falls. It does not. And for a private equity or credit interview specifically, the expected addition is the link to the purchase accounting step-up or to maintenance CapEx. The bare mechanics alone read as a banking answer.

   Expect next

   • Now do $10 of CapEx.
   • How does the step-up in an asset deal change this?
   • Why is EBITDA a poor proxy for cash available to service debt?

   Reported by candidates at Oaktree Capital Management (Debt Capital Markets, New York, 2026); Moody's (Generalist, New York, 2022). Source: Wall Street Oasis.

4. 044Why is EBITDA a poor proxy for cash flow, and what would you use instead?AccountingIntermediatetechnicalPrivate creditLeveraged finance

   Say this

   Because it ignores the three things that actually consume cash: capital expenditure, working capital and taxes, plus interest itself. A business can grow EBITDA every year and never generate a dollar of free cash.

   Then walk it

   1. CapEx is the biggest omission. EBITDA adds back depreciation, which is a proxy for the capital the business must eventually respend. For a capital-intensive business, maintenance CapEx alone can absorb most of EBITDA.
   2. Working capital: a growing business funds receivables and inventory, so cash lags EBITDA persistently.
   3. Cash taxes are real, and they differ from book taxes because of timing differences and loss carryforwards.
   4. Interest and mandatory amortisation come before anything reaches the equity, which is precisely what matters when the business is levered.
   5. And adjusted EBITDA compounds the problem, because the adjustments are the company's own judgement. Recurring restructuring charges and run-rate synergies routinely inflate it.
   6. What I would use: unlevered free cash flow for valuation, and for credit, EBITDA less maintenance CapEx less cash taxes less working capital change, compared against debt service. That is the number that tells you whether the structure survives.

   Where candidates lose it

   Reciting the Buffett line about EBITDA without the specific omissions. Name CapEx, working capital and cash taxes explicitly, and name adjusted EBITDA as a separate problem of judgement rather than of definition.

   Expect next

   • How do you split maintenance from growth CapEx?
   • Which add-backs would you refuse?
   • What coverage ratio would you actually underwrite to?
5. 045How do you separate maintenance capital expenditure from growth capital expenditure?Due diligenceHardtechnicalPrivate credit

   Say this

   There is no disclosed split, so you triangulate. Compare CapEx to depreciation over a cycle, ask management for a project-level breakdown, and test whether revenue would decline if spending stopped.

   Then walk it

   1. The rule of thumb: maintenance CapEx approximates depreciation over a long enough period, because depreciation measures the consumption of the existing asset base. Anything above that, sustained, is growth.
   2. That rule breaks in inflation, since depreciation is on historic cost while replacement is at today's prices. So it understates maintenance in a high-inflation environment.
   3. Better: get the project-level CapEx budget and classify each line. Management knows the split even though they do not disclose it, and in diligence you can ask.
   4. The conceptual test: what is the minimum spend that keeps revenue and capacity flat? Anything beyond that is discretionary.
   5. For a retailer or restaurant chain there is a clean version: new store CapEx is growth, refurbishment of existing sites is maintenance, and both are disclosed at unit level.
   6. Why it matters for a sponsor: the split determines how much cash is genuinely available to service debt in a downside case, because growth CapEx can be switched off and maintenance cannot. That flexibility is worth a turn of leverage.

   Where candidates lose it

   Accepting management's split without testing it. Management has an incentive to classify spend as growth, because that makes the business look more cash-generative. The depreciation cross-check and the project-level review are the defences.

   Expect next

   • What does the split do to your leverage capacity?
   • Why does the depreciation rule break in inflation?
   • How would you test it for a manufacturer?
6. 046How would you diligence a founder-run business?Due diligenceHardsuperdayAudax GroupPrivate Equity · Boston · 2021HIH.I.G. CapitalPrivate Equity · Paris · 2024

   Say this

   Assume the reporting is weaker than it looks and the founder is more central than anyone admits. The two questions are what the real earnings are, and what happens to the business when the founder steps back.

