What distinguishes a recapitalization from a leveraged buyout (LBO)?

A recapitalization is primarily focused on restructuring a company's capital structure, often involving changes in the proportions of debt and equity, and it can lead to financial stability or facilitate growth opportunities. The key aspect of recapitalization is the emphasis on reorganizing the existing financial framework without necessarily changing the ownership structure or control of the assets.

In contrast, a leveraged buyout (LBO) involves acquiring a company and using a significant amount of borrowed funds (leverage) to finance the purchase. The goal of an LBO is typically to gain control of the company, and it often results in the transfer of ownership. During an LBO, goodwill (the premium paid for a company above its tangible assets) is often recognized on the balance sheet due to the high price paid for controlling interest.

The correct answer highlights that LBOs frequently involve recognizing goodwill, reflecting the premium paid for ownership and control, while recapitalizations do not inherently focus on changes in ownership or recognition of goodwill. The distinction here is significant in understanding the purpose and implications of each financial strategy.