What is the lever modeling of the purchase?

Using the purchase modeling is a technique used by private capital to determine the financial consequences of carrying out a lever purchase of another company. Since the acquiring company usually buys the levers, it borrows most of the amount needed to purchase, it is important to know whether the buyer can return his creditors. For this reason, it includes typical modeling of the purchase of the lever of all financial data of the company to be obtained. The purchase company must also take into account the planned debt structure and interest rates that will be due for all the required loans. These investors generally install new management and use their expertise to try to increase the business of a new company to improve the value of their purchased shares. When the purchase of the company is mainly financed through loans, it is known as the Ovkup lever. Modeling of the lever buyouts is a way to project private capital investors.

It is important to understand that when using the purchase modeling, that a private capital company often uses the assets of the target company as a collateral for loans needed to buy them. This means that the new business must generate enough income to pay these loans first than investors can make a profit. In some cases, private capital may be able to finance part of the purchase from their own money, which would require less debt obligation.

The most important elements of the process of purchasing lever purchase are the financial records of the company to be purchased. These include the level of earnings, the level of cash flows, the existing debt obligations and any assets and obligations included in recent balance sheets. Of these, non -ness should be able to extrapolate what the future level of earnings will be. This can give investors a good idea of ​​how long JIM will take the debt repayment.

In carrying out the modeling of the lever purchase, further considerations should be taken into account. Investors must realize that they must not only repay the principal of all their loans, but also the promised interest payments to creditors. For this reason, all applicable interest rates must be entered in the purchase of lever purchase to create an accurate financial image of a new company.