Sources and Uses in LBO Interviews: Build the Table Without Missing Fees
How to build a sources and uses table in PE and IB interviews, what belongs on each side, cash-free debt-free notes, rollover equity, and common traps.
PE · 4 min read
Sources and uses is the closing camera shot of a deal. It answers two questions: what do we need to pay for at close, and where does the money come from. Interviewers ask you to build it because forgotten fees and refinance lines are how junior models quietly lie. If sources do not equal uses, nothing downstream is trustworthy.
The one rule
Sources = Uses
Sponsor equity is often the plug that makes the equality true once debt capacity and other sources are set.
Uses: what cash is required at close
Typical uses:
| Use | Meaning |
|---|---|
| Purchase equity value / offer value | What equity holders receive (context-dependent) |
| Refinance existing debt | Pay off target's old debt in cash-free debt-free deals |
| Transaction fees | Advisor, legal, diligence |
| Financing fees | Lenders / issuance costs |
| Minimum cash | Cash that must remain on the balance sheet |
| Other closing items | Change of control costs, etc. |
Cash-free, debt-free (CFDF)
In many PE deals, the headline is enterprise value. The buyer does not "pay for cash" and does not inherit debt in the economic deal terms: existing debt is refinanced (a use), and excess cash is typically kept by the seller via working capital / cash mechanics. Interviewers expect you to know that refinance of existing debt often appears as a use funded by new sources.
If the prompt gives equity purchase price instead of EV, ask how net debt and cash are treated.
Sources: how the deal is funded
| Source | Meaning |
|---|---|
| Revolver draw at close | Sometimes funded, sometimes undrawn capacity |
| Term loans / notes / mezz | Funded debt tranches |
| Sponsor equity | PE check (often the plug) |
| Management rollover | Seller/mgmt rolls equity instead of cashing out fully |
| Seller note | Deferred seller financing |
| Other co-invest | LP direct or co-sponsor |
Fix uses
Price economics + refinance + fees + min cash.
Size debt
Based on leverage turns, coverage, market terms.
Add rollover / other
If prompt includes them.
Plug equity
Equity = Uses − all other sources.
Balance check
Sources total equals uses total.
Worked example
Entry EV $1,000
Existing debt to refinance $300
Fees $40
Minimum cash $10
Total uses = 1,000 + 300 + 40 + 10 = $1,350
New debt capacity $700
Rollover $50
Sponsor equity plug = 1,350 − 700 − 50 = $600
Sources = 700 + 50 + 600 = $1,350
Uses
$1,350
EV+refi+fees+cash
New debt
$700
funded
Rollover
$50
non-cash source
Sponsor
$600
plug
Rollover equity confusion
Rollover is usually a source (it funds part of the equity need without new cash from the sponsor). It also means those holders keep ownership. When you quote MoIC, specify sponsor MoIC vs all-equity MoIC if ownership is split.
Fees: transaction vs financing
Both can sit in uses. Financing fees may be amortized in accounting later; for S&U balancing at close, they still consume funding. If a test is picky about OID / amortized fees, follow the prompt. If silent, put fees in uses and label them.
Interview prompts
"Walk me through sources and uses."
"Uses are everything we must fund at close: purchase economics, refinancing existing debt, fees, and minimum cash. Sources are new debt, rollover, and sponsor equity as the plug. They must balance."
"What do people forget?"
"Fees, refinancing existing debt, and minimum cash. Also mixing equity purchase price with enterprise value without adjusting net debt."
"How do you solve for equity?"
"Set debt and other non-equity sources from terms and capacity, then equity equals remaining uses."
Weak vs strong
Weak
Sources are debt and equity. Uses are the purchase price. That is it.
Strong
Lists refinance, fees, and min cash on uses; tranches and rollover on sources; plugs equity; checks balance; clarifies CFDF.
Common traps
| Trap | Fix |
|---|---|
| EV on uses without refinance when CFDF | Add refinance use |
| Equity value on uses while also adding net debt carelessly | Pick a consistent bridge |
| Forgetting fees | Always ask / include a line |
| Counting undrawn revolver as cash source | Only drawn amounts fund uses |
| Balancing by silently changing EV | Never |
Practice
Build S&U for three prompts: pure CFDF buyout, buyout with rollover, buyout with seller note. Each time, remove fees on purpose and watch the equity plug jump so you feel why seniors care.
Then open a full LBO and confirm the S&U tab still balances after you change entry multiple or fee assumptions.
Practice on SheetRank
Apply what you learned with drills, guided Academy builds, and live deal underwriting.