What defines leveraged buyout (LBO) analysis?

Leveraged buyout (LBO) analysis is primarily focused on evaluating the potential acquisition of a company using significant amounts of debt to finance the purchase. This approach typically involves assessing how the acquisition would perform under a scenario where a large portion of the purchase price is funded through borrowed money.

In a leveraged buyout, the analysis takes into consideration the cash flows of the target company, the amount of debt that will be incurred, and how these factors will impact the returns on investment for the equity holders. Key metrics, such as debt service coverage ratios and internal rates of return (IRR), are crucial in this analysis to ensure that the investment is viable given the high leverage.

Under highly leveraged scenarios, potential risks and rewards must be assessed to understand how the company would operate while meeting its debt obligations. This makes option C the defining characteristic of LBO analysis, as it captures the essence of how leveraging impacts the evaluation of acquisition opportunities.