Lbo Model

TEMPLATE REQUIREMENT

This skill uses templates for LBO models. Always check for an attached template file first.

Before starting any LBO model:

1. If a template file is attached/provided: Use that template's structure exactly - copy it and populate with the user's data
2. If no template is attached: Ask the user: "Do you have a specific LBO template you'd like me to use? If not, I can use the standard template which includes Sources & Uses, Operating Model, Debt Schedule, and Returns Analysis."
3. If using the standard template: Copy examples/LBO_Model.xlsx as your starting point and populate it with the user's assumptions

IMPORTANT: When a file like LBO_Model.xlsx is attached, you MUST use it as your template - do not build from scratch. Even if the template seems complex or has more features than needed, copy it and adapt it to the user's requirements. Never decide to "build from scratch" when a template is provided.

CRITICAL INSTRUCTIONS FOR CLAUDE - READ FIRST

Environment: Office JS vs Python

If running inside Excel (Office Add-in / Office JS environment):

• Use Office JS (Excel.run(async (context) => {...})) directly — do NOT use Python/openpyxl
• Write formulas via range.formulas = [["=B5*B6"]] — Office JS formulas recalculate natively in the live workbook
• The same formulas-over-hardcodes rule applies: set range.formulas, never range.values for anything that should be a calculation
• Use range.format.font.color / range.format.fill.color for the blue/black/purple/green convention
• No separate recalc step needed — Excel handles calculation natively
• Merged cell pitfall: Do NOT call .merge() then set .values on the merged range (throws InvalidArgument — range still reports original dimensions). Instead: write value to top-left cell alone (ws.getRange("A7").values = [["SOURCES & USES"]]), then merge + format the full range (ws.getRange("A7:F7").merge(); ws.getRange("A7:F7").format.fill.color = "#1F4E79";)

If generating a standalone .xlsx file (no live Excel session):

• Use Python/openpyxl as described below
• Write formula strings (ws["D20"] = "=B5*B6"), then run recalc.py before delivery

The rest of this skill is written with openpyxl examples, but the same principles apply to Office JS — just translate the API calls.

Core Principles

• Every calculation must be an Excel formula - NEVER compute values in Python and hardcode results into cells. When using openpyxl, write cell.value = "=B5*B6" (formula string), NOT cell.value = 1250 (computed result). The model must be dynamic and update when inputs change.
• Use the template structure - Follow the organization in examples/LBO_Model.xlsx or the user's provided template. Do not invent your own layout.
• Use proper cell references - All formulas should reference the appropriate cells. Never type numbers that should come from other cells.
• Maintain sign convention consistency - Follow whatever sign convention the template uses (some use negative for outflows, some use positive). Be consistent throughout.
• Work section by section, verify with user at each step - Complete one section fully, show the user what was built, run the section's verification checks, and get confirmation BEFORE moving to the next section. Do NOT build the entire model end-to-end and then present it — later sections depend on earlier ones, so catching a mistake in Sources & Uses after the returns are already built means rework everywhere.

Formula Color Conventions

• Blue (0000FF): Hardcoded inputs - typed numbers that don't reference other cells
• Black (000000): Formulas with calculations - any formula using operators or functions (=B4*B5, =SUM(), =-MAX(0,B4))
• Purple (800080): Links to cells on the same tab - direct references with no calculation (=B9, =B45)
• Green (008000): Links to cells on different tabs - cross-sheet references (=Assumptions!B5, ='Operating Model'!C10)

Fill Color Palette — Professional Blues & Greys (Default unless user/template specifies otherwise)

• Keep it minimal — only use blues and greys for cell fills. Do NOT introduce greens, yellows, reds, or multiple accents. A professional LBO model uses restraint.
• Default fill palette:
  • Section headers (Sources & Uses, Operating Model, etc.): Dark blue #1F4E79 with white bold text
  • Column headers (Year 1, Year 2, etc.): Light blue #D9E1F2 with black bold text
  • Input cells: Light grey #F2F2F2 (or just white) — the blue font is the signal, fill is secondary
  • Formula/calculated cells: White, no fill
  • Key outputs (IRR, MOIC, Exit Equity): Medium blue #BDD7EE with black bold text
• That's the whole palette. 3 blues + 1 grey + white. If the template uses its own colors, follow the template instead.
• Note: The blue/black/purple/green font colors above are for distinguishing inputs vs formulas vs links. Those are separate from the fill palette here — both work together.

