Preparing Pro Forma Financial Statements for Performance Analysis
The Situation
A leading $3.5B private equity firm acquired a payment transaction company. The Company made several acquisitions, but didn’t integrate those acquisitions into their financial reporting. The Sponsor and Company wanted to evaluate performance “as if” all companies were consolidated for the two calendar years prior and prepared for future sale transaction. Based on our prior experience, Accordion was hired to help the Company develop pro-forma financial statements and a working model that could be used for future performance comparisons and acquisitions. Additionally, our team was tasked with evaluating cash-to-accrual adjustments, the Quality of Earnings, and valuation reports in preparation for consolidated financial statements.
Services
Actionable Business Analytics
Financial Statement Preparation & Analysis
Stakeholder Reporting & Strategic KPI Enhancement
The Execution
Working closely with the Company’s VP of Finance, we executed the following:
- Created a model incorporating two years of consolidated monthly balance sheets, income statements, and cash flows with mapping from the acquired companies’ historical trial balances and databases.
- Reviewed cash-to-accrual adjustments for reasonableness and consistency over the considered time periods.
- Analyzed acquisition Quality of Earnings and valuation reports to prepare necessary accounting adjustments for prior period restatements.
- Made adjustments for the acquisition company’s stub periods and pushed down purchase price adjustments, including goodwill and intangible assets.
- Rolled all operating activity and working capital adjustments for the two calendar years forward and backward.
- Proposed necessary accounting entries based on valuations and details provided by the Company for net working capital balances.
- Performed an overall and company-by-company detailed analytical review to ensure reasonableness and comparability.
The Results
Accordion successfully prepared two-year, monthly comparable financial statements that the Sponsor and Company used for historical and go-forward performance evaluations. Our team developed the entries to adjust the balance sheets of all entities, reflect thirdparty valuations, and net working capital adjustments. Our work allowed the Company to perform in-depth working capital comparisons to drive actions throughout the organization. In addition, we provided transparency on historical earnings performance by showing profitability at a consolidated and individual company. Finally, we created a financial statement working model that the Company can use to efficiently integrate reporting for future acquisitions.