Corporate Finance and Financial Modeling Case Studies
Finance5 Case StudiesUpdated Sep 2026
These five cases follow finance teams through situations that rarely arrive as clean textbook problems. Each begins with a figure that will not behave, whether it is a ledger balance, a forecast line, a flagged transaction, a credit request, or an audit finding. The attention stays on what the records actually show, how much exposure sits behind them, what evidence the controls can produce, and where the decision thresholds should be set. The organizations are invented, but the sequence of judgment calls is meant to feel familiar to anyone who has closed a period under pressure. Read them in order, since later cases assume the habits built in earlier ones.
Case Study 1
Tracing a payables gap to the last invoice
Brightwater Supply Company, a regional distributor of industrial fittings with two warehouses and a six-person shared accounting team.
The situation
At Brightwater, the accounts payable subledger showed open vendor balances of 2,418,600 at the end of the month, while the general ledger control account carried 2,391,150. The difference of 27,450 had appeared in the prior close as a small timing item and was signed off with a note saying it would clear. Dana, the senior accountant who owned the reconciliation, had rolled it forward once already. This time the amount was larger, and the subledger and ledger had been fed from the same batch file, so a simple cutoff explanation did not fit. Marcus, the controller, wanted an answer before the financial statements went into draft.
The challenge
The immediate question was where the 27,450 came from, but the harder issue was the sign-off history. Two earlier reconciliations had accepted unexplained items without attached support, and nobody could show who approved the carryforward. Marcus needed to decide whether to hold the close, what evidence would satisfy the external auditors' questions, and where the escalation threshold should sit so that a similar item could not pass quietly again.
Analysis
Dana began by sorting the variance by posting source, age, and vendor, not by amount. That view split the gap into two clean groups. Fourteen invoices totaling 18,920 had been posted twice in the subledger, each under a different internal reference but the same vendor invoice number. Three vendor credit memos totaling 8,530 sat in the subledger but never reached the ledger, because the interface rejected them on a currency code. Teams grounded in Corporate Finance and Financial Modeling usually start this way, since the shape of a variance says more about the failure than its total. Duplicates point to entry controls, while rejected interface records point to integration monitoring.
The control design followed from those two groups. The preventive fix was the more important one: the subledger should refuse any vendor invoice number already recorded for the same vendor, unless a reviewer overrides it with a reason code. The detective fix covered interface rejections. The team added a daily exception report, and the close checklist now requires that report to be read before reconciling begins. For decision thresholds, Marcus set two lines. Any unexplained item above 1,000 goes to the controller within two business days, and any unexplained total above 10,000 holds the close until the item is resolved or accepted in writing.
Actions taken
- Rebuild the reconciliation template so every carried item needs a named owner, an expected clearing date, and an attached support document before the preparer can sign.
- Add a duplicate check on vendor and invoice number in the subledger entry screen, with a reason-code override that the controller reviews each month.
- Set up a daily exception report for rejected interface records, make it a required close checklist item, and obtain sign-off from the integration analyst before reconciling.
- Retest the two prior reconciliations by pulling the underlying items, documenting each carryforward that lacked evidence, and reporting the results to the audit committee.
Results
The duplicate invoices were reversed through a documented correcting entry, and the three credit memos were reposted once the currency code was fixed in the vendor master. The period then closed with no unexplained difference. The retest of the two earlier periods turned up four carryforward items totaling 6,140 with no support at all, and Marcus approved their write-off, disclosed in the close memo. In the following quarter the duplicate check blocked seven attempted entries, and the exception report caught two rejected records within a day of failure.
Questions for discussion
- Which of the two variance groups would you have pursued first, and what evidence would have changed that order?
- How would you decide whether a carried reconciling item deserves a formal write-off instead of another rollover?
- What would make a fixed threshold such as the 1,000 line a working control rather than a formality?
Case Study 2
Reforecasting a margin squeeze in the third quarter
Cobalt Harbor Foods, a privately held producer of frozen seafood with three processing plants and a corporate planning group of four.
The situation
Cobalt Harbor had set its annual plan on revenue of 84,300,000 and a gross margin of 31 percent, assuming volume would recover in the second half after a soft start. By the third quarter, year-to-date revenue ran about 4 percent under plan, and freight costs had climbed after a carrier rate change the plan did not anticipate. Naveen, the FP&A manager, had been asked to produce a revised outlook for the board within ten days. The company's revolving credit facility requires minimum liquidity of 6,000,000, and the treasury team warned that headroom was narrowing faster than the plan implied.
