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Home Resources Glossary Normalized Financial Statements / Normalized Financials

Glossary

Normalized Financial Statements / Normalized Financials

Financial statements that have been adjusted by adding back discretionary expenses (non-essential to operations) to net pre-tax operating profit to estimate a company’s economic cash flow (i.e., SDE or EBITDA), versus cash flow produced for tax purposes.

See Also

SDE, EBITDA.

Example

An example of an unusual item that would be adjusted includes expenses related to a natural disaster or income from an insurance settlement that is not in the ordinary course of business.

Tips

Most business owners manage their small businesses with the goal of minimizing taxable income by deducting expenses that are not directly related to the business’s operations. For this reason, it is often necessary to adjust the financial statements by “adding back” these expenses in order to show potential owners the actual cash flow available. Adjusting the financials allows someone to compare a business with other businesses using seller’s discretionary earnings (SDE) or EBITDA.

Related Resources

Adjusting Financial Statements: A Complete Guide

EBITDA | Definition, Formula & Example – A Complete Guide

Seller’s Discretionary Earnings (SDE) | Definition & Examples

Should I use SDE or EBITDA to value a business?

Related Terms

Net Income

Amount of money earned after deducting from the gross revenues of a business all expenses, including overhead, employee salaries and benefits, manufacturing costs, inventory costs, distribution costs, and marketing and...

Non-Binding

Having no legal or binding force. Tips Non-binding is normally used in the context of a non-binding letter of intent (LOI). Technically some clauses in the LOI are binding, such...

Non-Compete Agreement / Non-Competition Agreement

A contract that limits the seller or key employees from competing with the business after the closing. See Also Key employee, non-solicitation agreement Tips It’s important for the seller to...

Non-Disclosure Agreement (NDA) / Confidentiality Agreement (CA)

A legal contract between at least two parties that outlines confidential material, knowledge, or information that both parties want to share with each other for specific purposes but with restricted...

Non-Operating Assets

Property or goods owned by a company that are not necessary to the ongoing operations of the business enterprise. Tips A seller can often dispose of non-operating assets in the...

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