ASC 842 (Leases)

The IFRS standard that requires lessees to recognise nearly all leases on the balance sheet as a right-of-use asset and a corresponding lease liability, eliminating the previous distinction between operating and finance leases for lessees. IFRS 16 significantly impacts reported assets, liabilities, and financial ratios, and has implications for enterprise value calculations and purchase price allocations where material lease portfolios exist.

The International Financial Reporting Standard governing the accounting treatment of mergers and acquisitions. IFRS 3 requires acquirers to identify and separately recognise intangible assets at fair value as part of purchase price allocation, which often reveals significant off-balance-sheet value in areas such as customer relationships, technology, and brand.

A historical method of accounting for business combinations in which the assets and liabilities of the combining entities were carried forward at their existing book values rather than being restated to fair value. Pooling of interests was prohibited by IFRS 3 (2004) and SFAS 141 (2001, now ASC 805) in favour of the acquisition method, which requires fair value measurement of all identifiable assets and liabilities.

The ratio of earnings before interest and taxes (EBIT) to interest expense, measuring a company's ability to meet its interest obligations from operating profits. A higher ratio indicates greater financial headroom and lower default risk.

A financial metric measuring the proportion of debt in a company's capital structure relative to its earnings, equity, or assets. The most common leverage ratios in corporate finance and lending include net debt to EBITDA, debt to equity, and debt to total assets.

An initial estimate recognised in a purchase price allocation when the accounting for a business combination is incomplete at the end of the reporting period in which the acquisition occurs. Under IFRS 3 and ASC 805, the acquirer has a measurement period of up to 12 months from the acquisition date to finalise the fair values of identifiable assets, liabilities, and consideration.

The valuation of a company's existing order book or contracted but undelivered revenue at the measurement date. Backlog is recognised as a contract-based intangible asset under IFRS 3 and ASC 805 when it arises from contractual or legal rights.

The level at which goodwill is tested for impairment under US GAAP (ASC 350), defined as an operating segment or one level below an operating segment (a component). A component is a reporting unit if it constitutes a business for which discrete financial information is available and segment management regularly reviews its operating results.

Why does revenue attributable to IP matter to a lender?

Because a lender serves the loan from cash flow first and collateral only as a fallback, so IP that demonstrably earns revenue or royalties is far stronger security than a patent that generates nothing.

What is the NatWest High Growth IP Loan?

The NatWest High Growth IP Loan lends from £250k up to 50% of the IP value in an independent Inngot valuation, revalued annually, to high-growth businesses in England and Wales. NatWest launched it in January 2024.

What DSCR do lenders require for an IP-backed loan?

Lenders typically look for a debt service coverage ratio of around 1.20 to 1.25 times as a minimum. Below 1.0 means cash flow cannot cover repayments, which no lender will accept.