The challenge
The board wanted three things at once: a credible full-year number, a view on whether the liquidity floor was at risk, and a recommendation on what to cut or change. Each of those depended on assumptions the team had not tested. Was the volume shortfall lost distribution or softer demand at the same shelf price? Could freight increases be passed to customers, and how quickly? A forecast built on the old recovery curve would not survive questions from the lenders.
Analysis
Naveen started by rebuilding the forecast from customer-level volume and price data, not from the top-down growth rate that had carried the plan. That exercise showed the shortfall sat in two regional grocery accounts that had reduced their orders after a planogram change. The recovery assumption was the weak point. The plan had assumed a 3 percent volume lift in the second half, but the sequential trend over the last five weeks was flat. Three scenarios were built around that assumption, with freight pass-through and supplier price timing tested separately.
The thresholds mattered as much as the scenarios. Management agreed that the liquidity floor of 6,000,000 would be defended with an early warning level 1,500,000 above it, and each level was linked to a spending action that a named executive could authorize without another board vote. Control evidence was built into the routine: the rolling thirteen-week cash forecast would be refreshed each Monday, and every variance over 250,000 would carry a written explanation before the weekly finance review. The recommendation was to present the base case as the planning number, carry the downside as the decision case, and make staged cuts conditional on actual data rather than on hope.
- 1Confirm actualsTie year-to-date sales and freight to source invoices before modeling.
- 2Stress key assumptionsTest volume recovery and freight pass-through as separate scenarios.
- 3Set liquidity triggersFix the warning and floor levels and the actions each one unlocks.
- 4Approve staged cutsRelease spending reductions in tranches tied to observed triggers.
- 5Report to the boardPresent base and downside cases with named owners for each action.
Actions taken
- Rebuild the forecast from customer-level volume and price data rather than a top-down growth rate, and link every line to a source report the planning team can open.
- Run three scenarios with written assumptions for volume recovery, freight pass-through, and the timing of a supplier price increase, and note which input drives each result.
- Set the liquidity floor at 6,000,000 with an early warning level 1,500,000 above it, and tie each level to a pre-approved spending action owned by a named executive.
- Refresh the rolling thirteen-week cash forecast every Monday and require a written explanation for each variance above 250,000 before the weekly finance review.
Results
The revised base case put full-year revenue at 81,900,000, about 2.8 percent below the original plan, with the gap concentrated in the two grocery accounts. The downside case, which assumed no volume recovery and only partial freight pass-through, showed liquidity dipping to 5,200,000 in the eleventh week. The board approved a 2,100,000 reduction in discretionary spend, released in two tranches, along with a 2.5 percent price increase on two product lines. Six weeks later volume had recovered only partly, but the first tranche was enough to keep liquidity above the warning level.
Questions for discussion
- Which assumption in the downside case would you have tested first if the treasury warning had arrived a month earlier?
- How much freight pass-through would you assume before a customer renegotiation, and what evidence would you need to support that figure?
- When a warning level is crossed, who should be able to act without waiting for the board, and where should that authority stop?
Case Study 3
Escalating a concentrated transfer flagged by monitoring
Northfield Capital Partners, a small investment adviser running three private credit funds with a shared compliance officer.
The situation
Monitoring at Northfield flagged a wire of 4,300,000 leaving the operating account of Harrow Ridge Fund II. The payee was an entity added to the vendor list two days earlier, and the wire was described as advisory services on a single invoice with no service schedule. The amount equaled about 4.1 percent of fund net asset value. Ingrid, the chief compliance officer, received the alert on a Friday afternoon, and Tobias, the operations manager, confirmed that the instruction had come through the standing payment process rather than a one-off request.
The challenge
The alert did not prove wrongdoing, but it touched several rules at once. The single payee limit in the fund's written policies is 5 percent of net asset value, so the transfer sat just under it. A related party payment above 1,000,000 needs approval from the advisory committee, and nobody had checked whether the payee was connected to a portfolio company. Ingrid had to decide whether to hold further payments, what to ask for, and how to document the decision so that it would stand up to later review.
Analysis
The first pass examined the evidence that would normally clear an alert. The onboarding file held a registration document and a bank letter, but the letter was dated after the wire instruction and the signatory appeared on no known counterparty list. The invoice gave a rate roughly 38 percent above the schedule in the advisory agreement, and no time records were attached. Exposure was measured two ways: against the single payee limit, where the wire sat within 0.9 percent of the threshold, and against the related party threshold, which applied once ownership was confirmed. Documentation gaps were treated as findings in their own right, not as minor paperwork.
