How LBO Models work 🔻 Learn more about them. | Chris Reilly (Financial Modeling Education) posted on the topic | LinkedIn (2024)

Want to know the secret that always made me the best Financial Modeler at my company?(hint: it's 𝙣𝙤𝙩 Excel shortcuts)✅ It’s mastery of the 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀.𝙃𝙚𝙧𝙚'𝙨 𝙩𝙝𝙚 𝙩𝙧𝙪𝙩𝙝:————————▪️ I can build FP&A Models b/c I know the Three Statements.▪️ I can build SaaS Models b/c I know the Three Statements.▪️ I can build LBO Models b/c I know the Three Statements.▪️ I can build M&A Models b/c I know the Three Statements.⭐ 𝗠𝗮𝘀𝘁𝗲𝗿𝗶𝗻𝗴 𝘁𝗵𝗲 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 𝗵𝗮𝘀 𝗮𝗱𝗱𝗲𝗱 𝗺𝗼𝗿𝗲 𝘃𝗮𝗹𝘂𝗲 𝘁𝗼 𝗺𝘆 𝗰𝗮𝗿𝗲𝗲𝗿 𝘁𝗵𝗮𝗻 𝗮𝗻𝘆𝘁𝗵𝗶𝗻𝗴 𝗲𝗹𝘀𝗲. 𝗣𝗲𝗿𝗶𝗼𝗱. ⭐———So if you've ever felt lost trying to navigate the intricacies of Three Statement Modeling...I'd love for you to check out my 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝗖𝗼𝘂𝗿𝘀𝗲𝘀.Grounded in best practices, my courses have been featured with the Wharton Online Private Equity Certificate Program, Wall Street Prep, and LinkedIn Learning.Everything is available in one place, comes with bonus features, all at a reduced price.𝙔𝙤𝙪'𝙡𝙡 𝙇𝙚𝙖𝙧𝙣:——————✅ Three Statement Model Basics (learn or brush-up on core fundamentals)✅ Advanced Three Statements (perfect for FP&A pros that need a model template)✅ 13 Week Cash Flow template (tactical cash management using the direct method)✅ Financial Modeling for M&A / Private Equity (learn to evaluate and model an acquisition)✅ Case Studies, Templates, & Guides (for continued practice)✅ Dashboard (consolidate results with summary that automatically does variance analysis)✅ Ultimate Guide to Financial Modeling (free bonus content)✅ Private Equity quiz, interview guide, and glossary (free bonus content)———Here's what a few people have said:⭐⭐⭐⭐⭐ "absolute game changer."⭐⭐⭐⭐⭐ "best money ever spent."⭐⭐⭐⭐⭐ "the best course on modeling I've taken."⭐⭐⭐⭐⭐ "this will take you to the next level."⭐⭐⭐⭐⭐ "your courses are underpriced for the value they provide."———All my years of pain & confusion packed into a few small files,with instructional videos that never expire so you can go at your own pace.To be clear, this is one of my paid products.𝙉𝙚𝙭𝙩 𝙎𝙩𝙚𝙥𝙨 🔻:——————You can click the "Visit my website" link above or check the comments below ⤵️Hope to see you there.—Chris

412

34 Comments

Mastery of the 3-Statement FMCredit to Chris Reilly ✅#Finance #FinancialManagement #FinancialAccounting #CPA #FinancialModelling #IncomeStatement #BalanceSheet #StatementOfCashflow #KPI's

1

Explore the difference between FP&A and XP&A — and how to make the move to the latter.

