Multifactor Scorecard Analysis Helps With Debt-Versus-Equity Problem
J. Richard Claywell, CPA, ABV, ASA, CBA, CVA, ICVS, CM&AA, MAFF, CFD, ABAR
When valuing a closely held business, it is common to have debt on the financial statements. When questioning the debt, it often becomes apparent that the owners of the business have not adequately documented the debt. When that happens, the question becomes: Is it debt or is it equity? This can become problematic in litigation cases where the adjusted book value is used or goodwill is being determined from a base using the net asset value of the company.