in calculating proforma goodwill, can someone tell me why you add existing cash on the balance sheet to the purchase price of equity number before subtracting the book value of equity?
Trending Content - Investment Banking Forum
Career Resources
WSO Free Modeling Series - Now Open Through
August 31, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
Because the cash is getting swept to the seller in the case of an LBO before it closes. Thus, the cash won't be on the balance sheet and that's the way of adjusting for it. Think of it this way, what would the balance sheet look like if you were to have cash were dividended out to the owner before closing? Your assets, along with your equity / book value would go down right? What's the equation for goodwill? Purchase price less book value. A lower book value means your goodwill would go up, and that's exactly what adding the cash to the goodwill equation accomplishes.
Now, if you were to assume that the cash remained on the balance sheet and wasn't swept out, you wouldn't need this adjustment to goodwill.
Does that make sense to you?
i see, thank you that is helpful. so you wouldn’t be double counting it when you credit the existing cash out when doing the purchase accounting to arrive at the PF balance sheet?
No, as that would be the whole reason you are adding it to goodwill to begin with
Eos et dicta minima aliquam quia aut eos. Voluptas quas ea et sunt dicta ex. Illo rem est non sit quod suscipit.
Voluptatum iure sint expedita qui eveniet. Libero delectus nulla dolor aut deserunt nesciunt porro. Deleniti et quisquam laboriosam sed. Soluta ut quis quod. In sed ratione id ratione.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...