What is a good LBO IRR?

The answer depends on risk, sector, leverage, and fund strategy. This calculator shows the math, not an investment recommendation.

How is MOIC calculated?

MOIC is exit equity value divided by sponsor equity invested at entry.

Why can MOIC and IRR tell different stories?

IRR annualizes the equity return, so the same MOIC earned over a shorter hold produces a higher IRR.

Does this include interest expense?

No. The sweep assumption is a simplified proxy for cash available to repay debt.

How do I split the return between growth, paydown, and multiple?

Value EBITDA growth at the entry multiple, apply the multiple change to exit EBITDA, and treat net debt reduction separately. The Value Bridge Builder does that decomposition for you.

What leverage should I assume in an LBO model?

Leverage should track cash flow predictability rather than a fixed rule. Recurring, high-conversion earnings support more debt, and the sandbox lets you test where returns stop improving.

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LBO Returns Sandbox

Test how entry price, EBITDA growth, leverage, debt paydown, and exit assumptions shape a sponsor return.

Educational calculator only. Not investment advice or a complete underwriting model.

Entry EBITDA$40.0M

Entry multiple10.0x

Leverage5.0x

EBITDA growth7.000000000000001%

Exit multiple10.0x

Hold period5 years

FCF sweep40%

Sponsor equity

$200.0M

Remaining debt

$101.5M

MOIC

2.30x

IRR

18.0%

Debt paydown

Ending debt by hold year.

Year	Debt	EBITDA
Y1	182.9	42.8
Y2	164.6	45.8
Y3	145	49
Y4	124	52.4
Y5	101.5	56.1

EBITDA growth

$16.1M

Multiple effect

0.0x

Debt paydown

$98.5M

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IRR sensitivity

Entry multiple by row and exit multiple by column.

IRR sensitivity table
Entry \ Exit	8.0x	9.0x	10.0x	11.0x	12.0x
8.0x	24.0%	27.0%	31.0%	34.0%	37.0%
9.0x	17.0%	20.0%	23.0%	26.0%	29.0%
10.0x	12.0%	15.0%	18.0%	21.0%	23.0%
11.0x	8.0%	11.0%	14.0%	17.0%	19.0%
12.0x	4.0%	8.0%	10.0%	13.0%	15.0%

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Worked example: base case returns

The base case preset, solved by hand so you can check the sandbox output. Figures are in millions.

Entry EBITDA: 40
Entry multiple: 10.0x
Leverage: 5.0x EBITDA
EBITDA growth: 7% per year
Hold period: 5 years
Exit multiple: 10.0x
FCF sweep: 40% of EBITDA

1
Entry value
40 x 10.0 = 400 enterprise value
2
Capital structure
Debt 200, sponsor equity 200
3
Exit EBITDA
40 x 1.07^5 = 56
4
Debt paydown
Cumulative EBITDA 246 x 40% = 98, debt 200 - 98 = 102
5
Equity and return
56 x 10.0 = 561, less 102 = 459 equity, 459 / 200 = 2.30x, 2.30^(1/5) - 1 = 18%

About 2.3x and 18% with a flat exit multiple. Drop the exit multiple to 9.0x and MOIC falls to roughly 2.0x, which is why the sensitivity grid matters more than the base case.

Method

An LBO return is the equity value realized at exit relative to the sponsor equity invested at entry. This sandbox keeps the model intentionally transparent: purchase price comes from entry EBITDA and multiple, debt is set from leverage, EBITDA compounds across the hold, and a defined share of EBITDA pays down debt.

The model calculates enterprise value at entry and exit, then subtracts debt to arrive at sponsor equity. MOIC measures total equity value divided by invested equity. IRR annualizes that return across the holding period. It is useful for comparing opportunities with different hold periods, but it should never be read without checking the sources of value creation.

1. Set entry assumptions
Convert entry EBITDA and the purchase multiple into enterprise value, then size debt from leverage.
2. Project operations
Compound EBITDA through the holding period and apply the selected sweep rate to debt.
3. Calculate exit equity
Apply the exit multiple to exit EBITDA and subtract remaining debt.
4. Stress the return
Read the entry and exit multiple sensitivity grid before relying on the base case.

A disciplined LBO underwriting process starts with the entry valuation because every turn paid up front must be recovered through growth, deleveraging, or a better exit multiple. EBITDA growth is usually the clearest operating lever, but debt paydown can be equally important when cash conversion is strong. Multiple expansion can raise returns quickly, yet it is also the least controllable assumption. Use the sensitivity table to test whether returns remain credible when the exit multiple moves down or the entry multiple moves up. This free calculator simplifies taxes, interest expense, fees, working capital, capex, and debt tranches. It is an educational first pass rather than a complete investment committee model. For a real deal, build a full cash flow model and validate the operating case, financing terms, and downside liquidity.

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