The controls that failed were specific. The onboarding procedure let a new payee receive a wire on the day of approval, with no second check on the bank account. The standing payment process also lacked a required business purpose field. Ingrid froze further payments to the payee, logged the hold with the time and her name, and sent the facts to the advisory committee with a recommendation to reverse the wire. Whether investors had to be told depended on the related party clause, so counsel received that question in the same message.
- Same dayMonitoring flags the wire and further payments to the payee are placed on hold.
- Within an hourChief compliance officer receives the alert and asks operations for the instruction trail.
- Next business dayPayee ownership questions go to the portfolio company and the payee's bank.
- Within three daysInvoice, approval chain, and related party declarations collected and reviewed.
- End of the weekAdvisory committee receives a written escalation with a reversal recommendation.
Actions taken
- Keep the hold on further payments to the new payee in place, and record the time, the approving officer, and the reason in the compliance log before anyone reviews the underlying file.
- Obtain the invoice, the service schedule, the onboarding file, and written related party declarations from both the portfolio company and the payee before drawing any conclusion about the transfer.
- Escalate to the advisory committee with the facts, the thresholds breached or approached, and a recommendation on reversal, and have counsel confirm whether investor disclosure is required.
- Require a second officer to verify the bank account and business purpose before any new payee can receive a wire above 250,000, and add the business purpose as a mandatory field.
Results
The review found that the payee was controlled by a relative of a portfolio company's chief executive, a connection that had not been declared in the related party register. The services on the invoice had been partly performed, but the rate was well above the agreed schedule. The wire was reversed to the fund account on the eleventh business day, the rate dispute went to the advisory committee, and the register was updated. The quarterly investor report carried a disclosure note. Two other recent onboarding files were rechecked and found complete.
Questions for discussion
- At what point would you have considered continuing the hold to be a compliance risk in its own right, and how would you document that judgment?
- Which items in this file would you accept as enough to close the related party question, and which would you still treat as incomplete?
- How would the escalation change if the payee were unconnected but the invoice still lacked a service schedule?
Case Study 4
Approving a bakery expansion loan with conditions
Ridgeway Commercial Lending, the middle-market credit unit of a regional bank, reviewing a request from Tamsin Lake Bakery Group.
The situation
Tamsin Lake Bakery Group operates eleven bakeries across two states and asked Ridgeway for a 6,500,000 term loan to open four new stores and refinance a short-term equipment facility. Trailing revenue was 34,900,000, and reported EBITDA was 4,010,000 before the owners' add-backs. Existing funded debt stood at 9,200,000. Ana, the credit analyst, had the file, while Owen, the relationship manager, had already described the request internally as routine because the company had decades of trading history. The new stores would take roughly fourteen months to reach mature volumes, according to the owners' own model.
The challenge
The credit question was narrower than the relationship manager's framing. Ana needed to know what EBITDA the lender could rely on, how much leverage the business could carry through a bad year, whether a seven-year term fit assets with shorter lives, and what conditions would keep the loan within risk appetite if the expansion ran late. The owners' add-backs and their new store projections were the two places where optimism could hide.
Analysis
Ana first separated the earnings the owners could evidence from those they could only assert. The claimed add-backs totaled 590,000, made up of owner compensation normalization and a one-time roof repair. Payroll records supported 380,000, and the roof invoice was undated, so 210,000 was excluded, giving underwriting EBITDA of 4,390,000. Combined funded debt after the proposed loan would reach 15,700,000, or about 3.6 times underwriting EBITDA. The lender's leverage ceiling is 3.5 times, so the request as submitted failed the threshold. Reducing the term loan to 6,100,000 brings total debt to 15,300,000 and leverage to just under 3.5 times, so the owners would also fund 400,000 of the expansion in cash.
The downside work shaped the conditions more than the approval itself. A combined case, with flour and energy costs sharply higher, sales down 8 percent, and a slower ramp at the new stores, pushed EBITDA to about 3,300,000 and leverage above 4.5 times, breaching the covenant. Suitability also mattered. A seven-year term on equipment with a shorter useful life would leave the business repaying assets it no longer used, so that portion moved to a five-year term. Conditions therefore covered staged draws against signed leases and inspection reports, a six-month debt service reserve, personal guarantees from both owners, and quarterly leverage and coverage tests.
Actions taken
- Rebuild underwriting EBITDA from filed tax returns and monthly store ledgers, accepting an add-back only where an invoice or payroll record supports it, and document each rejection.
