finance calculator
Evaluate leveraged buyout returns, debt payoff schedules, multiple of invested capital, and internal rate of return metrics.
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Sponsor IRR
-2.24%
Sponsor MoIC
0.89x
LBO feasibility depends heavily on credit pricing and exit assumptions. Save this page to quickly verify IRR and debt payoff margins when rates, leverage, or purchase multiples adjust.
Formula
MoIC = \frac{\text{Exit Equity}}{\text{Initial Equity}}Sponsor returns are measured via MoIC and annualized IRR.
Step by step
Related guides
Guide
Compare market, income, and asset valuation methods, normalize revenue and profit, and use multiples as a planning range rather than a formal appraisal.
Guide
Calculate ROI and annualized return with total costs included, compare opportunities consistently, and understand what a simple ROI result leaves out.
Summary
Sponsor IRR
-2.24%
Annualized rate of return.
Sponsor MoIC
0.89x
Multiple on invested capital.
Exit Equity
$342,907,332
Sponsor equity cash at sale.
Initial Equity
$384,000,000
Upfront sponsor equity check.
D3 visualization
The projected senior debt reduction path throughout the holding period.
D3 visualization
Initial equity check vs exit equity proceeds demonstrating return multiplier.
Guide
Enter the target's entry EBITDA, the purchase multiple (EV/EBITDA), the percentage of the purchase price funded with debt, the debt's interest rate, your assumed exit multiple, expected annual EBITDA growth, and the holding period in years.
The calculator builds the entry sources-and-uses, runs a year-by-year debt schedule that sweeps free cash flow against the debt balance, and calculates the sponsor's equity value at exit, MOIC, and IRR.
Entry EBITDA $10,000,000, 8.0x purchase multiple, 60% debt funding, 7.5% debt interest rate, 9.0x exit multiple, 5% annual EBITDA growth, 5-year holding period.
Entry enterprise value: $10,000,000 × 8.0 = $80,000,000. Initial debt: $80,000,000 × 60% = $48,000,000. Sponsor equity check: $80,000,000 − $48,000,000 = $32,000,000.
EBITDA grows from $10,000,000 to roughly $12,762,816 by year 5 at 5% annual growth. Free cash flow each year sweeps against the debt balance, paying it down from $48,000,000 to roughly $17,829,612 by exit.
Exit enterprise value: $12,762,816 × 9.0 ≈ $114,865,341. Sponsor exit proceeds (after repaying remaining debt): $114,865,341 − $17,829,612 ≈ $97,035,729.
MOIC: $97,035,729 ÷ $32,000,000 ≈ 3.03x. IRR: 3.03x compounded over 5 years ≈ 24.84% annualized — comfortably inside the 20% to 25% IRR range sponsors typically target, driven by a combination of debt paydown, EBITDA growth, and a full turn of multiple expansion (8.0x entry to 9.0x exit).
A Leveraged Buyout (LBO) is the acquisition of a company by a private equity sponsor, financed using a significant portion of debt (typically 50% to 80% of the purchase price). The cash flows of the acquired business are used to service the debt and pay down the principal over the investment horizon (usually 3 to 7 years).
Value is created in an LBO through three primary channels: paying down debt using operational cash flows (which increases equity value relative to enterprise value), operational improvements that grow EBITDA, and multiple expansion (selling the company at a higher multiple than the acquisition multiple).
The foundation of any LBO model is the Sources and Uses table. It outlines the total capital required to execute the deal (Uses) and how that capital is raised (Sources).
Uses of Funds include the purchase price of the target (Enterprise Value), transaction fees (investment banking, legal, accounting), and financing fees (costs to arrange debt financing).
Sources of Funds outline the debt tranches (Senior Secured Bank Debt, Mezzanine Debt, High-Yield Bonds) and the remaining balancing figure, which is the Sponsor Equity contribution.
During the holding period, the target company's operating cash flow is directed toward debt service. A cash sweep is a contract term requiring that any cash remaining after meeting operating expenses, taxes, CapEx, and mandatory debt amortization be used to prepay outstanding principal.
The order of repayment follows the debt seniority: Senior Secured Debt is repaid first, followed by subordinated tranches. Mandatory amortization is paid first, then discretionary prepayments (sweeps) are applied.
Sponsor returns are measured using two primary metrics: Internal Rate of Return (IRR) and Multiple on Invested Capital (MoIC).
Multiple on Invested Capital (MoIC) measures the total return relative to the initial equity check:
$$\text{MoIC} = \frac{\text{Sponsor Equity at Exit}}{\text{Sponsor Equity at Entry}}$$
Internal Rate of Return (IRR) calculates the annualized geometric rate of return on the investment over the holding period t:
$$\text{IRR} = (\text{MoIC})^{1/t} - 1$$
A typical private equity sponsor targets a 20% to 25% IRR and a 2.0x to 3.0x MoIC.
Cross-check the entry valuation with the DCF calculator, and once the sponsor exits, run the deal's cash-on-cash return through the ROI calculator.
IRR
Internal Rate of Return, the annualized rate of return on capital invested.
MoIC
Multiple on Invested Capital, measuring total return multiple.
Sponsor Equity
The cash check written by the private equity firm to execute the buyout.