Can anyone tell me how one would adjust the financial statements / valuation for a company that has significant contingent liabilities that are not reflected on the balance, but are disclosed in the notes (similar to operating leases)?

Question

anonymous · Answer

this would vary, because how contingency would mean there is some sort of obligation involved here. What are you trying to adjust here?

anonymous · Answer

The valuation would be adjusted by adding the liabilities to the debt and subtracting this from the EV to get to a warranted market cap. Typical examples are nuclear plant clean up costs for a utility, legal claims (asbestos, oil spills, medical cliams) and the old favourite...pension obligations. You could rejig the financial statements by adding these liabilities to Other Long Term Liabiliteis and reducing equity by the same amount. It might actually go negative which is why it is not in the balance sheetin the first place!