Advanced Finance

Sources and Uses

Two columns that must tie to the penny. Build them properly and you can tell, in five minutes, whether a deal is fundable and exactly how much equity it really needs.

  • Intermediate
  • 8 min total
  • 12 chapters

What decision this helps you make: How much cash the buyer must actually write a cheque for — and which line to attack when that number comes back too big.

What this topic is

A sources and uses table is the funding blueprint for a transaction. The uses column lists every dollar the deal has to pay for. The sources column lists every dollar available to pay for it. They must be equal, because a transaction cannot close with a hole in it.

Why it matters

The equity cheque is not a decision, it is a residual: whatever the debt, the rollover and the seller paper do not cover. That means every fee, every dollar of cash left on the balance sheet, and every turn of leverage the lender refuses lands directly on the buyer's equity — and equity is the most expensive money in the structure.

Who should learn it

Anyone modelling or negotiating an acquisition: buyers and sponsors, sellers who want to understand what the buyer is solving for, lenders, and advisers who need to explain why the price moved without the price moving.

What you will understand

  • Every line that belongs on each side, and the ones people routinely omit
  • What cash-free, debt-free actually means for the money the seller receives
  • Why the sponsor equity line is the plug, and what that implies when anything else moves
  • How a half-turn of lost leverage translates into a specific dollar increase in the cheque

Prerequisites

Common misconception

"The purchase price is the deal size." It is usually 85 to 90% of it. A deal priced at a $56M enterprise value routinely needs $63M or more of funding once you add the debt being refinanced, advisory and legal fees, financing fees and original issue discount, and the working cash the business needs on day one. Every one of those extra dollars is funded, and almost all of them come out of equity — which is why two buyers can agree on price and disagree completely about whether the deal works.