What is a Sources and Uses table in an LBO?

The Sources and Uses table is the first thing you build in an LBO. Uses is everything you pay for: the equity purchase, refinancing the target's existing debt, and fees. Sources is how you fund it: new debt tranches plus the sponsor's equity. The two sides must always tie.

Why is the sponsor's equity called the plug in an LBO?

Because the equity check is not an input, it is the output. You size Uses first, then the debt the market will lend, and the sponsor funds whatever is left to make both sides balance. Equity equals Uses minus debt raised minus any target cash used, so it is defined as the amount that ties the table.

What goes on the Uses side of an LBO Sources and Uses table?

Three things, and beginners forget two of them. First, buying the equity, which is enterprise value minus the target's existing net debt. Second, refinancing that existing debt, since lenders are usually taken out at close. Third, the fees to bankers, lenders, and lawyers. Miss the refi or fees and the table understates the deal.

LBO

Sources and uses

By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching

6 min read · updated July 2, 2026

Before you model a single year of an LBO, you build one small table. Sources and Uses. It answers two questions: what does this deal cost, and where does the cash come from to pay for it? Get this wrong and every number downstream is wrong too.

Here's the whole idea in one line. Uses is everything you spend. Sources is everything you fund it with. They must equal, because you can't spend a dollar you didn't raise. The sponsor's equity check is whatever's left over to make the two sides balance.

Uses on the left is what you pay for. Sources on the right is how you fund it. The equity check is the plug that forces them to tie.

The Uses side: what you actually pay for

New candidates think the "cost" of a deal is the purchase price. It's more than that. Uses has three pieces, and people forget two of them.

1. Buy the equity

You're buying a company, so you pay the owners for their equity value. If the target has $100 of EBITDA and you pay a 10x enterprise value multiple, that's a $1,000 enterprise value. But you don't cut a check for enterprise value. You pay for the equity, then deal with the debt separately. Say the target already carries $200 of net debt. The equity you're buying is worth $1,000 minus $200 = $800.

2. Refinance the existing debt

That old $200 of debt doesn't just vanish. In most buyouts the lenders get taken out at close and replaced with the sponsor's new financing. So you have to repay it. That's another $200 of Uses. Miss this line and your table won't balance, and worse, you'll understate how much money the deal actually needs.

3. Pay the fees

Deals aren't free. There are advisory fees to the bankers, financing fees and original issue discount to the lenders, legal and accounting costs. Round it to $50 for the example. Fees are real cash out the door on day one, and they're the single most forgotten line in a first-timer's table.

Add it up:

$\text{Uses} = \underbrace{800}_{\text{equity purchase}} + \underbrace{200}_{\text{refi debt}} + \underbrace{50}_{\text{fees}} = 1{,}050$

Common mistake

Two errors sink almost every beginner's Sources and Uses table. First, leaving out fees or the refinanced debt on the Uses side so the deal looks cheaper than it is. Second, and this is the big one, treating the sponsor's equity as a number you plug in from the start. It isn't an input. It's the output. You size every other line first, and equity is simply whatever's left to make the table balance. Type equity in as an assumption and you've broken the entire logic of the model.

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Frequently asked

What is a Sources and Uses table in an LBO?: The Sources and Uses table is the first thing you build in an LBO. Uses is everything you pay for: the equity purchase, refinancing the target's existing debt, and fees. Sources is how you fund it: new debt tranches plus the sponsor's equity. The two sides must always tie.
Why is the sponsor's equity called the plug in an LBO?: Because the equity check is not an input, it is the output. You size Uses first, then the debt the market will lend, and the sponsor funds whatever is left to make both sides balance. Equity equals Uses minus debt raised minus any target cash used, so it is defined as the amount that ties the table.
What goes on the Uses side of an LBO Sources and Uses table?: Three things, and beginners forget two of them. First, buying the equity, which is enterprise value minus the target's existing net debt. Second, refinancing that existing debt, since lenders are usually taken out at close. Third, the fees to bankers, lenders, and lawyers. Miss the refi or fees and the table understates the deal.