LBO Modelling Test
The test a private equity process sets after the paper LBO: a case sheet, sixty minutes, and a returns figure at the end. Sources and uses, a five-year operating model, a debt schedule with mandatory amortisation and a cash sweep, exit and returns. Build it here block by block, or download the workbook, build it in your own spreadsheet and upload it to be marked line by line.
The third rung of the LBO ladder, after the Paper LBO Trainer and the Napkin LBO. A fresh case every time, and the marking accepts your own conventions where the test would.
Sources and uses
What the deal costs and who funds it. Every later line references these numbers, so a slip here is a slip everywhere.
Operating model
Revenue grows, the margin holds, and after D&A, interest and tax what is left plus the D&A add-back, less capex and working capital, is the cash the lenders get.
Debt schedule
Mandatory amortisation first, then every spare dollar above the minimum cash sweeps the term loan. The notes sit still. The revolver only appears if cash runs short.
Exit and returns
Year-5 EBITDA at the exit multiple, less net debt, is what the equity is worth. Divide by what went in and annualise.
Keep going
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Optimal Capital Structure
Why not just borrow more? Step leverage up and watch coverage fall, the rating decay and the spread widen until WACC bottoms out.
Deal Simulations · 15 min
Capital Stack Challenge
Finance a real buyout. Size the revolver, term loans, notes, PIK and equity against the lender caps of the day, hold the structure through a shock, then see how the sponsor actually did it, with every figure linked to the filing.