Financial Statements - Art or Science?
When it comes to calculating a company's earnings, is it closer to art or science? We often encounter budding mathematical artists at privately-held companies. While we appreciate a nice-looking financial statement, we know that it won't stand up to third-party scrutiny and therefore limits a company's opportunities. The following recent engagements demonstrate how a simple Quality of Earnings analysis can strengthen the chemistry between a borrower and lender.
- Specialty Distributor: 65-year old company undergoing a turnaround needed a new senior lender.
- We conducted a quality of earnings analysis, performed analytical review procedures on the company's interim financial statements, and provided on-going assurance advisory services.
- We helped our client identify and negotiate with prospective lenders.
- New financing was put in place, increasing the company's liquidity by maximizing the value of its assets and enabling it to complete its turnaround and continue to pursue its growth strategy.
- Specialty Family & Entertainment Restaurant Chain: Private lender to growing company wanted to refinance $30MM of senior and subordinated debt.
- We performed a quality of earnings analysis.
- We identified EBITDA adjustments resulting from non-recurring expenses and to bring the financial statements in conformance with GAAP.
- We evaluated and compared operational and marketing practices to best-in-class techniques and recommended management actions to improve the client's communication with its lenders.
- Private Label & Extended Service Contract Provider: Prospective private lenders to a national provider of private-label warranties for major original equipment manufacturers and extended-service contracts for used heavy duty trucks wanted clarity on the borrower's earnings.
- We assisted management in identifying EBITDA adjustments related to borrower's private equity-owned holding company, environmental remediation costs and non-recurring expenses of captive reinsurance subsidiaries.
- We advised prospective lenders regarding revenue recognition and accounting for captive reinsurance subsidiaries, and assisted with determination of loan covenants and ratios.
If you have questions determining where the line falls between artistic financials and scientifically-sound financials, give us a call at 310-789-1777.
About Brandlin & Associates
Brandlin & Associates is an exclusive provider of accounting due diligence, financial consulting and strategic consulting services. We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner.