What goes in a sources and uses table?

Uses include the purchase enterprise value, transaction and financing fees, any debt being refinanced, and a minimum cash balance. Sources include new debt, management rollover, and sponsor equity, which is usually the plug that makes the two sides balance.

Why must sources equal uses?

Every dollar the deal spends has to be funded by a dollar from somewhere. The two sides are an accounting identity, so sponsor equity is sized as whatever is left after debt and other sources cover the uses.

Is management rollover a source or a use?

It is a source of funds. Rolled equity reduces the cash the sponsor has to contribute, so it sits on the sources side alongside new debt and sponsor equity.

Sources & Uses - The Table at the Heart of Every LBO

Sources & Uses is the table that shows how a deal is funded (sources) and where the money goes (uses). The two sides must balance, and the sponsor equity is usually the plug that makes them tie. Uses capture everything the deal has to pay for; sources capture every pool of money funding it. It is the first thing built in an LBO model because everything else depends on it.

Why it matters

Sources & Uses is the foundation of any LBO model: it sets the opening capital structure, the day-one leverage, and the equity check whose return the whole model exists to measure. Misstate it and every downstream number, the debt schedule, the free cash flow available to delever, and the exit equity, inherits the error.

Worked example

Sizing the equity check

Uses: $150M purchase enterprise value, plus about $5M of transaction fees and $5M of minimum cash, for $160M.

Sources: $75M of senior debt, a $5M revolver, and sponsor equity as the plug, $80M (160 minus 80 of debt). A management rollover, if any, would reduce that sponsor check.

The common mistake

Forgetting the uses beyond the headline price: transaction and financing fees, a minimum cash balance, and any debt being refinanced. Leaving them out understates the equity check and overstates the return. The full build, with the debt schedule and returns that flow out of this table, is in How to Build an LBO Model.