Analyzing firm's cash profile for LBO
Hi all,
I was asked to analyze the cash profile for a potential LBO candidate in a case study (and of course to finally decide if the firm would be suitable). What aspects would you usually consider, I was planning to analyze the following:
- Minimum cash balance: e.g. through historic levels of cash/ changes per year/ cash in proportion to total yearly expenses = to analyze how much minimum cash the company needs every year and cannot be used to repay debt
- FCF conversion: e.g. % of FCF in relation to EBITDA; here historical development and levels, incl. benchmarking versus peer set and industry = to see if the cash profile has improved and how the company does generate cash vs. its competitors
- Analysis of CAPEX and NWC requirements: e.g. as % of revenue and in relation to Net Income = to see which components have the most impact on FCF and being able to benchmark with competitors
Does it make sense to put the FCF in relation to revenues?
Can any experienced banker or PE professional provide some insights or opinions?
Thanks in advance.
Best,
M.
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