Financial and normalization methodology

How Accord computes M&A mechanics

Accord is an engine-first, institutional transaction analysis platform designed specifically for the Indian corporate finance market. It operates with zero financial logic outside its deterministic computation graph.

1. Core computational invariants

Deterministic evaluation: all financial arithmetic is performed using arbitrary-precision Decimal numbers. Float approximations are strictly prohibited.
Redundant provenance: every number carries an immutable provenance state indicating whether it was filed, normalized, forecast, user-assumed, or user-supplied. Colour is never the sole visual carrier.
Every number clickable: every cell links directly to its lineage tree, displaying mathematical expressions and allowing in-place assumption updates.
Strict balance integrity: both standalone balance sheets and pro forma combined statements must balance to within ₹0.01 cr (BS_TOTAL_ASSETS == BS_TOTAL_LIAB_EQUITY). Any failure produces a hard ERROR diagnostic that disables external exports.

2. The three-layer value model

REPORTED → HOUSE NORMALIZATION → DEAL OVERRIDE

Layer	Owner	Mutability	Scope
Reported	Company regulatory filings	Immutable once ingested	Global across all deals
House normalization	Accord research curation	Versioned dataset releases	Global, identical for all users
Deal override	Individual user / analyst	Freely editable per scenario	Single deal version only

3. Normalization adjustment taxonomy (Closed enum)

Normalization answers one question: what would this company have earned in a typical year? Accord categorizes items into active adjustments and review flags. No adjustment is ever applied automatically without an explicit human rationale and filing source reference.

Active Normalization Types

EXCEPTIONAL_ITEM: Disclosed exceptional line items (e.g. voluntary retirement schemes, one-time gains/losses).
RESTRUCTURING: Genuine one-off corporate reorganizations. Serial restructurers are not removed.
IMPAIRMENT_WRITE_OFF: Goodwill or asset impairments; removed from EBIT/PBT, never from the balance sheet.
LITIGATION_SETTLEMENT: Isolated arbitration awards and legal settlements.
DISCONTINUED_OPERATIONS: Stripped from continuing-operations EBITDA and forecasting baselines.
NON_RECURRING_TAX_ITEM: Remeasurement of deferred tax or one-time statutory tax adjustments.
OTHER_INCOME_RECLASS: Non-operating treasury returns reclassified out of operating EBITDA into non-operating income.
ASSOCIATE_JV_SHARE: Share of profit from equity-method investees handled consistently with the EV bridge.

Review & Scrutiny Flags (Never adjusted automatically)

RELATED_PARTY_PROMOTER: Flagged for scrutiny, not adjusted by default as many transactions are ordinary-course.
FX_GAIN_LOSS: Recurring economic exposure for exporters; flagged rather than stripped.
ESOP_COST: Real economic employee compensation; removing it inflates underlying margins. Default is strictly do not adjust.
GOVERNMENT_INCENTIVE: Structural multi-year incentives (PLI, RoDTEP) require human judgment.

4. Enterprise value bridge conventions (Ind-AS aligned)

Bridge Component	Default Treatment	Institutional Rationale
Gross debt	Include in full	Short-term borrowings + long-term debt.
Lease liabilities (Ind AS 116)	Included in Net Debt	Ind AS 116 brings leases on-balance sheet and eliminates rental expense from EBITDA. Excluding leases while benefiting from higher EBITDA overstates EV.
Cash & cash equivalents	Deduct in full	Net of restricted cash where disclosed.
Current treasury investments	Deduct at book value	Highly liquid mutual funds and government securities.
Investments in associates/JVs	Deduct at book value	Flagged when exceeding 5% of Enterprise Value.
Non-controlling interest	Add at book value	Consistent with consolidated EBITDA presentation.

5. Circularity solver mechanics

In an M&A financial model, pro forma interest expense depends on average debt balances, which depend on cash generation, which depends on net income, which depends on interest expense. Accord supports two solver modes:

Mode A (Beginning of period): Interest is computed on opening debt and cash balances. Breaks circularity cleanly; default for fast sensitivity scans.
Mode B (Iterative circular solver): Solves the simultaneous feedback loop by damped fixed-point iteration (damping 0.5) until the maximum relative change falls below 10^-6. If non-convergence occurs within 200 iterations, an explicit diagnostic is emitted rather than hanging or diverging.

6. Pro forma EPS accretion and breakeven mechanics

Pro forma EPS is calculated by dividing consolidated pro forma PAT by pro forma diluted shares outstanding at transaction close:

Pro forma EPS = [Acquirer PAT + Target PAT + Net Phased Synergies − Incremental Interest − Intangible Amortization] ÷ Pro Forma Diluted Shares

Accretion is defined as (ProFormaEPS − AcquirerStandaloneEPS) ÷ AcquirerStandaloneEPS. Goodwill is never amortized per Ind AS 103/36; intangible amortization is treated as non-deductible for tax purposes.

7. Known simplifications & model limitations (Verbatim 03 §7)

Per Accord standard IC memo specifications, every rendered transaction memo includes the following limitations verbatim:

DTL measured at statutory corporate tax rate only; no entity-specific or jurisdiction-specific rate modelling.
Goodwill not impaired in the forecast.
No tax loss carryforward utilisation.
Single blended tax rate; no entity-level or state-level tax modelling.
Deal close assumed at the start of forecast year 1; no stub-period accounting.
Intangible amortization treated as non-deductible (DTL unwind provides the offsetting tax credit).
Option cash-out at intrinsic value only.
Associates/JVs deducted at book value in the EV bridge, not fair value.
No transaction-related restructuring provisions beyond the modelled integration cost.
Single currency (INR); no FX exposure modelled.