Leveraged Buyout Financial Model with DCF

Description
Leveraged Buyout analysis is similar to a DCF analysis. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company's future performance.
Leveraged Buyout analysis is similar to a DCF analysis.
The common calculation includes the use of cash flows, terminal value, present value, and discount rate.
However, the difference is that in DCF analysis, we look at the present value of the company (enterprise value), whereas in LBO analysis, we are actually looking for the internal rate of return
(IRR).
LBO analysis also focuses on whether there is enough projected cash flow to operate the company and also pay debt principal and interest payments.
The concept of a leveraged buyout
is very simple: Buy a company –> Fix it up –> Sell it.
Usually, the entire plan is, a private equity firm targets a company, buys it, fixes it up, pays down the debt, and then sells it for large profits..
Usually, DCF will give a higher valuation. Unlike DCF, in LBO analysis, you won't get any cash flow between year one and the final year. So the analysis is done based on terminal value only. In the case of DCF, the valuation is done both based on cash flows and the terminal values; thus, it tends to be higher