5

FREE FP&A Template: Discounted Cash Flow 👇This financial modeling template is usually part of my paid program.Get it now for free for a limited time.Consider a modeling challenge like this:“I’d love to know how our planned international expansion compares to other roll-outs we had in the past. But I don’t know how to make them comparable.”A major project like an international expansion means you have significant costs upfront and revenues that start low and then increase over time.To compare it to other similar projects, you need to consider the time value of money.In other words, a dollar earned tomorrow is worth more than a dollar earned in a month.That’s why you can’t simply add up the cash flows of the first five years and compare them to those of other projects with shorter time horizons.If you get $1000 now instead of in a year, you can invest it and collect positive returns. In a year from now, today’s $1000 may be “worth” $1200 if you include the returns.So, you need to use a specific financial model called the “Discounted Cash Flow” (DCF) model.It takes investments and cash flows and applies a discount rate that should be equal to the Weighted Average Cost of Capital of your business.Then, the model calculates three key metrics:➢ Net Present Value (NPV)➢ Internal Rate of Returns (IRR)➢ Payback Period🙋♂️Do you want to learn how to build a DCF Model?I could spend hours explaining it, but there is a more straightforward way.Why don’t you take a look at a fully built-out model?I’m sharing a model that evaluates an actual project I analyzed in the past as an FP&A analyst (with dummy numbers).Get the free DCF template here (click on the image):https://lnkd.in/eSEc9Sxu

190

16 Comments

3 obvious reasons your FP&A is failing:1. Your processes are Excel-addicted.You can't only rely on spreadsheets for financial planning, budgeting, and forecasting.Excel is an outdated and ineffective tool for FP&A. It's slow, error-prone, lacks transparency, and offers very little capability for predictive analysis. Excel can still be useful, but it's not the sole tool for FP&A processes.2. You are micromanaging.FP&A teams need autonomy and flexibility. You have to believe in their ability to plan, analyze, and forecast financial performance. Micromanagement from upper management can lead to a lack of trust. It will slow down the decision-making process and the ability of the FP&A teams to respond quickly to changing circ*mstances.3. You're not investing in the right technology.Investing in technology that solves very specific pain points can massively increase performance and bring you an unbelievable ROI. Remember, investing in any technology is not enough; you have to make sure the technology can solve your specific pain points. And the team is skilled enough to use the tools effectively.If you think I can ever help you pick a CFOTech tool, send me a DM.P.S. I will be in NYC next week and have some open slots on my calendar for networking. I would love to meet up with fellow thinkers and finance pros.-P.S.S. If you're solving a meaningful problem in the CFOTech area using AI, I'd love to know.

49

12 Comments

What’s the difference between an LBO Model and FP&A Model?𝙇𝘽𝙊 𝙈𝙤𝙙𝙚𝙡Often complicated in its structure, an LBO Model is shorter-term in nature in terms of its overall shelf life.Its primary use is to figure out if buying a company is a good idea, mainly by assessing how much debt a company can handle and what the corresponding returns might be.𝙁𝙋&𝘼 𝙈𝙤𝙙𝙚𝙡An FP&A Model, on the other hand, is a planning tool companies use to manage their core operations.Often built with much more operating detail, the FP&A Model is used to create Budgets and Forecasts (which are different things), and also serves as a reporting tool comparing Actuals to Budget.This model has a much longer shelf life and is updated on a recurring basis.𝘾𝙖𝙣 𝙇𝘽𝙊 𝙈𝙤𝙙𝙚𝙡𝙨 𝘽𝙚𝙘𝙤𝙢𝙚 𝙁𝙋&𝘼 𝙈𝙤𝙙𝙚𝙡𝙨?Sometimes, sure. But most often what happens is a "fresh rebuild" of the FP&A Model after the deal has closed.This is because the core functionality of the LBO Model (buying the company and adjusting the balance sheet) is no longer needed, so you're keeping a lot of obsolete complexity in your file that will ultimately bog down the forthcoming FP&A detail.———𝙒𝙝𝙖𝙩 𝙬𝙤𝙪𝙡𝙙 𝙮𝙤𝙪 𝙨𝙖𝙮... 𝙮𝙤𝙪 𝙙𝙤 𝙝𝙚𝙧𝙚?I receive a lot of DMs asking what services I offer. Here's everything:1. Paid Financial Modeling Courses: https://lnkd.in/e6B7y9yk(Financial Aid is available here: https://lnkd.in/eiuni4ip)2. Free Financial Modeling Email Course: https://lnkd.in/eQGumyC43. FP&A/M&A Consulting for Companies: https://lnkd.in/dFES6Nj

