When portfolio company reports disagree on a figure

Why portfolio company reports disagree on the same figure

Two reports that disagree on one figure differ in definition, date, unit, version, or status, and each cause leaves a trace you can check in the documents.

• Definition. The same label covers different calculations. EBITDA in a board pack is management's measure, while EBITDA in a lender compliance report follows the definition in the credit agreement, with its own add-backs.
• Date. The periods differ: one report covers the quarter and the other the last 12 months, or one closed its books before late adjustments posted.
• Unit. One report states thousands and the other millions, or the two convert currency at different rate dates.
• Version. A corrected report replaced an earlier one, and the earlier copy is still in an inbox or a data room folder.
• Status. A draft, a management figure, and an audited figure for the same period are three different things. Audited accounts arrive later and restate the management figures.

The Invest Europe Investor Reporting Guidelines (2024) ask fund managers to reconcile audited accounts to reported figures and pro-forma figures to reported ones. The guidelines leave the rule for which figure wins to each firm, so that rule is yours to write.

1. Record both figures with their source, page, and period

Record each figure with six attributes: the document name, its version or issue date, the page, the period covered, the unit, and the exact label the document uses. A row reads like this: Board pack, version 2, issued 28 October, page 6, Q3, EUR millions, EBITDA, 4.1.

The common mistake is to copy the number and drop the label, which is where definition differences show up. Then two different metrics look like one metric with a typo.

2. Find the cause before choosing a figure

Check the five causes from the cheapest to the most expensive. Units, periods, and status take a glance at the cover and the column headers. Versions take a search of the folder and the email thread, and definitions take a bridge.

A bridge walks from one figure to the other line by line, with a source for every line, and the conflict is explained once the bridge closes. Any residual becomes a separate open item with its own owner.

3. Confirm which report is current

To tell a current management report from a superseded one, check four markers in this order:

1. The version number or issue date on the cover page and in the file properties.
2. A correction or restatement note inside a later document for the same period.
3. Board minutes or an email from the company's finance team that refer to a revised pack.
4. The upload date in the data room, which is weak evidence on its own because files get re-uploaded.

Mark the earlier version superseded and keep it for the record. A clear marker looks like the one in the Invest Europe guidelines, which state that the 2024 edition replaces all earlier versions. Ask each portfolio company to put a version number and an issue date on the cover of every management report.

4. Apply a written source priority rule

Decide in advance which document governs which figure, and write that down as your source priority rules. Name one owner for the rules, such as the head of portfolio operations. Have the deal partners and the fund's finance lead agree on them before the review cycle starts, because rules agreed in the middle of a conflict get bent toward the figure someone prefers.

Rules to start from:

• Audited accounts govern the period they cover once issued, and management accounts govern that period until then.
• Of two versions of the same report for the same period, the one with the later issue date governs.
• Each metric has one definition per review. A figure calculated under a different definition appears as a separate metric with its own label.
• The lender compliance report governs covenant figures, and the board pack governs management performance figures.
• A figure with no traceable source page stays out of the approved view and goes on the list of gaps.

When a definition changes between periods, see changed KPI definitions and missing facts.

5. Show both figures until a person decides

When the rules leave a conflict open, the review shows both figures with their sources, the cause found so far, and the name of the person who decides. Until then, keep out any figure that combines the two. No document states that figure, and in the review it looks exactly like an approved one.

A review line for an open conflict carries:

To assemble the rest of the review pack from scattered reports, see preparing a portfolio performance review.

6. Record the decision so the next review starts from it

Write down the figure chosen, the figure set aside, the rule or reason, the person who decided, the date, and whether the decision becomes a standing rule. Standing rules go into your written rule set from step 4, so the next cycle applies them before anyone opens the documents.

For sign-off and carrying corrections forward, see who signs off a portfolio figure.

A worked example: board pack and lender report disagree on EBITDA

Take Halden Packaging, a made-up portfolio company where every figure below is invented. Three documents reach the review for their third quarter:

• Board pack, version 1, issued 14 October: Q3 EBITDA of EUR 4.2m, page 6.
• Lender compliance certificate, issued 21 October: Q3 Consolidated EBITDA of EUR 4.9m, page 2.
• Board pack, version 2, issued 28 October: Q3 EBITDA of EUR 4.1m, page 6, after a EUR 0.1m inventory write-down explained on page 11.

The analyst records all three with their attributes. Version 2 replaces version 1 for the same period, so the version rule makes EUR 4.1m the reported EBITDA. The lender figure carries a different label, so the definition rule keeps it as a separate metric.

The bridge starts from version 1's EUR 4.2m and closes at the certificate's EUR 4.9m with two add-backs. A schedule on page 3 of the certificate supports the EUR 0.5m for restructuring costs, while the EUR 0.2m for run-rate cost savings sits on the same page with no supporting schedule. The certificate was also built on the now superseded version 1.

Each item lands in one of four outcomes:

The EUR 4.8m that the arithmetic suggests for a rebased certificate stays out of the review, because no document states it.

On 3 November the deal partner decides to ask Halden for a restated certificate, and the analyst records the decision, the date, and the reason. The head of portfolio operations adds a standing rule: a lender certificate is checked against the current board pack before its figures enter the review.

How to tell the process is working

When it works, every figure in the review opens to a page in a document. Open conflicts sit in one list with an owner and a due date for each. A conflict decided in one quarter comes back the next only when the documents change. Your written rule set grows each cycle, and as it does, fewer conflicts reach a person.

Where Saphenia fits

Saphenia builds the decision logic for an agent that prepares portfolio company reviews. Saphenia reads the reports from your systems of record and keeps each fact with its source in a record your firm owns. Your source priority rules and definitions become rules the agent applies to every figure. Every claim in the agent's output is checked before the answer goes out.

Each figure in the agent's output lands in one of the four outcomes shown in the worked example, with proof that carries the facts, the rule, its version, and the date. Because every fact carries the period in which it was valid, a past review can be reconstructed on the basis that held at the time.

Where your source priority rules rank the sources, the rule picks the figure. If the rules leave a conflict open, Saphenia holds both figures with their dates attached and reports the contradiction in the review. Every correction an expert approves becomes a rule that every later review follows. For more on the approach, see what Saphenia does, and to test it on your own documents, see how to evaluate a pilot.