   Then walk it

   1. Financial reporting is usually thin. There may be no audited accounts, no management accounts by segment, no unit-level profitability. Budget more time and money for quality of earnings than you would for a corporate carve-out.
   2. Personal expenses run through the business are standard: cars, travel, family on the payroll, property. These are legitimate add-backs but each needs verification, and they are also a signal about controls.
   3. Founder dependency is the core risk. Which customer relationships are personal? Who actually makes pricing decisions? Is there a second layer of management, or does everything route through one person?
   4. Test it concretely: ask what happened when the founder took a long holiday. Ask the customers who they call. The answers are usually revealing.
   5. Related-party arrangements: property leased from a founder-owned entity, supply from a family business, loans in both directions. All need to be put on arm's-length terms before closing.
   6. Then structure around what you find. Rollover equity and an earnout keep the founder engaged; a transition agreement with defined handover milestones; and building the second layer of management is usually the first hundred days priority.

   Where candidates lose it

   Treating it like a corporate diligence. The distinctive risks are informal reporting, personal expenses and founder dependency, and the answer should end with how you structure around them rather than just listing them.

   Expect next

   • How would you structure the founder's rollover?
   • What if the founder wants to leave immediately?
   • How do you value a business where the owner works unpaid?

   Reported by candidates at Audax Group (Private Equity, Boston, 2021); H.I.G. Capital (Private Equity, Paris, 2024). Source: Wall Street Oasis.

7. 047How would you assess the management team?Due diligenceIntermediatetechnicalVista Equity PartnersHealthcare · Austin · 2023

   Say this

   Against the plan, not in the abstract. The question is not whether they are good managers but whether this team can execute this specific value creation plan over the next five years.

   Then walk it

   1. Start from the plan and work backwards: if the thesis is a pricing transformation and a buy-and-build, you need a commercial leader who has taken price and a CFO who has integrated acquisitions. Match capability to the specific job.
   2. Track record over assertions: what did each person actually deliver in previous roles, with numbers, and verified through references rather than their own account.
   3. Reference calls are the highest-value tool, and off-list references are worth more than the ones provided. Former colleagues, former bosses, and people who worked for them.
   4. Test their own diagnosis. Ask what they would do with more capital and fewer constraints. A management team with no clear answer has not been thinking like owners, which is both a risk and an opportunity.
   5. Assess the gaps honestly and budget for them. It is normal to replace one or two of a founder-led team, and pretending otherwise just delays it.
   6. And test cultural fit with sponsor ownership specifically: monthly reporting, board scrutiny, a five-year clock. Some excellent managers genuinely do not want that, and finding out after closing is expensive.

   Where candidates lose it

   Assessing charisma from meetings. Management teams in a sale process are coached and selected for presenting well. Reference calls and delivered track record are the evidence; the interview is not.

   Expect next

   • What if the CFO is not strong enough?
   • How quickly would you make a change?
   • How do you keep them motivated through a five-year hold?

   Reported by candidates at Vista Equity Partners (Healthcare, Austin, 2023). Source: Wall Street Oasis.

8. 048What is an earnout and when would you use one?Deal structuringIntermediatetechnicalMiddle-market private equityM&A

   Say this

   Deferred consideration contingent on the business hitting agreed targets. You use it to bridge a valuation gap when the buyer does not believe the seller's forecast and the seller will not accept a lower price.

   Then walk it

   1. The mechanism: part of the price is paid at closing and the rest depends on performance over one to three years, usually against revenue or EBITDA targets.
   2. It resolves genuine disagreement. The seller says growth will continue; the buyer is sceptical. An earnout lets each be paid according to what actually happens.
   3. It also retains the seller, which matters most in founder-led and people-dependent businesses where the relationships walk out of the door.
   4. The problems are well known. Revenue-based earnouts incentivise selling at any margin. EBITDA-based earnouts create arguments about cost allocation, because the buyer now controls the accounting. Integration is often delayed to keep the earnout measurable, which destroys value.
   5. So the documentation has to be very precise: exactly how the metric is defined, what the buyer may and may not do during the period, dispute resolution, and treatment on a subsequent sale.
   6. My own view: earnouts solve a negotiation problem and create an operating problem. For a business you intend to integrate immediately, a lower price with no earnout is usually cleaner than a higher price with one.

