What is Financial Modeling In Private Equity?
In private equity, financial modeling typically consists of building leveraged buyout (LBO)Leveraged Buyout (LBO)A leveraged buyout (LBO) is a transaction where a business is acquired using debt as the main source of consideration. models to evaluate the return profile of acquiring a business. The main metrics that are used in a private equity financial model include the internal rate of return (IRR)Internal Rate of Return (IRR)The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of a project zero. In other words, it is the expected compound annual rate of return that will be earned on a project or investment., cash on cash return, net present value (NPV), debt/EBITDA ratioDebt/EBITDA RatioThe net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio measures financial leverage and a company’s ability to pay off its debt. Essentially, the net debt to EBITDA ratio (debt/EBITDA) gives an indication as to how long a company would need to operate at its current level to pay off all its debt., debt/equity ratio, and other rates or return or leverage.
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