247

3 Comments

FREE FP&A Template: Discounted Cash Flow 👇This financial modeling template is usually part of my paid program.Get it now for free for a limited time.Consider a modeling challenge like this:“I’d love to know how our planned international expansion compares to other roll-outs we had in the past. But I don’t know how to make them comparable.”A major project like an international expansion means you have significant costs upfront and revenues that start low and then increase over time.To compare it to other similar projects, you need to consider the time value of money.In other words, a dollar earned tomorrow is worth more than a dollar earned in a month.That’s why you can’t simply add up the cash flows of the first five years and compare them to those of other projects with shorter time horizons.If you get $1000 now instead of in a year, you can invest it and collect positive returns. In a year from now, today’s $1000 may be “worth” $1200 if you include the returns.So, you need to use a specific financial model called the “Discounted Cash Flow” (DCF) model.It takes investments and cash flows and applies a discount rate that should be equal to the Weighted Average Cost of Capital of your business.Then, the model calculates three key metrics:➢ Net Present Value (NPV)➢ Internal Rate of Returns (IRR)➢ Payback Period🙋♂️Do you want to learn how to build a DCF Model?I could spend hours explaining it, but there is a more straightforward way.Why don’t you take a look at a fully built-out model?I’m sharing a model that evaluates an actual project I analyzed in the past as an FP&A analyst (with dummy numbers).Get the free DCF template here:https://lnkd.in/eSEc9Sxu

176

10 Comments

This post illustrates the pivotal role FP&A plays in supporting and assisting in the process of strategic planning in business and how it influences decision-makers.Meet ABCSolutions, a thriving technology company with a vision to expand its product line and venture into new markets. As the company envisions this strategic growth plan, the Financial Planning & Analysis (FP&A) team steps in to pave the way for success:1. Analyzing Historical Data: Over the past five years, TechSolutions' financial performance has shown consistent growth, averaging a 15% increase in revenue annually. Market trends indicate a rising demand for innovative tech solutions, creating a favorable environment for expansion.2. Developing Financial Forecasts: The FP&A team forecasts production costs for the new product line, estimating a 20% increase due to research and development. Marketing expenses are projected to double to create impactful campaigns. Revenue from new products and markets is conservatively estimated at $50 million in the first year.3. Collaborating on Budgets: Engaging with the product development and marketing departments, FP&A collaboratively crafts budgets. Product development is allocated $15 million, marketing campaigns receive $10 million, and market entry strategies, including partnerships and distribution networks, are budgeted at $5 million.4. Assessing Financial Risks: FP&A identifies potential risks, such as a 5% currency exchange fluctuation and regulatory challenges in the new markets. To mitigate these, the team recommends hedging strategies for currency risks and a comprehensive legal compliance plan.5. Conducting Scenario Analysis: Considering different market entry strategies—direct market entry, strategic partnerships, and acquisitions—FP&A conducts scenario analysis. The most conservative estimate suggests a 15% increase in revenue, while the aggressive strategy foresees a 25% boost.6. Optimizing Resource Allocation: With a keen eye on efficiency, FP&A ensures optimal resource allocation. By carefully distributing financial resources, the team ensures that each dollar invested contributes significantly to the success of new product launches and market expansions.7. Defining KPIs: Key performance indicators are established, including a revenue target of $150 million, a market share goal of 10%, and a return on investment expectation of 20%. These KPIs serve as benchmarks to measure the success of the strategic plan.Through these meticulous steps, FP&A propels ABCSolutions towards sustainable growth, guiding the organization to not only dream big but also navigate the financial complications of expanding product lines and entering new markets. As the strategic plan unfolds, FP&A remains a crucial ally, ensuring that every financial decision aligns with the company's ambitious yet financially viable goals.