Number Formatting Standards

• Currency: $#,##0;($#,##0);"-" or $#,##0.0 depending on template
• Percentages: 0.0% (one decimal)
• Multiples: 0.0"x" (one decimal)
• MOIC/Detailed Ratios: 0.00"x" (two decimals for precision)
• All numeric cells: Right-aligned

Clarify Requirements First

Before filling any formulas:

• Examine the template structure - Identify all sections, understand the timeline (which columns are which periods), note any existing formulas
• Ask the user if anything is unclear - If the template structure, calculation methods, or requirements are ambiguous, ask before proceeding
• Confirm key assumptions - Any key inputs, calculation preferences, or specific requirements
• ONLY AFTER understanding the template, proceed to fill in formulas

TEMPLATE ANALYSIS PHASE - DO THIS FIRST

Before filling any formulas, examine the template thoroughly:

1. Map the structure - Identify where each section lives and how they relate to each other. Note which sections feed into others.

2. Understand the timeline - Which columns represent which periods? Is there a "Closing" or "Pro Forma" column? Where does the projection period start?

3. Identify input vs formula cells - Templates often use color coding, borders, or shading to indicate which cells need inputs vs formulas. Respect these conventions.

4. Read existing labels carefully - The row labels tell you exactly what calculation is expected. Don't assume - read what the template is asking for.

5. Check for existing formulas - Some templates come partially filled. Don't overwrite working formulas unless specifically asked.

6. Note template-specific conventions - Sign conventions, subtotal structures, how sections are organized, whether there are separate tabs for different components, etc.

FILLING FORMULAS - GENERAL APPROACH

For each cell that needs a formula, follow this hierarchy:

Step 1: Check the Template

• Does the cell already have a formula? If yes, verify it's correct and move on.
• Is there a comment or note indicating the expected calculation?
• Does the row/column label make the calculation obvious?
• Do neighboring cells show a pattern you should follow?

Step 2: Check the User's Instructions

• Did the user specify a particular calculation method?
• Are there stated assumptions that affect this formula?
• Any special requirements mentioned?

Step 3: Apply Standard Practice

• If neither template nor user specifies, use standard LBO modeling conventions
• Document any assumptions you make
• If genuinely uncertain, ask the user

COMMON PROBLEM AREAS

The following calculation patterns frequently cause issues across LBO models. Pay special attention when you encounter these:

Balancing Sections

• When two sections must equal (e.g., Sources = Uses), one item is typically the "plug" (balancing figure)
• Identify which item is the plug and calculate it as the difference

Tax Calculations

• Tax formulas should only reference the relevant income line and tax rate
• Should NOT reference unrelated sections (e.g., debt schedules)
• Consider whether losses create tax shields or are simply ignored

Interest and Circular References

• Interest calculations can create circularity if they reference balances affected by cash flows
• Use Beginning Balance (not average or ending) to break circular references
• Pattern: Interest → Cash Flow → Paydown → Ending Balance (if interest uses ending balance, this circles back)

Debt Paydown / Cash Sweeps

• When multiple debt tranches exist, there's usually a priority order
• Cash sweep should respect the priority waterfall
• Balances cannot go negative - use MAX or MIN functions appropriately

Returns Calculations (IRR/MOIC)

• Cash flows must have correct signs: Investment = negative, Proceeds = positive
• If using XIRR, need corresponding dates
• If using IRR, cash flows should be in consecutive periods
• MOIC = Total Proceeds / Total Investment

Sensitivity Tables

• Use ODD dimensions (5×5 or 7×7) — never 4×4 or 6×6. Odd dimensions guarantee a true center cell.
• Center cell = base case. Build the row and column axis values symmetrically around the model's actual assumptions (e.g., if base entry multiple = 10.0x, axis = [8.0x, 9.0x, 10.0x, 11.0x, 12.0x]). The center cell's IRR/MOIC MUST then equal the model's actual IRR/MOIC output — this is the proof the table is wired correctly.
• Highlight the center cell — medium-blue fill (#BDD7EE) + bold font so the base case is visually anchored.
• Excel's DATA TABLE function may not work with openpyxl — instead write explicit formulas that reference row/column headers
• Each cell should show a DIFFERENT value — if all same, formulas aren't varying correctly
• Use mixed references (e.g., $A5 for row input, B$4 for column input)

VERIFICATION CHECKLIST - RUN AFTER COMPLETION

Run Formula Validation

python /mnt/skills/public/xlsx/recalc.py model.xlsx

Must return success with zero errors.

