In an LBO model, is it necessary to project a full Balance Sheet?

• A. Yes, you must project a full Balance Sheet.
• B. No, you don't necessarily need to project a full Balance Sheet; you can model with an income statement, debt balances, and a cash flow statement.
• C. Only a Balance Sheet is required.
• D. You can skip income statement altogether.

Answer: (B)

In an LBO, the core driver is cash flow and how that cash is used to service debt and generate equity value. You don’t need to forecast every asset and liability in a full Balance Sheet. A practical approach is to build the model around the income statement to show profitability, a cash flow statement to track cash generation and uses, and a detailed debt schedule to model how debt is drawn, amortized, and how interest accrues. With those pieces, you can follow how cash and debt evolve over time and reconcile them, often using a lean balance sheet that includes cash, debt balances, and equity or a simple working-capital scaffold. This setup is sufficient to analyze returns and debt capacity without projecting a complete set of balance-sheet line items.