What Interviewers Are Actually Testing
Interviewers are not only testing Excel mechanics. They are testing your ability to translate business cash dynamics into a financing decision sequence. A revolver exists as a flexible liquidity buffer. If your model logic cannot explain why the line is drawn or paid down in each period, you fail the practical judgment test even if formulas technically run.
Strong candidates define the sequence before numbers: calculate pre-financing cash, enforce minimum cash, draw only what is required, then apply excess-cash paydown subject to outstanding revolver balance. Weak candidates jump to formulas and accidentally allow contradictory outcomes such as simultaneous draw and paydown in one period with no gating rule.
How to Calculate Revolver Draws and Paydowns
Use this deterministic sequence in interviews and in model builds.
- Compute pre-financing ending cash: beginning cash + cash from operations - investing cash flow - mandatory financing uses.
- Set minimum cash requirement: policy floor or covenant-driven level.
- Draw required amount: if pre-financing cash is below minimum, draw = minimum cash - pre-financing cash.
- Compute excess cash: if pre-financing cash exceeds minimum, excess can be used for paydown.
- Paydown constraint: paydown cannot exceed current revolver balance.
Draw = MAX(0, Min Cash - Pre-Financing Cash)
Paydown = MIN(Revolver Opening Balance + Draw, MAX(0, Pre-Financing Cash - Min Cash))
Then update ending revolver balance and calculate interest consistently. If interest depends on average debt, explicitly state that assumption. If your model uses iterative calculations, say so and explain why the iteration is controlled.
Worked Examples
Example 1: Drawdown case
Opening cash is 40. Pre-financing ending cash calculates to 12. Minimum cash target is 25. Required draw is 13. If opening revolver is 20, ending revolver becomes 33 before any additional debt movement. This is a clean draw period.
Example 2: Paydown case
Opening cash is 35. Pre-financing ending cash is 58. Minimum cash target is 25, so excess cash is 33. Opening revolver is 18, so paydown is capped at 18. Ending revolver becomes 0 and residual excess cash remains on balance sheet.
Example 3: Circularity check under interview pressure
If interest expense depends on ending revolver and ending revolver depends on cash after interest, state the control clearly: either use average debt approximation or enable limited iterative solves. Interviewers reward transparent assumptions more than pretending circularity does not exist.
How Interviewers Grade This Answer
| Dimension | Strong Signal | Weak Signal |
|---|---|---|
| Waterfall Order | Explains pre-financing cash, min cash, draw, then paydown. | Mixes ordering and creates contradictory flows. |
| Constraint Control | Caps paydown by revolver balance and keeps cash floor intact. | Allows negative revolver or cash-floor violations. |
| Circularity Handling | States average-debt or iterative method explicitly. | Ignores circularity dependency. |
Answer Structure You Can Rehearse
90-second script: "I model revolver mechanics with a fixed liquidity waterfall. First I compute pre-financing cash. If that is below minimum cash, I draw only the shortfall. If it is above minimum cash, I pay down revolver up to the outstanding balance. I prevent simultaneous contradictory moves with one sequence and then handle interest circularity using average debt or controlled iteration."
Then include one drawdown and one paydown mini-case. That combination usually satisfies technical depth expectations.
Frequently Asked Questions
What triggers a revolver draw in a three-statement model?
A draw is triggered when pre-financing ending cash falls below the minimum cash target.
What triggers a revolver paydown?
A paydown occurs when excess cash exists above the minimum cash floor, capped by revolver balance.
How do you avoid circular references?
Use average debt assumptions or controlled iterative settings and keep a single waterfall order.
Should cash sweep always go to the revolver first?
In most interview cases yes, unless covenants or policy dictate a different repayment order.
What is the most common interview modeling mistake?
Allowing draw and paydown contradictions or negative revolver balances due to missing caps.
How can I practice this quickly?
Practice a short four-line liquidity waterfall and explain each line in plain language.