Section Balancing

• Any sections that must balance (Sources/Uses, Assets/Liabilities) balance exactly
• Plug items are calculated correctly as the balancing figure
• Amounts that should match across sections are consistent

Income/Operating Projections

• Revenue/top-line builds correctly from drivers or growth rates
• All cost and expense items calculated appropriately
• Subtotals and totals sum correctly
• Margins and ratios are reasonable
• Links to assumptions are correct

Balance Sheet (if applicable)

• Assets = Liabilities + Equity (must balance)
• All items link to appropriate schedules or roll-forwards
• Beginning balances = prior period ending balances
• Check row included and shows zero

Cash Flow (if applicable)

• Starts with correct income figure
• Non-cash items added/subtracted appropriately
• Working capital changes have correct signs
• Ending Cash = Beginning Cash + Net Cash Flow
• Cash balances are consistent across statements

Supporting Schedules

• Roll-forward schedules balance (Beginning + Changes = Ending)
• Schedules link correctly to main statements
• Calculated items use appropriate drivers
• All periods are calculated consistently

Debt/Financing Schedules (if applicable)

• Beginning balances tie to sources or prior period
• Interest calculated on appropriate balance (typically beginning)
• Paydowns respect cash availability and priority
• Ending balances cannot be negative
• Totals sum tranches correctly

Returns/Output Analysis

• Exit/terminal values calculated correctly
• All relevant adjustments included
• Cash flow signs are correct (negative for investment, positive for proceeds)
• IRR/MOIC formulas reference complete ranges
• Results are reasonable for the scenario

Sensitivity Tables (if applicable)

• Grid dimensions are ODD (5×5 or 7×7) — there is a true center cell
• Row and column axis values are symmetric around the base case ([base-2Δ, base-Δ, base, base+Δ, base+2Δ])
• Center cell output equals the model's actual IRR/MOIC — confirms the table is wired correctly
• Center cell is highlighted (medium-blue fill #BDD7EE, bold font)
• Row and column headers contain appropriate input values
• Each data cell contains a formula (not hardcoded)
• Each data cell shows a DIFFERENT value
• Values move in expected directions (higher exit multiple → higher IRR, etc.)

Formatting

• Hardcoded inputs are blue (0000FF)
• Calculated formulas are black (000000)
• Same-tab links are purple (800080)
• Cross-tab links are green (008000)
• All numbers are right-aligned
• Appropriate number formats applied throughout
• No cells show error values (#REF!, #DIV/0!, #VALUE!, #NAME?)

Logical Sanity Checks

• Numbers are reasonable order of magnitude
• Trends make sense (growth, decline, stabilization as expected)
• No obviously wrong values (negative where should be positive, impossible percentages, etc.)
• Key outputs are within reasonable ranges for the type of analysis

COMMON ERRORS TO AVOID

WORKING WITH THE USER — SECTION-BY-SECTION CHECKPOINTS

• If the template structure is unclear, ask before proceeding
• If the user's requirements conflict with the template, confirm their preference
• After completing each major section, STOP and verify with the user before continuing:
  • After Sources & Uses → show the balanced table, confirm the plug is correct, get sign-off before building the operating model
  • After Operating Model / Projections → show the projected P&L, confirm growth rates and margins look right, get sign-off before the debt schedule
  • After Debt Schedule → show beginning/ending balances and interest, confirm the waterfall logic, get sign-off before returns
  • After Returns (IRR/MOIC) → show the cash flow series and outputs, confirm signs and ranges, get sign-off before sensitivity tables
  • After Sensitivity Tables → show that each cell varies, confirm the base case lands where expected
• If errors are found during verification, fix them before moving to the next section
• Show your work - explain key formulas or assumptions when helpful
• Never present a completed model without having checked in at each section — it's faster to catch a wrong cell reference at the source than to trace it backwards from a broken IRR

This skill produces investment banking-quality LBO models by filling templates with correct formulas, proper formatting, and validated calculations. The skill adapts to any template structure while ensuring financial accuracy and professional presentation standards.

Hermes Profile Notes

This skill was packaged from pi-financial-services source path plugins/vertical-plugins/financial-analysis/skills/lbo-model for the Hermes financial-services profile. Use institutional data connectors first when available, cite sources, and stage outputs for qualified human review.

Common Pitfalls

1. Do not present drafts as investment, legal, tax, or accounting advice.
2. Do not use web search as the primary source when an institutional MCP/data connector is available.
3. Do not execute transactions, contact clients, post to a ledger, or approve onboarding. Stage outputs for review.

Verification Checklist

• Inputs, assumptions, dates, and currencies are explicit.
• Numbers tie across tables, models, decks, and memos.
• Sources are cited and institutional data is preferred where available.
• Output is labeled draft / for human review where appropriate.