Define the transaction first.
Clarify the target, acquisition structure, purchase price basis and treatment of cash, debt and working capital. Identify fees, refinancing and funding sources. A sources-and-uses schedule should reconcile before a return calculation is treated as meaningful.
Connect the target forecast to financing.
Separate operating assumptions from borrowing terms. Model interest, repayments and cash available for debt service using the agreed financing assumptions. A headline EBITDA figure is not the same as cash available to repay debt.
Worked example: equity proceeds at exit.
Assume an illustrative exit enterprise value of £5 million, £200,000 cash and £1.2 million debt. That gives £4 million equity value before fees and other adjustments. Against an initial £2 million equity investment, and assuming no interim distributions or later contributions, the gross multiple is 2.0x. Holding period and payment timing are needed to assess annualised returns.
Test downside cases and limitations.
Consider lower earnings, slower collections, more investment, higher financing costs and a lower exit value. A model does not confirm debt availability or replace financial, legal, commercial and tax due diligence. Any covenant definitions should be checked against the actual financing documents.