1

FREE FP&A Template: Discounted Cash Flow 👇This financial modeling template is usually part of my paid program.Get it now for free for a limited time.Consider a modeling challenge like this:“I’d love to know how our planned international expansion compares to other roll-outs we had in the past. But I don’t know how to make them comparable.”A major project like an international expansion means you have significant costs upfront and revenues that start low and then increase over time.To compare it to other similar projects, you need to consider the time value of money.In other words, a dollar earned tomorrow is worth more than a dollar earned in a month.That’s why you can’t simply add up the cash flows of the first five years and compare them to those of other projects with shorter time horizons.If you get $1000 now instead of in a year, you can invest it and collect positive returns. In a year from now, today’s $1000 may be “worth” $1200 if you include the returns.So, you need to use a specific financial model called the “Discounted Cash Flow” (DCF) model.It takes investments and cash flows and applies a discount rate that should be equal to the Weighted Average Cost of Capital of your business.Then, the model calculates three key metrics:➢ Net Present Value (NPV)➢ Internal Rate of Returns (IRR)➢ Payback Period🙋♂️Do you want to learn how to build a DCF Model?I could spend hours explaining it, but there is a more straightforward way.Why don’t you take a look at a fully built-out model?I’m sharing a model that evaluates an actual project I analyzed in the past as an FP&A analyst (with dummy numbers).Get the free DCF template here (click on the image):https://lnkd.in/eSEc9Sxu

112

5 Comments

In my entire career 𝗼𝗻𝗲 𝘀𝗸𝗶𝗹𝗹 stands far above the rest, and it’s 𝙣𝙤𝙩 Financial Modeling...✅ It’s mastery of the 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀.𝙁𝙖𝙘𝙩:———▪️ I can build FP&A Models b/c I know the Three Statements.▪️ I can build SaaS Models b/c I know the Three Statements.▪️ I can build LBO Models b/c I know the Three Statements.▪️ I can build M&A Models b/c I know the Three Statements.⭐ 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝘁𝗵𝗲 𝗶𝗻𝘁𝗲𝗿𝗰𝗼𝗻𝗻𝗲𝗰𝘁𝗶𝘃𝗶𝘁𝘆 𝗼𝗳 𝘁𝗵𝗲𝘀𝗲 𝘁𝗵𝗿𝗲𝗲 𝘁𝗵𝗶𝗻𝗴𝘀 𝗵𝗮𝘀 𝗮𝗱𝗱𝗲𝗱 𝗺𝗼𝗿𝗲 𝘃𝗮𝗹𝘂𝗲 𝘁𝗼 𝗺𝘆 𝗰𝗮𝗿𝗲𝗲𝗿 𝘁𝗵𝗮𝗻 𝗲𝘃𝗲𝗿𝘆𝘁𝗵𝗶𝗻𝗴 𝗲𝗹𝘀𝗲 𝗰𝗼𝗺𝗯𝗶𝗻𝗲𝗱 ⭐———So if you're interested...I'd love for you to check out my 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝗖𝗼𝘂𝗿𝘀𝗲𝘀.Grounded in 3-Statement Modeling best practices, my courses have been featured with Wall Street Prep, part of the Wharton Online Private Equity Certificate Program, and LinkedIn Learning (in progress!).Everything is available in one place, comes with bonus features, all at a reduced price.𝙔𝙤𝙪'𝙡𝙡 𝙇𝙚𝙖𝙧𝙣:——————✅ Three Statement Model Basics (learn or brush-up on core fundamentals)✅ Advanced Three Statements (perfect for FP&A pros that need a model template)✅ 13 Week Cash Flow template (tactical cash management using the direct method)✅ Financial Modeling for M&A / Private Equity (learn to evaluate and model an acquisition)✅ Dashboard (consolidate results with summary that automatically does variance analysis)✅ Ultimate Guide to Financial Modeling (free bonus content)✅ Private Equity quiz, interview guide, and glossary (free bonus content)———Here's what a few people have said:⭐⭐⭐⭐⭐ "absolute game changer."⭐⭐⭐⭐⭐ "best money ever spent."⭐⭐⭐⭐⭐ "the best course on modeling I've taken."⭐⭐⭐⭐⭐ "this will take you to the next level."⭐⭐⭐⭐⭐ "your courses are underpriced for the value they provide."———All my years of pain & confusion packed into a few small files,with instructional videos that never expire so you can go at your own pace.To be clear, this is one of my paid bundles.The cost is $449 (one-time only).𝙉𝙚𝙭𝙩 𝙎𝙩𝙚𝙥𝙨:——————The link is in my profile and the comments if you're interested ⤵️Hope to see you there.—Chris

657

25 Comments