Expertise in Financial Reporting, Accounting, & Internal Controls
- Leveraged our research tools to identify AICPA practice aids to address the topic;
- Drew from our prior experience to locate a Journal of Accountancy article which provided a specific model for allocating value;
- Developed a financial model to accurately allocate our client's valuation among different securities;
- Utilized the Black-Scholes option pricing model to calculate the warrant valuation; and,
- Computed the values for each participating security, and submitted the results and detailed calculations to the company and their auditors.
Issue - A privately held company entered into a recapitalization and restructured certain convertible notes. As part of the restructuring, the company changed the interest rate and terms on its existing convertible notes, and issued warrants and a new class of preferred stock. The company obtained an estimate of its enterprise value from a valuation firm but needed to accurately allocate the value among its participating securities.
Actions -
Outcome - Our client used our calculations to complete the allocation of its enterprise value among its participating securities. Although we do not have formal valuation credentials, we have significant experience in a variety of valuation techniques, including discounted cash flow analysis, option and warrant pricing models, etc. In a situation where such credentials are not required, we can often assist our clients in developing valuation computations at substantial savings.
