Creating Private Equity Waterfall Functions in Excel: Waterfall

Tom Arnold; Xia (Summer) Liu; Cassandra Marshall

Authors

Tom Arnold University of Richmond
Professor Liu University of Richmond
Professor Marshall University of Richmond

Keywords:

Waterfall, private equity transaction, IRR, MOIC, carried interest, =LAMBDA function, =MAKEARRAY function

Abstract

User-defined waterfall functions are created in Excel using =LAMBDA and =MAKEARRAY functions to assess the benefits of a private equity deal for multiple stakeholders. The three primary waterfall functions calculate the waterfall distributions and associated performance measures, including internal rates of return (IRRs) and multiples of invested capital (MOICs), both with and without carried interest. The functions are readily transferable to new spreadsheets from the downloadable source file.

Author Biographies

Tom Arnold, University of Richmond

Professor of Finance

Professor Liu, University of Richmond

Xia (Summer) Liu is an assistant professor at the Robins School of Business at the University of Richmond

Professor Marshall, University of Richmond

Cassandra Marshall is an associate professor at the Robins School of Business at the University of Richmond

Creating Private Equity Waterfall Functions in Excel

Waterfall