Financial analysis

Financial Analysis

A crucial part of a business valuation is the financial analysis. Understanding how the business has performed historically and is current performing.

From the financial analysis we are creating a picture of how we expect the business to perform in the future and what assets will be required.

Financial performance analysis

A typical historical financial analysis includes analysing at least the last five years of operations. The analysis includes understanding matters such as:

  • revenue trend
  • gross profit margins
  • key overhead expenses
  • any non-operating expenses
  • any expenses with related parties and not at market rates
  • whether anowner operator takesa market salary

Current financial performance analysis includes:

  • assessing how sales are trending on a month-to-month basis
  • comparing performance to prior years
  • comparing performance to industry benchmarks
  • assessing current profit margins and expenses
  • comparing current performance with forecast and budgeted performance

Balance sheet analysis

Balance sheet analysis includes an assessment of what is required to generated operating cash in the business. Balance sheet items often analysed include:

  • past and current fixed asset and depreciation schedules
  • historical and monthly working capital requirements
  • average monthly cash requirements
  • details on deposits and prepayments
  • inventory and work in progress schedules
  • current levels of debts and related party loans
  • comparisons with industry levels of debt
  • aged receivables
  • any contingent assets and liabilities
  • any tax liabilities
  • provisions, such as long service leave and sick leave
  • any non-operating assets on the balance sheet

Simon is a CA Business Valuation specialist in Brisbane, Chartered Accountant and a Certified Fraud Examiner. Simon specialises in providing business valuation services. Prior to founding Lotus Amity, he was a Corporate Finance and Forensic Accounting partner with BDO Australia. Simon provides valuation services in disputes, for raising finance, for restructuring, transactions and for tax purposes.