LBO MODELING EXAM QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS VERIFIED LATEST UPDATE
GRADED A++
Define LBO & Goals
A transaction where the buyer uses a lot of debt to acquire something: could be an
asset, group of assets or business, or a house etc
The main focus of an LBO model is to calculate the returns to equity investors
Why use leverage?
Helps amplify their potential returns by using debt.
Less of your own money needs to go into the business.
Sources & Uses
Purchase price = total uses
Total sources = debt + equity
Data Tables (Sensitivity Analysis)
- Data, what-if-analysis, data table
-turn on automatic calculations
Combo Boxes
, -useful for installing switches
-Under developer tab in excel ribbon
Conditional Formating
-Programming alerts based on certain conditions
-Home, styles, conditional formatting
-create "new rule"
Circularity Switch
LBO basics
-Up to 50-60% may be funded with debt
-buyer typically private equity firm
-assets and associated cash flows are used as collateral
Characteristics of good LBO candidates
-Mature, stable
-Predictable cash flows
-High margins
-low reinvestment needs
-undervalued relative to its peers
-strong management
-suboptimal capital structure
-strong brand & customer relationships
OR
-companies in fragmented markets which could allow for a roll up strategy
COMPLETE SOLUTIONS VERIFIED LATEST UPDATE
GRADED A++
Define LBO & Goals
A transaction where the buyer uses a lot of debt to acquire something: could be an
asset, group of assets or business, or a house etc
The main focus of an LBO model is to calculate the returns to equity investors
Why use leverage?
Helps amplify their potential returns by using debt.
Less of your own money needs to go into the business.
Sources & Uses
Purchase price = total uses
Total sources = debt + equity
Data Tables (Sensitivity Analysis)
- Data, what-if-analysis, data table
-turn on automatic calculations
Combo Boxes
, -useful for installing switches
-Under developer tab in excel ribbon
Conditional Formating
-Programming alerts based on certain conditions
-Home, styles, conditional formatting
-create "new rule"
Circularity Switch
LBO basics
-Up to 50-60% may be funded with debt
-buyer typically private equity firm
-assets and associated cash flows are used as collateral
Characteristics of good LBO candidates
-Mature, stable
-Predictable cash flows
-High margins
-low reinvestment needs
-undervalued relative to its peers
-strong management
-suboptimal capital structure
-strong brand & customer relationships
OR
-companies in fragmented markets which could allow for a roll up strategy
