Financial Integrity
Can you trust the numbers? This domain detects earnings manipulation, accounting fraud, and financial statement anomalies. These signals determine whether the rest of the analysis has a reliable foundation. If the financials are fabricated, nothing else matters.
Beneish M-Score
What it is: A forensic accounting model that detects whether a company is likely manipulating its earnings. It combines 8 financial ratios into a single score. A score above −1.78 means the company's financial patterns look similar to companies that were later caught manipulating their books.
Why it matters for acquisitions: If a CIM target is inflating its earnings, you're paying for profitability that doesn't exist. The M-Score catches patterns like artificially inflated receivables, deteriorating asset quality, and unusual accruals — the kinds of things a sell-side document is designed to obscure.
The model: Combines 8 financial ratios — each measuring a different way earnings can be manipulated — into a single composite score. The original published coefficients are used without modification.
What it is: The most widely used bankruptcy prediction model in finance. Originally developed in 1968, the Z″ (double-prime) variant works for private companies because it doesn't require a stock price. It combines four financial ratios — working capital, retained earnings, operating income, and book value — into a single score that estimates how likely a company is to go bankrupt within two years.
Why it matters for acquisitions: If you're buying a company and it's in the "distress zone" (Z″ below 1.1), you need to know whether that distress is the opportunity (turnaround thesis) or the risk (yield thesis). The same Z-Score produces different verdicts depending on your intent.
What it is: A fraud probability model built by studying companies that were actually caught by the SEC. It uses 7 variables — including accruals, receivable changes, and cash sales changes — to estimate the likelihood that a company's financial statements contain material misstatements.
Why it matters for acquisitions: Unlike the M-Score which detects manipulation patterns, the F-Score is calibrated against actual SEC enforcement actions. It answers a more specific question: "Does this company's financial profile look like companies that were prosecuted for fraud?"
Dechow, P.M., Ge, W., Larson, C.R., & Sloan, R.G. (2011). "Predicting Material Accounting Misstatements." Contemporary Accounting Research, 28(1), 17–82.Piotroski F-Score
What it is: A 9-point score that measures whether a company's financial health is getting better or worse. Each of the 9 tests is pass/fail (1 or 0): Is ROA positive? Is cash flow positive? Is ROA improving? Is cash flow exceeding net income? Is debt decreasing? Is the current ratio improving? Are shares stable? Is the gross margin improving? Is asset turnover improving?
Why it matters for acquisitions: The F-Score captures trajectory, not just position. A company with a score of 2 (deteriorating on 7 of 9 metrics) is a fundamentally weakening business — and that weakness might not be visible in a single year's financials presented in a CIM.
What it is: Measures how much of a company's earnings come from actual cash versus accounting entries (accruals). In simple terms: is the company making real money, or is it recognizing revenue it hasn't actually collected?
Why it matters for acquisitions: High-accrual earnings tend to reverse. A company showing strong profits driven by accruals may see those profits evaporate after the acquisition closes. This is especially common in CIM targets where the seller has incentive to maximize reported earnings in the year before sale.
What it is: Detects three common revenue manipulation tactics: channel stuffing (shipping product to distributors who haven't ordered it), bill-and-hold (recognizing revenue before delivery), and round-tripping (circular transactions that inflate revenue). It uses three indicators: whether receivables are growing faster than revenue, whether DSO (days to collect payment) is spiking, and whether revenue is suspiciously concentrated at quarter-end.
Why it matters for acquisitions: These are the most common ways CIM targets inflate their topline. If receivables are growing significantly faster than revenue, someone may be booking sales that haven't actually been paid for.
Related Party Transaction Ratio
What it is: Measures how much of a company's revenue or expenses flow through entities owned by or related to the company's owners. This is extremely common in family-owned businesses in the $5–25M range — the target market for CIMCalc.
Why it matters for acquisitions: Related party transactions can mask the true economics of the business. Revenue from a related entity may disappear after acquisition. Expenses paid to related parties may be below (or above) market rate. When a significant share of revenue comes from related parties, the post-acquisition revenue base is fundamentally uncertain.
Financial Smoothing Detector
What it is: Flags suspiciously consistent financial metrics across three or more reporting periods. Real businesses have natural variation — margins fluctuate with seasons, input costs, and competitive dynamics. When margins are nearly identical year after year, the numbers were likely manufactured.
Why it matters for acquisitions: Smoothed financials conceal volatility. You think you're buying a stable business, but the real operating performance has peaks and valleys that were averaged away. This is especially common in owner-operated businesses where the seller controls the bookkeeping.