   Where candidates lose it

   Describing the mechanics without the misalignment problem. The reason experienced buyers dislike earnouts is that they constrain what you can do with the business during the period, and that is the answer worth giving.

   Expect next

   • Revenue or EBITDA based, and why?
   • What if the buyer wants to integrate immediately?
   • How would you handle a dispute?
9. 049What is a working capital peg and why does it matter?Deal structuringHardtechnicalTransaction services

   Say this

   It is the normalised level of working capital the business is expected to be delivered with. At completion, actual working capital is compared to the peg and the price adjusts dollar for dollar for the difference.

   Then walk it

   1. The purpose: a buyer pays an enterprise value on the assumption that the business comes with enough working capital to operate normally. Without a peg, a seller could collect receivables and stop paying suppliers before closing, extract the cash, and hand over a business that immediately needs funding.
   2. Setting it: usually the average monthly working capital over the last twelve months, adjusted for seasonality and for any abnormal items. The twelve-month average is the standard, precisely because it is harder to manipulate.
   3. The adjustment: if actual working capital at completion exceeds the peg, the buyer pays more; if it falls short, the price reduces. It is a true-up, not a negotiation.
   4. Where the money is: the definition of what counts as working capital versus debt-like items. Deferred revenue, accrued bonuses, capex creditors and customer deposits are all argued over, and each can be worth millions.
   5. The seller's incentive is to set the peg low and deliver high. So in diligence you build your own normalised figure from monthly data rather than accepting the seller's average.
   6. And it interacts with the locked box alternative: in a locked box deal there is no completion adjustment at all, the price is fixed at a historic balance sheet date and the buyer takes the risk from then, which is common in Europe.

   Where candidates lose it

   Not knowing this exists. It is unglamorous and it is where real money moves at completion. Naming the debt-like items argument, and the locked box alternative, marks out someone who has been on a live deal.

   Expect next

   • What is a locked box and when would you prefer it?
   • Which items are argued over as debt-like?
   • How would you set the peg for a seasonal business?
10. 050What is a locked box, and when would you prefer it to completion accounts?Deal structuringHardtechnicalEuropean private equityM&A

    Say this

    The price is fixed by reference to a historic balance sheet date, and the buyer takes the economic risk and reward of the business from that date. No completion accounts, no true-up, just a prohibition on value leaving the box.

    Then walk it

    1. Mechanics: pick a locked box date with audited or reviewed accounts, fix equity value from that balance sheet, and the seller warrants that no value has leaked out since, other than agreed permitted leakage.
    2. The buyer usually pays interest on the price from the locked box date to completion, compensating the seller for the cash the business generated in between.
    3. Advantages: price certainty on both sides, no lengthy post-completion accounting dispute, and a faster, cleaner process. It also works well in an auction, because bids are directly comparable.
    4. It requires reliable accounts at the locked box date and a short gap to completion. The longer the gap, the more risk the buyer takes on performance it cannot control.
    5. Leakage is the key negotiation: dividends, management fees, related-party payments, bonuses. Permitted leakage is defined narrowly and anything else is recoverable pound for pound.
    6. When to prefer each: locked box in a competitive European auction with good financials and a short signing-to-closing gap; completion accounts where the gap is long, where regulatory approval is needed, or where the financial reporting is not reliable enough to trust a historic balance sheet.

    Where candidates lose it

    Not knowing the term, which is common for candidates who have only seen US deals. Also missing that the buyer takes the risk from the locked box date, which is the whole economic substance of the structure.

    Expect next

    • What counts as leakage?
    • Who bears the risk between the locked box date and completion?
    • Why is it more common in Europe than the US?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.