Does anyone know what the best way would be to do a short-form lbo model? This is without full-blown balance sheet or cash flow statements. Thanks.
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Model your IS and cash flow statement down to FCF. then do some scratchwork for working capital and the debt paydown. done.
there's good advice on askivy.net
i think macabacus.com also has free templates available.
It takes no time to do it right, why take shortcuts? Just model the three statements so that you an have a better notion of how much debt can the company hold.
Otherwise just get the IS check maximum leverage you can put in (4-5x EBITDA) and model the debt
He's likely asking for the purpose of a modeling test, it takes a shit ton more time to build a fully integrated than a short form, and those things are stressful so the question definitely makes sense. As far as it giving you a better notion of how much debt the company could hold, how exactly would the fully integrated do that when the short form wouldn't? The whole point is to get to your sensitivities so that you can see what your returns are... you can do that with a short form.
I think anonymous_analyst pretty much hit the nail on the head - that's the way to do it and do it quickly.
I am may be seing this wrong, but if you don't model the 3 statements how can we be sure that the company has enough cash to pay interest (I am refering to company level debt not SPV debt)?
Your debt schedule would tell you how much cash interest the company would have to pay - that would flow into your IS.
But for that you need the CF Statement to tell you if you have cash to pay them, right?
You just need the income statement, assumptions on Capex, Dept, WC and your debt schedule.
But how do balance the BS then? Via capital raisings? I usually reserved that only for Banking / Insurance companies since tier ratios and such tell you the "exact" minimum capital requirements
There is no BS, hence the short form. It's purely a tool to gauge, on a quick and dirty basis, the targets capacity to carry debt and indicative returns.
Just a clarification: I did my fare share of short modelling and for quick & dirty results it works.
That said, even though I don't use DCF anymore (the buyside is great), I am a strong advocate of full models sinc ethey will actually allow to have a better view of the impact of your assumptions.
Just to clarify, no one is saying you don't need COMPONENTS of the SCF and BS to do a quick and dirty LBO, just that you don't need the whole thing. Just do a combined "short-form" IS / SCF that goes Rev - Cash Costs = EBITDA - Interest - Cash Taxes (take into account D&A, interest, etc.) - Capex - Change in WC = FCF. Then create a debt schedule and calculate your ending period debt and cash balances.
No one cares about cash flow from financing, the equity account, the PP&E balance, etc. since it doesn't affect the IRR in a simple LBO.
anonymous_analyst has it right.
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