Technical Question: Cash-on-Cash Return LBO model 1st year
Hi,
sorry to start with a dumb question - I am a consultant trying to break into PE and currently working on my LBO modelling.
So got a running model, balance sheet balances, so far so good. Now something that I find slightly counter intuitive. When calculating my cash-on-cash returns after year 1, I encounter the issue that they are very often below 1 (like 0.6x) even for higher EBITDA multiples compared to the initial valuation I used. I am making a mistake here or is that normal for year 1 cash-on-cash returns?
Thanks a lot for the help!
Unless you're EBITDA is contracting massively that doesn't really make sense at higher multiples. Can you walk us through what you're doing?
Hi,
thought so, actually my EBITDA increase by about 30m relative to the year 0 (from 140 up to 170) where I bought it. So now I calculate my EV based on an arbitrary EBITDA multiple (say for instance 10) - from this I substract the Net debt to get to my equity value. Of this I take the share of equity that belongs the PE and divide it through the initial cash equity paid in the deal. Now as net debt is relatively large in year 0 the enterprise value actually is quite low and subsequently cash-on-cash is lower...
Actually should add one more thing that probably drives this: my net debt goes up by about 300m EUR compared to the debt/cash free takeover balance sheet as I am loading up here...
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