Recasting Financial Statements

RECASTING FINANCIAL STATEMENTS TO INDICATE REAL VALUE

The process of recasting a company’s financial statements is imperative to determine the real value of a company. Although most companies prepare financial statements according to generally acceptable accounting practices (GAAP), owners usually make business decisions to reduce tax liabilities. Unfortunately, this practice distorts the true economic value of a company.

The goal of recasting the financial statements is to determine a company’s true cash flow available to a new owner. The result is generally referred to as recast EBIT or EBITDA (Earnings Before, Interest, Taxes, Depreciation and Amortization). In the recasting process, Amvest makes adjustments to normalize an owner’s salary and benefits, eliminate non-recurring expenses and eliminate or adjust expenses not present under a new owner. There are dozens of legitimate items to recast resulting in an increase in the company’s cash flow.

In addition, it is often necessary to recast the balance sheet to reflect assets at fair market value rather than book value, adjust inventory and qualify off balance sheet or undervalued assets such as trademarks, copyrights, patents, and intellectual property.

The most often used method of valuing a company is the "multiple of cash flow" or recast EBIT or EBITDA. Our ability to find and justify these often hidden expenses is based on our years of experience. A company selling at a cash flow multiple of 4x may return to the owner $4 for each $1 found (and justified). This is a good return by any measure.

We have found over the years that owners who attempt to represent themselves leave a substantial amount of cash on the table.

Our years of experience yield millions of dollars in increased sale price to owners.