Quick question.
In an LBO model in which you assume debt free and cash free case, how do you adjust existing debt and cash for the PF adjustment?
For example, your target has 300 of cash on BS and 5000 of debt on BS in 2017, you want to adjust by recording -300 and -5000 in the adjustment to get 0 and 0 for PF BS. But, the PF BS wouldn't be balanced. How do you solve this issue?
| +106 | Is Everyone Too Bearish on PE? | 34 | 1d |
| +48 | Why would anyone do PE in long term in 2026? | 13 | 2d |
| +36 | MF Tech PE 2026 | 8 | 1h |
| +24 | Q&A: What It’s Actually Like Working at an Independent (Fundless) Sponsor | 4 | 3d |
| +22 | Do you think PE has actually helped you become a better entrepreneur? | 8 | 21h |
| +21 | UMM PE or High Paying Strat Finance? | 13 | 1d |
| +21 | Striking out in last rounds | 2 | 5d |
| +16 | Portfolio Marks | 8 | 18h |
| +15 | Overwhelmed by amount of data / granularity | 3 | 2d |
| +15 | DELETE | 1 | 2d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
You recap the capital structure with debt and equity on the credit side and goodwill on the debit side. The goodwill is a "plug" that balances the balance sheet in purchase accounting.
Thanks!
For PF you just assume these are 0.
Example Co has the following: - Cash: 50 - Total Assets: 250
Assume you're buying Example Co Cash/Debt Free for $300. PF BS: - Cash: 0 - Assets (excl. Goodwill): 200 - Goodwill: 120 - Total Assets: 320
Goodwill is plug between purchase price (300) and net assets (180). Net assets is calculated excluding debt and cash, since cash-free, debt-free.
Make sense?
Qui beatae aut quasi quia. Accusantium qui voluptas voluptates cumque cupiditate. Suscipit fugiat ab saepe vero deserunt dicta necessitatibus deserunt.
Fugit libero aperiam fugiat non est quam. Assumenda beatae tenetur consequatur. Alias quia qui nemo placeat repudiandae aliquam. Dolore est nulla fuga. Consequatur fuga ab perspiciatis temporibus vero exercitationem voluptatem. Possimus accusamus ipsam rem nam suscipit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...