Pre-exit normalization
Factual definition
Pre-exit normalization means preparing a supported reconciliation from reported earnings to an estimate of sustainable earnings before a sale. Adjustments can increase or decrease earnings; the process is not permission to inflate results or override proper accounting.
Support expense adjustments with continuing-cost evidence
Hypothetical: a seller documents a genuinely nonrecurring expense and compares recorded owner compensation with necessary replacement costs for the same period. Recurring expenses remain, unsupported add-backs are excluded, and any adverse adjustments are included.
Include adjustments that reduce earnings
Hypothetical same-year reconciliation in US$ millions: starting reported EBITDA is 5.00. Add 0.30 for a documented, genuinely nonrecurring legal settlement and 0.15 for owner compensation above the supported replacement cost.
Subtract a 0.40 disposal gain included in that starting measure and 0.10 for rent below the supported continuing market cost. On these assumptions, normalized EBITDA is 5.00 + 0.30 + 0.15 − 0.40 − 0.10 = 4.95.
Attach the ledger entries, settlement evidence, compensation analysis and lease comparison to the reconciliation. The SEC’s public-reporting guidance warns against removing nonrecurring charges while leaving similar gains.
A sale-process analysis also needs even-handed treatment; the seller’s desired price is not evidence that an expense will disappear.
Where Pre-exit normalization fits
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