GLOSSARY OF TERMS

A method of accounting wherein income and expenses are recognized, within the statements, when the business first acquires the right to receive the income, or the obligation to pay the expense. Companies with inventories are required to use the accrual method for tax purposes. (Also see Cash Basis Accounting.)

One company taking over controlling interest in another company.

All or a portion of expenses that are added back to net income in an effort to place the figures as close as possible to the economic earnings that were actually derived from the business.

Refers to a company that is added by a private equity firm to one of its platform companies, or by a strategic buyer pursuing a consolidation investment strategy.

The measure of a company’s valuation after liabilities, including off-balance sheet liabilities, and assets are adjusted to reflect true fair market value.

A valuation method within the Asset Approach category whereby all assets and liabilities (including off-balance sheet, intangible, and contingent) are adjusted to their fair market values. (NOTE: In Canada on a going concern basis.)

Adjusted earnings before taxes, interest income or expense, nonoperating and non-recurring income/expenses, depreciation and other non-cash charges and prior to deducting an owner’s/officer’s compensation, but after replacing that owner’s/officer’s compensation and benefits with the market rate compensation and benefits to replace that owner’s/officer’s functions. This is a measure of a company’s operating performance without having to factor in financing decisions, accounting decisions or tax environments.

See Discretionary Earnings.

An snapshot of the accounts receivable, usually alphabetized, as of the date of the balance sheet you are using, wherein each account receivable is shown in columnar form as either current, over 30 days, over 60 days, over 90 days, or over 120 days delinquent. The aging report is the primary tool used by collections personnel to determine which invoices are overdue for payment.

This is an accounting technique, used for tax planning purpose, to periodically lower the book value of a loan or an intangible asset over a set period of years. This is accomplished by monthly lowering the intangible asset value on the balance sheet by a specific amount and charging that same amount to expense on the income statement. The amount of amortization taken as a non-cash charge in any given accounting period is almost always based upon number of years approved by the IRS for cost recovery. See also Depreciation, which is the corresponding accounting technique for tangible assets.

The act or process of providing information, recommendations and/or conclusions on diversified situations, processes or problems in businesses, other than estimating value. Also (as a noun), the result of the act or process of analysis.

The act or process of estimating value. Also, the result of the process of estimating value. The words “valuing” (verb) and “valuation” (noun) are synonymous with “appraisal.”

The total amount for which a business or an ownership interest is offered for sale. The asking price could be inclusive or exclusive of inventory or other assets.

This term has two definitions. The proper definition depends on its usage: A. The means by which a business owner transfers ownership of tangible and intangible assets, and possibly some liabilities, to another owner without transferring the ownership entity. B. The sale of a business enterprise that is no longer a viable ongoing concern at a price based solely upon the value of the tangible assets.

A financial statement that is one of the three important financial statements used for reporting a company’s financial performance, with the other two key statements being the income statement and the statement of cash flows. The balance sheet is a statement of the financial status of the business on a certain date. More explicitly, it is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by its shareholders.