Glossary of Accountancy Terms & and their Meaning
UK Finance Glossary
Lamonts Glossary
Net Profit, Adjusted Net Profit, Owners Discretionary Earnings
An acquirer is buying the ability to create future profit, but what is the underlying level of true profit? The net profit used for a valuation and by business brokers is usually based on the previous year’s maintainable net profit that is, the profit a buyer is likely to maintain after taking into account the seller’s personal and extraordinary costs. Inevitably assumptions will need to be made and questions asked. A sustainable profit figure will be assumed using the previous year’s net profit using the company's historical trading accounts as a base, but in many cases, a more current and accurate figure for the gross and net profit will be recalculated using the current management accounts. The adjusted net profit would then be identified by calculating the net profit to a buyer, rather than that which the previous owner may have enjoyed. This figure takes into account ‘ad ons’ such as the cost of replacing management or relocating the business and ‘ad backs’ called Owners Discretionary Earnings such as the seller’s salary, seller's finance charges, and many other extraordinary costs that are not crucical or essential in the running of the businesses.
Asking Price
The price at which an item is offered for sale. Based on the seller and broker's opinion this is the value that we consider the business is worth
Furnture Fitting and Equipment.
All the company's Furnture Fitting and Equipment valued at Net Book Value
Net Book Value
The net value of an asset. Equal to its original cost (its book value) minus depreciation and amortization. also called net book value and depreciated cost.
...plus stock at Valuation
Normally used in retail type businsses with a high amount of carried stock. On a agreed day prior to the completion of the sale, a stocktake is taken of the business and a price agreed for the stock, based on the purchase price of the stock. This is normally done by the buyer and seller, but can also be completed by an independant valuer. This term is used as it stops a seller winding down stock prior to completion of a sale, thus affecting the future turnover of the business.
...plus balance sheet
Most business are sold to include the Furnture Fitting and Equipment. However some companies may have other items on their list of assets such as Intellictual property, Trade Marks, Patents etc. Business which have a high debtor book i.e. customers who owe them money would be sold in this way.