Owner Compensation Adjustment
What it is: For businesses under $25M revenue, estimates what it would cost to replace the owner/CEO with a hired professional. Many small business CIMs show strong EBITDA — but the owner is paying themselves $80K to do a job that would cost $250K on the open market. This calculator shows what EBITDA looks like after that adjustment.
Why it matters for acquisitions: If the owner compensation gap represents a significant percentage of headline EBITDA, the real profitability of the business is dramatically lower than what the CIM shows. This is one of the most common traps in sub-$25M deal screens.
Financial Health
Can this business survive and service acquisition debt? Liquidity, solvency, cash runway, and the fundamental question of whether the company can pay its bills.
Liquidity Ratios (Current & Quick)
What it is: The current ratio divides everything the company owns that can be converted to cash within a year (current assets) by everything it owes within a year (current liabilities). The quick ratio is the same thing but excludes inventory — giving you a stricter measure of how fast the company can actually pay its bills.
Why it matters for acquisitions: A current ratio below 1.0 means the company owes more in the next 12 months than it can pay. For a yield buyer adding acquisition debt on top, this is potentially fatal. Industry benchmarks from Damodaran's NYU Stern datasets provide the reference ranges.
Working Capital Cycle (DSO / DPO / CCC)
What it is: Three metrics that show how fast cash moves through the business. DSO (Days Sales Outstanding) = how long it takes to collect from customers. DPO (Days Payable Outstanding) = how long the company takes to pay suppliers. CCC (Cash Conversion Cycle) = DSO + DIO − DPO — the total number of days between paying for inputs and receiving cash from sales.
Why it matters for acquisitions: A lengthening CCC means the business needs more working capital to grow. If DSO is spiking (customers paying slower), it could indicate revenue quality issues. If DPO is shrinking (suppliers demanding faster payment), it could indicate supplier relationship deterioration.
Debt Service Coverage Ratio (DSCR)
What it is: Can the company pay its debt from its cash flow? DSCR divides free cash flow by total debt service (interest plus principal payments). A DSCR of 1.0× means every dollar of free cash flow goes to debt service — there's nothing left. Below 1.0× means the company literally cannot service its debt.
Why it matters for acquisitions: This is the single most important metric for any leveraged acquisition. If you're adding acquisition debt, the combined DSCR determines whether the business can survive under the new capital structure. CIMCalc calibrates DSCR thresholds based on lending industry standards.
Earnings Quality
Are the profits real and repeatable? These calculators measure whether reported earnings translate to actual cash, how sustainable the margins are, and whether EBITDA has been artificially inflated through addbacks.
Quality of Earnings (QoE Ratio)
What it is: The ratio of operating cash flow to net income. In a healthy business, cash flow should track or exceed net income. When net income significantly exceeds cash flow, the "earnings" exist on paper but not in the bank account.
Why it matters for acquisitions: This is the simplified version of what a $20K–$60K Quality of Earnings report investigates. When the QoE ratio is low, it means a significant portion of reported earnings aren't backed by cash — a critical warning that the CIM's profitability story may not survive close examination.
FCF Conversion
What it is: How much of EBITDA actually converts to free cash flow (cash available after capital expenditures). EBITDA is an accounting measure; FCF is what you can actually distribute, reinvest, or use to pay down acquisition debt.
Why it matters for acquisitions: A company can have strong EBITDA but terrible FCF conversion if it requires heavy capital expenditure to maintain operations. For a yield buyer, low FCF conversion means the "cash flow" you're buying mostly goes back into the business.
EBITDA Quality (Addback Ratio)
What it is: Measures how much of the reported "Adjusted EBITDA" comes from addbacks — expenses the seller removed to present a prettier picture. Common addbacks include owner compensation, one-time legal costs, and "non-recurring" restructuring charges. A high addback ratio means a large portion of the EBITDA number is adjustments, not actual operating profit.
Why it matters for acquisitions: Every CIM presents adjusted EBITDA. The question is whether the adjustments are legitimate. Owner compensation is usually defensible. "Non-recurring" expenses that recur every year are not. When the addback ratio is high, you should scrutinize every single adjustment line item.
Gross Margin Trend
What it is: The compound annual growth rate (CAGR) of gross margin over available reporting periods. Rising gross margins indicate pricing power or improving efficiency. Declining margins suggest competitive pressure, rising input costs, or product commoditization.
