Investing Basics

Sources and Uses

Sources and uses is a transaction schedule that reconciles the funding available for an acquisition with the cash required to close it. Sources commonly include debt, sponsor equity, rollover equity and target cash; uses commonly include purchase consideration, debt refinancing, transaction fees and required cash retained by the business.

Updated 2026-09-01 · Foundation

What a sources-and-uses schedule answers

The schedule answers one closing question: what cash is required, and which funding source pays for it? In a leveraged buyout, the purchase price is only one use of funds. Existing target debt may need to be repaid, financing fees can be substantial, transaction expenses have to be funded, and the acquired company may need minimum cash on its balance sheet at closing.

Typical sources

Common acquisition sources include:

senior secured term loans
revolving or bridge financing
subordinated or mezzanine debt
sponsor equity
rollover equity from sellers or management
cash already held by the target, when transaction documents permit its use.

The mix matters because each source has a different claim on future cash flow and a different return profile. Debt generally has contractual repayment rights. Equity absorbs more downside but participates in residual upside.

Typical uses

A buyout model may allocate cash to:

purchase consideration paid to selling shareholders
repayment or refinancing of existing debt
transaction and advisory fees
financing fees and original issue discounts
taxes or required closing payments
cash left on the acquired company’s balance sheet.

That last line is easy to underappreciate. A transaction that leaves the company underfunded can create a working-capital problem immediately after closing.

The schedule must balance

A properly constructed schedule has one mechanical requirement:

Total Sources = Total Uses

That equality does not mean the capital structure is sensible. It only means the financing plan accounts for the stated closing requirements.

Worked example

Uses	Amount	Sources	Amount
Seller consideration	$220M	New debt	$190M
Refinance existing debt	$55M	Rollover equity	$30M
Fees and expenses	$15M	Sponsor equity	$80M
Closing cash	$10M
Total	$300M	Total	$300M

The sponsor equity contribution is the balancing source in many models, but only after debt capacity, rollover amounts and closing needs are established.

Common mistake: treating sources and uses as the purchase price

The purchase price and total transaction funding are not the same number. Debt repayment and fees can cause total uses to exceed the headline equity purchase price materially.

Why investors should care

Sources and uses exposes the transaction’s financing architecture. It shows how much new leverage is being introduced, how much capital sellers are retaining through rollover equity, and how much sponsor capital is actually at risk on day one.

Example

A $300 million acquisition uses $220 million for seller consideration, $55 million to refinance old debt, $15 million for fees and $10 million of closing cash. If new debt supplies $190 million, rollover equity supplies $30 million and sponsor equity supplies $80 million, total sources and total uses both equal $300 million.

Example

Professional note

The schedule is a financing bridge, not a valuation model. Analysts should trace every source to a legally available funding commitment and every use to the purchase agreement, financing documents or closing statement. A balanced schedule can still hide aggressive leverage, underestimated fees or insufficient operating liquidity.

Related terms

Leveraged Buyout (LBO)
A leveraged buyout, or LBO, is an acquisition in which the buyer finances a substantial portion of the purchase price with borrowed money, usually supported by the acquired company’s assets and cash flow.
Financial Sponsor
A financial sponsor is an investment firm—commonly a private equity firm—that raises and manages capital, acquires or invests in companies, and exercises ownership or governance influence with the goal of increasing investment value before an eventual exit.
Dividend Recapitalization
A dividend recapitalization is a transaction in which a company raises new debt or refinances its capital structure and uses some of the proceeds to pay a dividend or distribution to shareholders, including a private equity sponsor.

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