What is the last step in completing an LBO model?

The process of completing a leveraged buyout (LBO) model culminates with linking the debt schedule to pro forma financial statements. This final step is critical because it ensures that all elements of the financing structure are accurately reflected in the financial projections.

In an LBO model, the debt schedule lays out how much debt is being used for the acquisition, the terms of the debt, the interest payments, and how debt repayment will be structured over time. By linking this schedule to the pro forma financial statements—such as the income statement, balance sheet, and cash flow statement—you can assess how the acquisition impacts the overall financial performance of the company. This linkage enables the model to accurately display the effects of interest payments, debt balances, and cash flows on the business post-acquisition.

In contrast, entering purchase price assumptions precedes the final integration of financials, as does building financial projections and analyzing exit strategies. These steps are essential components of the modeling process but do not encapsulate the finalization of how the transaction financing impacts the company's financials. Thus, ensuring that the debt schedule aligns with the pro forma statements marks the concluding act in creating a robust LBO model.