How is cash treated on the asset side of the balance sheet in an LBO?

How is cash treated on the asset side of the balance sheet in an LBO?

• A. Cash is adjusted to reflect funds used to finance the transaction
• B. Cash is left unchanged
• C. Cash is converted into goodwill
• D. Cash is ignored in the model

Answer: (A)

In an LBO, you fund the purchase with debt and equity, so the cash balance on the asset side is reduced by the portion of the price paid with cash. This shows the actual cash outlay to complete the deal. The financing created—new debt and new equity—appears on the liabilities and equity side, balancing the statement. After closing, you’ll also see the effects of the purchase price allocation (for example, goodwill) on the asset side, but the cash itself is specifically decreased to reflect funds used to finance the transaction.

In an LBO, you fund the purchase with debt and equity, so the cash balance on the asset side is reduced by the portion of the price paid with cash. This shows the actual cash outlay to complete the deal. The financing created—new debt and new equity—appears on the liabilities and equity side, balancing the statement. After closing, you’ll also see the effects of the purchase price allocation (for example, goodwill) on the asset side, but the cash itself is specifically decreased to reflect funds used to finance the transaction.