LBO modeling, made clear
Underwrite a leveraged buyout the way buyers of businesses and real estate should: price, stack, cash flow, exit, and whether equity returns clear the bar.
What is LBO modeling?
Think of buying a cash-flowing asset with a mortgage: you fund part with equity, borrow the rest, and operating cash services the debt. An LBO applies that structure to an operating company.
The model calculates equity IRR and MOIC so you can see whether the deal clears investor thresholds before you commit capital.
Maximize returns
Use leverage to amplify equity upside when cash flow supports it.
Structure the stack
Find a debt/equity mix lenders and sponsors can live with.
Stress the thesis
Test slower growth and weaker exits before you sign.
Is your deal worth buying?
Enter purchase price, EBITDA, leverage, and hold assumptions. The model returns IRR, MOIC, and a plain-English verdict against typical PE thresholds.
Interactive LBO Model
Adjust the sliders below to see if your deal makes sense for investors
👍 Good Deal
Meets typical PE return thresholds. Worth pursuing.
IRR
22.5%
MOIC
2.76x
How to use this calculator
Enter how much you'd pay for the business and its annual profits (EBITDA). Adjust debt levels and growth assumptions to see if the returns meet investor expectations (typically 20%+ IRR).
Deal Inputs
Example: $50M means fifty million dollars total
💡 What is EBITDA in plain English?
- It's the company's yearly cash profit from running the business
- Find it on financial statements or ask the seller
- Higher EBITDA = more cash to pay off debt = better deal
Entry Multiple: 5.0x (you're paying 5.0 times annual profits)
What Happens With Your Money
Day 1: When You Buy
Entry Multiple
5.0x
Your Cash In
$20.0M
Bank Loan
$30.0M
Debt/EBITDA
3.0x
Year 5: When You Sell
Grown Profits
$12.8M
Sale Price
$76.6M
Debt Paid Off
$8.7M
You Get Back
$55.3M
You put in $20.0M and got back $55.3M after 5 years.
That's a 2.76x return on your money!
Do Investors Want This Deal?
Seven steps to build an LBO model
A practical sequence from assumptions through sensitivities.
- 01
Set your assumptions
Decide purchase price, financing mix, and expected growth before you build the model. Same discipline as underwriting a property: price, down payment, rate, and upside.
- 02
Build financial statements
Project income statement, balance sheet, and cash flow. They link: a change in one flows through the others. Historicals ground the forward view.
- 03
Transaction balance sheet
Show Day 1 after close: new debt, new equity, and the capital structure the business will carry into the hold period.
- 04
Debt and interest schedules
Map repayment and interest across tranches (senior, mezzanine, and so on). Cash flow pays down principal over time.
- 05
Credit metrics
Test whether the company can service the stack: Debt/EBITDA, interest coverage, DSCR, and fixed-charge coverage.
- 06
IRR and returns
Build the equity waterfall and DCF so you can read IRR and MOIC. PE underwriting usually wants 20%+ IRR as a floor.
- 07
Sensitivity analysis
Stress growth, exit multiple, and leverage. The tables show where the deal still works and where it breaks.
Key credit metrics
Ratios lenders use to judge whether the company can carry the stack.
Debt-to-EBITDA
Years of operating profit to retire total debt.
Under 4x is conservative; 4–6x is common in LBOs; above 6x needs strong cash flow.
Interest coverage
Operating income relative to interest expense.
Above 2x means profits are at least double the interest bill.
DSCR
Cash available for principal and interest.
Above 1.2x leaves a 20% cushion on debt service.
Fixed charge coverage
Ability to cover debt plus other fixed obligations.
Includes rent, leases, and similar fixed costs, not only loan payments.
Straight answers.
Plain answers to the questions operators ask when they first underwrite a leveraged buyout.
It is underwriting a company purchase the way you would underwrite a leveraged property: what you pay, how much you borrow, what cash the asset produces, and what you exit for. The model tells you if equity returns justify the risk.
Debt magnifies equity returns when the thesis works. Buying a $100 company with $30 equity and $70 debt, then selling for $150, can leave more equity profit than an all-cash buy at the same exit. Losses magnify the same way.
IRR is the annualized return on invested equity. PE firms typically underwrite to 20%+ IRR. At roughly 20% IRR, capital doubles about every 3.5 years.
EBITDA is earnings before interest, taxes, depreciation, and amortization: a proxy for operating cash generation before capital structure. It is the base for entry and exit multiples in most LBO models.
Multiple on invested capital. Invest $10M and return $25M and MOIC is 2.5x. Sponsors often target 2.0–3.0x over the hold.
Discounted cash flow converts future cash into present value. LBO models use that logic to value equity cash flows across the hold and exit.
A basic model can take a few hours. A full package with sensitivities often takes a day or more. Templates shorten the work once the deal facts are clean.
Many LBOs sit at 50–70% debt of purchase price, subject to cash-flow quality and lender appetite. Stable cash flow supports more leverage; cyclical cash flow supports less.
Need help underwriting your acquisition?
We help buyers of businesses and real estate structure the capital stack, documents, and lender path so the model turns into a closed deal.