During a private equity interview, candidates may be asked to construct an LBO analysis on paper to test the candidate’s ability and knowledge of building a basic leveraged buyout transaction scenario. You will need to understand the assumptions that must be made and the LBO math that goes along with the valuation.

Most likely you will receive some basic assumptions and be asked to walk through the valuation analysis and speak about assumptions you are making and why. Information that could be given includes an entry multiple, LTM revenue number, debt/equity ratio, capex assumption, depreciation assumption, tax rate and exit multiple. However, if you feel you are missing any information, make sure to note your assumptions and reasoning. You will be able to calculate free cash flow, pay down debt and approximate the IRR over the investment time horizon.

For a more detailed explanation and case study regarding a paper LBO, you can purchase the Portfolio Pint Private Equity preparation packet that will walk through the 13 steps of calculating a paper LBO. The packet includes the excel version for practice. Make sure to practice and perfect the LBO steps on paper before you begin interviewing for private equity jobs.