Making out-of-step borrowers look normal
Abstract: No two businesses look exactly alike, but lenders often compare borrowers in the same industry to one another or themselves over time to get a better understanding of a borrower’s past and future earning power. Such comparisons require “normalizing” reconciliations to the income statement and balance sheet. This article offers a summary of the most common categories of financial statement reconciliations that lenders encounter, including different accounting practices, one-time charges and collateral. A sidebar explains how to scrutinize a borrower’s discretionary expenses.