Module IV· Cash FlowIntermediate
Question
Why doesn't an LBO short form model a full balance sheet?
Answer
Mechanics
The short form focuses on cash-flow generation and debt paydown. A full balance sheet is only needed where balance-sheet items trigger cash effects.
Deep diveShow more details
Comparison (short form vs full model)
| Aspect | LBO short form | LBO full model |
|---|---|---|
| Cash items (debt, cash, equity) | yes | yes |
| Working capital | as Δ% of revenue | full BS schedule |
| Fixed assets | only Capex/D&A | full asset roll |
| Goodwill / intangibles | usually none | tracked |
| Tax schedule | effective rate | NOL, DTAs, full schedule |
| Equity roll | only sponsor + rollover | full schedule with dividends, buybacks |
| Suitability | first-pass IRR check, pricing discussion | investment committee memo, lender model |
Consequence
The short form is enough for 80% of pricing discussions. You need the full model for interest-deductibility-limit detail, tax NOL tracking, or structurally complex carve-outs.
Pitch tip
Question: "When do you need the full model?"
Answer: "When the tax rate has to be variable (interest deductibility limit, NOL), for carve-outs with pro-forma adjustments, or when the lender requires a 3-statement model"