Balance Sheet (Operating)
BVX provides accurate valuation for each business without directly knowing its industry. BVX achieves this by requiring inputs for business’s balance sheet and
how it can be financed. Supposedly the industry characteristics of a business are reflected in its balance sheet and the borrowing capacity of the assets in the
Balance sheet information helps calculate true cash flow to the investor. BVX uses Balance Sheet to calculate working capital requirements, to calculate bank
borrowing, to calculate depreciation, and to determine Goodwill.
BVX determines Enterprise Value of the business. Enterprise Value is often called Debt-Free Value or Market Value of Invested Capital (MVIC). It is based
on the “operating balance sheet” of the business. “Non-operating balance sheet” items are retained by the selling shareholders and are excluded from the Balance Sheet data input.
non-operating balance sheet is equal to the actual balance sheet of the business less the Operating Balance Sheet entered in BVX.
• Recommendation: Enter all “operating balance sheet” items even if the buyer may not be buying them. This permits true calculation of the cash flow including working capital funding and depreciation.
• For most businesses “operating balance sheet” items are the assets and liabilities needed that generate the Adj. EBITDA. See individual balance sheet items for detail explanation.
• “Non-operating balance sheet” is the actual balance sheet minus the “operating balance sheet”. Examples of non-operating assets and liabilities are: Debt, revolver credit facility, leases, stretched A/P, excess cash, investments, non-essential inventory, non-operating assets, certain accrued expenses, etc. See Other Misc. Assets for goodwill and intangible assets.
• Buyer pays Enterprise Value and gets the “operating balance sheet”. However, actual transaction price can be higher or lower than the Enterprise
Value if specific “operating balance sheet” items are not part of the actual transaction.