Why it matters for acquisitions: CIMs often present a single year's financials or highlight the best year. The trend tells you whether the business is getting better or worse at its core activity. A sustained decline in gross margin is a structural problem, not a one-time event.
Maintenance CapEx / Structural FCF
What it is: Separates total capital expenditure into maintenance CapEx (keeping the lights on) and growth CapEx (expanding the business). Structural FCF shows how much cash flow remains after covering only the maintenance requirement — the true sustainable cash generation of the business.
Why it matters for acquisitions: Some businesses require enormous ongoing capital investment just to maintain current operations. If structural FCF conversion is low, the business eats most of its own cash just to stay in place.
Leverage & Debt
How much debt is on the balance sheet, and can the business handle it? These metrics determine whether the existing capital structure leaves room for acquisition financing.
Net / Gross Leverage
What it is: Gross leverage is total debt divided by EBITDA — how many years of earnings it would take to pay off all debt. Net leverage subtracts cash on hand first. A company with $10M debt, $2M cash, and $2M EBITDA has gross leverage of 5.0× and net leverage of 4.0×.
Why it matters for acquisitions: Leverage is the single metric where intent matters most dramatically. A yield buyer sees high gross leverage as a business that can't support acquisition debt. A distressed turnaround buyer sees the same number as expected — they're buying the debt discount.
Fixed Charge Coverage Ratio (FCCR)
What it is: Like DSCR but broader — it includes lease payments, not just debt service. FCCR divides operating income by all fixed charges (interest, principal, and lease obligations). This matters more for businesses with significant real estate or equipment leases.
Asset Concentration
What it is: What percentage of total assets is concentrated in a single asset class? When a very high share of a company's value sits in one type of asset (a single property, a single piece of equipment, a single patent), the business has concentrated asset risk.
Why it matters for acquisitions: Concentrated assets create binary outcomes. If that one asset loses value, is damaged, or becomes obsolete, the entire balance sheet collapses. For a yield buyer, this is unacceptable. For a strategic IP buyer, the concentration might be exactly what you're buying.
Customer & Revenue
Will the revenue survive a change of ownership? Customer concentration, contract quality, and revenue durability — the risks that determine whether what you're buying will still be there after you close.
Customer Concentration
What it is: Three complementary measures of how dependent the business is on its largest customers. Top Customer % = revenue from the single largest customer. Top 5 % = revenue from the five largest. HHI (Herfindahl-Hirschman Index) = a concentration score used by the DOJ for antitrust analysis, applied here to the customer base.
Why it matters for acquisitions: If a large share of revenue comes from one customer, that customer effectively has veto power over your acquisition. If they leave after ownership changes (and change-of-control clauses often give them that right), you've lost a substantial part of what you paid for. For a yield buyer, customer concentration is one of the most common deal killers.
Operational Efficiency
Can the business maintain its economics under new ownership? Margin sustainability, return on capital, operating leverage, and the structural drivers of profitability.
DuPont Analysis
What it is: Developed by DuPont Corporation in the 1920s, this decomposes Return on Equity (ROE) into its component drivers. The 3-step version breaks ROE into profit margin × asset turnover × equity multiplier. The 5-step adds tax burden and interest burden. The goal: is the company earning returns through genuine profitability, efficient asset use, or just financial leverage?
Why it matters for acquisitions: Two companies can both show 20% ROE, but one earns it through strong margins and efficient asset use, while the other earns it through thin margins and extreme leverage. The DuPont decomposition tells you which. If returns are leverage-driven, that's dangerous in an acquisition that adds more leverage.
ROIC (Return on Invested Capital)
What it is: The return the business generates on all capital invested in it (both debt and equity), after taxes. ROIC strips out capital structure effects to show how efficiently the business uses its operating assets. It's the closest thing to a single number that answers "is this a good business?"
Why it matters for acquisitions: If ROIC is below the cost of capital, the business is destroying value — every dollar invested earns less than it costs. CIMCalc calibrates ROIC thresholds by intent, with tighter requirements for yield buyers and more lenient ones for distressed turnarounds.
Operating Leverage (DOL)
What it is: Measures how sensitive EBITDA is to changes in revenue. A DOL of 3.0× means a 10% drop in revenue causes a 30% drop in EBITDA. High operating leverage means the business has a lot of fixed costs — great when revenue is growing, devastating when it falls.
Why it matters for acquisitions: High DOL amplifies both upside and downside. For a yield buyer seeking stable cash flows, high operating leverage is dangerous. But if the company is growing, high DOL means margins are expanding — CIMCalc accounts for this context when evaluating operating leverage.
