The LBO models that I've built simply take into account numbers from financial statements, and my own growth predictions. Just wondering if and how investment banks take into account conservative vs aggressive accounting choices
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What assumptions specifically?
Something like accounting depreciation will have no bearing on IRR / NPV.
Other typical assumptions in a model:
Tax / allowable expenses, interest rate, inflation, price curves ect will be based on advisors / bank forecasts ect
It also depends on what your role is - sell side advisor will probably put some bullshit assumptions in to overvalue. Buyer will start with what they believe to be reasonable and flex throughout the bidding process to try to win without completely overpaying
Conservative vs aggressive how? You should be following the cash; whatever accounting policy you use should still net to FCF and would be adjusted out through change in NWC. Aggressive book depreciation should be adjusted out through DTA/DTL
Oh ok - yea that's one example I was thinking about. Also I think it's not allowed under US GAP, but international Pharma companies do not have to expense development costs and can simply build a drug "asset" and depreciate it over the patents life whereas US companies need to expense all R&D costs when they happen. would this just factor into growth assumptions?
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