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LBO Sources and Uses Builder

A sources and uses table lists every dollar funding a deal and every dollar it pays for, and the two sides have to be equal. Fill in the uses and the debt tranches here and the sponsor equity cheque updates as the plug. Balancing this table is the first thing an interviewer checks in an LBO question.

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LBO sources and uses

Enter amounts in millions. Sponsor equity fills any remaining funding gap.

Uses

Total uses$285.0M

Sources

Sponsor equity (plug)$95.0M
Total sources$285.0M

How do you build a sources and uses table?

  1. 1. Start with uses

    Purchase of equity or enterprise value, any existing debt being refinanced, and transaction fees. Uses are what the money buys, and they set the size of everything else.

  2. 2. Add the debt sources

    Revolver draw, term loans, and any subordinated or mezzanine tranche. Each tranche carries its own cost and its own priority in the capital structure, so list them separately rather than as one debt line.

  3. 3. Add the other sources

    Cash on the target's balance sheet used to fund the deal, and management rollover equity if the existing team reinvests. Both reduce the cheque the sponsor writes.

  4. 4. Sponsor equity is the plug

    It is total uses minus every other source, never a number you assume first. If an interviewer hands you the sponsor equity instead, solve backwards for whichever source is missing.

Frequently asked questions

What goes in sources and what goes in uses?

Sources are where the money comes from: debt tranches, sponsor equity, rollover equity and balance sheet cash. Uses are what it pays for: the purchase price, refinancing existing debt, and fees. The two totals must match.

Do transaction fees belong in uses?

Yes. Financing fees and advisory fees are real cash out the door at close, so they sit in uses and increase the equity cheque. Leaving them out understates the sponsor cheque, which is a common slip.

Is the purchase price enterprise value or equity value?

It depends how the deal is framed. If you buy the equity and refinance the existing debt, show those as two separate uses. If you buy on an enterprise value basis, the existing debt is already inside that number and must not be counted twice.

What happens to the target's existing cash?

In most LBO questions it funds part of the deal, so it appears as a source and reduces the sponsor equity cheque. Say your assumption out loud, because some interviewers assume a cash free debt free deal instead.

Test my LBO skills

Balancing the table is the setup. A graded LBO drill checks whether you can defend the structure: why that leverage, what the tranches cost, and what the sponsor actually earns.

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