- Model a combined downside with flour and energy costs higher, sales down 8 percent, and a slower ramp at the new stores, reporting leverage and coverage for each quarter.
- Reduce the term loan to 6,100,000, require 400,000 of owner equity at closing, and release construction draws only against signed leases and inspection reports.
- Set quarterly covenants at 3.5 times maximum leverage and 1.25 times fixed charge coverage, with a six-month reserve and personal guarantees from both owners.
Results
The committee approved a 6,100,000 facility on the revised terms. Owen accepted the smaller amount once the owners confirmed the 400,000 equity contribution, which they funded from the sale of an unused lot. Three of the four new stores opened within the planned window, and the fourth ran about six weeks late after a permitting delay. The first quarterly test showed leverage at 3.3 times, helped by stronger sales at existing locations. The reserve remains fully funded, and the downside case has not occurred.
Questions for discussion
- If the owners had refused the equity contribution, which downside factor would have driven your recommendation most?
- Where would you draw the line between a reasonable add-back and an optimistic one, and who should carry that judgment?
- How should the covenant package change once the new stores have a full year of trading history?
Case Study 5
Ranking control findings after a year-end review
Millbrook Logistics Holdings, a freight forwarder with four regional offices and a centralized finance function at headquarters.
The situation
Internal audit completed a year-end review of the revenue, receivables, and fixed asset cycles at Millbrook and recorded six findings. Ruth, the internal audit manager, had sent the draft to Victor, the controller, and to Pilar, who led revenue operations across the regional offices. The findings ranged from an accrual reversal that had been skipped in two months to a vendor master process where one person could create a payee and approve its first payment. The audit committee was due to receive a closure plan before the financial statements were signed.
The challenge
The list was too long to fix in one pass, and management responses were uneven. Some owners offered a fix without naming an owner, while others proposed closure dates that depended on a system change nobody had scheduled. The committee wanted a priority order it could defend, a named owner for each item, and a closure test an auditor could re-perform without relying on a manager's word. Ruth needed to produce all of that before the sign-off meeting.
Analysis
Ranking began with quantified exposure measured against performance materiality, which the finance team had set at 450,000 for the period. Unreversed accruals totaled 612,000 across two months, which exceeded that line on their own. Disposed fixed assets left 275,000 of net book value on the register, below materiality but enough to distort the gain or loss line. Qualitative factors then moved two findings up. A single user who could create a vendor and approve its first payment had no misstatement yet, but the setup invited one. The unsigned bank reconciliations in one office were treated as a finding about evidence itself, since a missing signature means nobody can show the work was done.
Ownership and closure tests followed the same order. Each finding received one accountable owner, a person with authority over the process rather than a team, and a closure test specified in advance. For the accrual failure, Victor owns the fix, and closure requires three consecutive month-ends of reversals re-performed with no unreversed balance above 5,000. For the vendor setup, Pilar owns the access change, and closure requires a system report showing no user with both create and approve rights. Findings above materiality must close before sign-off. Lower-ranked items close within the quarter, and any that slip go to the committee with a reason and a revised date.
- Assign owner Name one accountable person with authority over the process, not a team.
- Redesign control Specify the change, the system setting, and the date it takes effect.
- Run closure test Re-perform the control on a defined sample and retain the evidence.
- Report to committee Present closure results or any slipped items with reasons and revised dates.
Actions taken
- Assign each of the six findings a single accountable owner, confirm that person has authority over the process, and record the agreed closure date in the findings tracker.
- Rebuild the accrual reversal step as a system-generated entry with a preparer review, and document the change before the next close begins.
- Remove create and approve rights from the same user in the vendor master, and require a second approver for any first payment to a newly created payee.
- Re-perform each closure test on the agreed sample, retain the workpapers with the evidence, and have internal audit sign off before any finding is marked closed.
Results
Five of the six findings closed within the agreed window. The accrual reversal step was automated, and three consecutive month-end retests showed no unreversed balance above the threshold. The vendor master change removed the conflicting access rights, although one legacy user needed a second quarter of monitoring before the sample came back clean. The unsigned bank reconciliations were signed in the first week after the change. The committee received a closure schedule that showed each slipped item with its reason and revised date, and the sign-off meeting proceeded on the planned day.
Questions for discussion
- If the accrual failure had been immaterial in amount, would you still rank it above the vendor access issue, and why?
- What evidence would you require before accepting an owner's claim that a control is already working?
- How would you handle a finding whose owner has authority over the process but disagrees with the proposed closure test?
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