01
Profit cannot go directly into price
Reported profit is only the starting input. One-off gains, unusual recognition, unsustainable margins, related-party effects, maintenance capex, working-capital funding and tax changes can all alter cash actually available to owners.
Build a bridge from reported profit to sustainable earnings, operating cash and distributable cash. Unexplained gaps should reduce forecast confidence, widen scenarios or change payment design—not disappear inside a more elaborate multiple or model.
02
The full value bridge is not one formula
A practical path starts with continuing operating value, subtracts necessary future capital, net debt and debt-like items, risk reserves and potential loss, then adds verifiable synergy and realisable non-operating assets to form the buyer's bearable range.
This is not a universal formula. Its purpose is to stop teams from mixing enterprise value, equity value, consideration, net proceeds and accounting effects. Every layer needs evidence, assumptions, ownership and change triggers.
03
Synergy enters value only when executable
Synergy is not an automatic reason to pay more. It may enter buyer value only when mechanism, owner, required resources, timing and failure accountability are clear—and when the buyer has the capability to execute.
Separate value already created by the seller from value the buyer may create later. Where synergy depends mainly on buyer resources, price should not transfer all unrealised future outcomes to the seller in advance.
04
Separate value, price and accounting expression
Investment value asks what the asset is worth to a specific buyer. Transaction price reflects bargaining, competition, timing, conditions and options. Purchase-date accounting recognises and measures acquired assets, liabilities, contingencies, consideration and goodwill under applicable standards. They interact but are different questions.
Purchase-date identifiable net assets, fair-value allocation and goodwill affect the future reporting path, but do not prove the deal price was correct. Commercial judgment, valuation, accounting and audit responsibility must remain distinct and be reviewed against complete facts and rules effective at the relevant date.
05
Make valuation change the transaction
At minimum, valuation should produce base, upside and downside scenarios; key sensitivities; a price range; peak funding; net-debt and working-capital adjustments; risks requiring terms; and switching or stop conditions that invalidate the price.
If core earnings cannot be traced, material assets or recovery paths remain unclear, major obligations cannot be bounded, synergy lacks an execution owner, or peak funding exceeds buyer capacity, stop refining the model. Obtain evidence, narrow scope, redesign or exit.