Over the last two years, market conditions — from cost increases and forced shutdowns to shortages of labor and supplies — have taken their toll on many businesses. While owners of distressed businesses may hope to turn things around, some will unfortunately shutter. Valuation is a prophecy of the future, not the past. So valuing a financially troubled company requires special treatment. Diagnosing the situation Valuing a distressed business is similar in many ways to valuing a healthy one: The valuation professional evaluates financial information and examines the business and its industry to assess the company’s ability to generate earnings. But troubled companies don’t behave in quite the same way as healthy companies, so valuators must approach them a little differently. One of a valuator’s biggest challenges in...