A five-slider leveraged buyout: pick the kind of business, set the operating case and the deal, and read what equity earns.
Start from the share price and back into the growth, margin or duration the market is already paying for.
1Anchor
What the model is solved against — the price, and the claims that sit ahead of equity.
2Operating drivers
The economics the business itself controls. Choose an archetype to load its typical investment rates.
Both rates are spent per dollar of new sales, not total sales — and fixed capital means capex net of depreciation, since depreciation already sits inside the operating margin.
3Valuation basis
Set by the market and your view of risk, not by the company.
The discount rate is a claim about risk and the price of money, not about the company — it belongs outside the operating case so a change of view here is never confused with a change of view about the business. Threshold margin is the operating margin at which growth stops paying for itself at this cost of capital.
4Solve
Hold every driver but one, then back into the value the price is already paying for.
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5Marginal value
What one additional unit of each driver is worth, in dollars per share.
Each row is the change in value per share from adding one more unit of that driver, holding everything else at the solved expectation. Sales growth steps by 2pp when the base rate is 10% or above and 1pp below it — the same absolute miss means something very different at 3% growth than at 20%. Forecast period is what buying one additional year of value-creating growth is worth. Cobalt adds value, oxide destroys it; the longest bar is the assumption your research time should go to. Cost of capital sits apart below because it is a claim about risk and the price of money, not about the business.
6Expectations gap
Your own scenarios, probability-weighted, measured against what the market is paying.
A field guide to the nine kinds of operating business — how to tell them apart, what each one is worth watching for, and the defaults the two models above start from.
The principle
Every business is an inventory problem. Identify what the company acquires, what it holds, and what it converts that into — and the archetype falls out, along with the metrics that matter and the place the moat has to sit. The nine models below are exhaustive for operating businesses; the pre-gate covers the cases that sit outside the tree entirely.
Before the tree
Four kinds of company the tree does not classify well.
Decision tree
Run in order and stop at the first clean yes. Then verify against the financial fingerprint inside each model below — where the fingerprint contradicts the narrative, the fingerprint usually wins.
The nine models
Hybrids
Most often confused
Classify by operating income, not revenue. Every large cap is a hybrid. The fingerprint beats the narrative.