Private Equity
How businesses are bought, financed and built.
The mechanics behind buyouts and value creation, explained by you. Answer in your own words and a tutor tests whether you really follow the money, not just the jargon.
Understand the concepts
- What is a leveraged buyout? A simple worked example
Follow a leveraged buyout and its value-creation bridge. Separate EBITDA growth, valuation multiples and debt repayment to see where equity returns come from.
- Why an increase in working capital reduces cash flow
Follow inventory, a credit sale and payment through one business. See profit, cash and operating working capital side by side, with a simple cash-flow reconciliation.
- IRR vs MOIC: why the same 2x return tells different stories
Compare IRR and MOIC using clear cash-flow timelines. See why doubling money in three years differs from seven, and why early distributions change IRR.
- What is EBITDA? Earnings before interest, tax, depreciation and amortisation
EBITDA explained with a worked example from revenue to net income. See what the four add-backs remove, why buyers quote EV/EBITDA multiples, and why EBITDA is not the same as cash.
- What is carried interest? How fund managers share in profits
Carried interest explained with a worked waterfall: how the 20% ‘carry' differs from a management fee, what the hurdle and catch-up do, and why there is no carry without profit.
- What is a cap table? Ownership and dilution explained
A cap table explained with a worked round: what it records, how issuing new shares dilutes everyone's percentage, and why a smaller slice of a bigger company can still be worth more.
- What is a management buyout (MBO)? How a team buys the business it runs
A management buyout explained with a worked funding example: who buys, how management equity, a backer and debt combine, and the conflict of interest in pricing the deal.
What you’ll learn
- Why investors use debt, and how leverage cuts both ways
- How returns like IRR and MOIC are actually driven
- Reading cash flow, EBITDA and the balance sheet
- Where value is created between buying and selling a business
Concepts you’ll explore
Try a question
Why do investors use debt to buy a business, and how can it increase both gains and losses?
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