Sustainable Growth Rate (SGR)
What it is: The maximum rate a company can grow its revenue without raising external capital — using only retained earnings. SGR Breach measures how far above its sustainable growth rate the company is actually growing. A 50% SGR breach means the company is growing 50% faster than its internal financing can support.
Why it matters for acquisitions: Companies growing faster than their SGR need external capital to maintain that growth. For a yield buyer, significant SGR breach means the "growth" will require capital injections, reducing distributable cash flow.
Revenue per Head
What it is: Total revenue divided by full-time employees. A basic productivity measure that varies widely by industry but is useful for comparing against industry norms and flagging unusual staffing levels.
Why it matters for acquisitions: Very low revenue per head may indicate overstaffing (cost-cutting opportunity for an operational improvement buyer) or a labor-intensive business model that's hard to scale.
Growth & Unit Economics
Is the growth real, efficient, and sustainable? These metrics matter most for SaaS and recurring-revenue businesses, but apply to any company with measurable customer acquisition and retention dynamics.
LTV:CAC Ratio
What it is: The ratio of how much a customer is worth over their lifetime (LTV) to how much it costs to acquire them (CAC). A healthy LTV:CAC means each customer generates significantly more value than it cost to acquire them. When the ratio is low, the business is spending unsustainably to acquire customers.
CAC Payback Period
What it is: How many months it takes to recover the cost of acquiring a customer. Shorter is better — long payback periods mean you're investing heavily upfront before each customer becomes profitable, which strains cash flow during growth phases.
Net & Gross Revenue Retention (NRR / GRR)
What it is: GRR (Gross Revenue Retention) measures how much revenue you keep from existing customers, excluding expansion. It isolates churn and can never exceed 100%. NRR (Net Revenue Retention) includes expansion revenue from upsells and cross-sells. NRR above 100% means existing customers are spending more each year — the holy grail of SaaS businesses.
Why it matters for acquisitions: GRR tells you the baseline churn rate — how fast the bucket leaks. NRR tells you whether expansion revenue fills the leak. Low GRR means the business loses a substantial portion of its revenue base every year just from existing customer attrition, before acquiring a single new customer.
Burn Multiple
What it is: How much cash the company burns for each dollar of new recurring revenue it adds. A burn multiple of 1.5× means the company spent $1.50 to generate $1.00 of new ARR. Lower is better — efficient growth companies operate below 1.5×.
Why it matters for acquisitions: For growth-stage companies, burn multiple is a better efficiency metric than profitability. A company burning $5M/year to add $10M in new ARR (0.5× burn multiple) is building value efficiently. A company burning $5M to add $1M (5.0× burn multiple) is lighting money on fire.
Sacks, David (2020). "The Burn Multiple." Craft Ventures.Rule of 40
What it is: Revenue growth rate plus EBITDA margin should equal at least 40% for a healthy software business. A company growing at 50% with −10% margins (Rule of 40 = 40%) is valued similarly to one growing at 10% with 30% margins (also 40%). It's the standard benchmark for balancing growth against profitability.
What it is: The absolute EBITDA value of the target, used as a size gate. This isn't a ratio or trend — it's a simple question: is this deal big enough to be worth the transaction costs and management attention?
Why it matters for acquisitions: Every PE firm has a minimum EBITDA threshold — below it, the deal can't support the transaction costs and management overhead. CIMCalc makes this size gate explicit and calibrates it by acquisition intent, with tighter requirements for institutional yield deals and lower floors for turnaround opportunities.
Qualitative Risk Domains
Not everything that matters can be computed from a financial table. Additional risk domains are assessed through analysis of the narrative content in the CIM, supplemented by quantitative signals where available.
People & Organization
Key person dependency, founder involvement, team stability, organizational depth. The question: can this business operate without the current owner? For founder transitions, this is the primary risk domain.
Legal & Regulatory
Compliance gaps, license transferability, litigation exposure, regulatory cliff risk, environmental liability. For regulated industries, this domain can produce standalone KILL verdicts regardless of financial health.
Technology & IP
Technical debt, technology obsolescence, IP validity and ownership, integration complexity. For a strategic IP buyer, this is the most important domain.
Market & Competitive
Competitive moat strength, industry outlook, geographic concentration, market structure threats. Assessed through analysis of the CIM's market section, supplemented by quantitative signals where available.
Sales & Growth
Revenue quality, growth credibility, contract quality, and pricing power. This domain catches the difference between organic growth and growth manufactured through one-time contracts or unsustainable pricing.