Business valuation

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Querist : Anonymous

Querist : Anonymous (Querist)

14 May 2015 How to decide whether to buy a business is worth or not from last 4-5 yrs financial statements?

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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14 May 2015 Several areas of the business's balance sheet that should be thoroughly looked over when evaluating a company:

1.Accounts Receivable—can provide information to buyers on diversification of customer accounts (or lack thereof), accounts that are overdue or in dispute, accounts that have been pledged as collateral, and the company's credit policies.

2.Accounts Payable—as with Accounts Receivable, can provide information on diversification and status of accounts; can also help buyers identify undisclosed or contingent liabilities.

3.Inventory—can provide buyers with information on the size, age, and condition of the inventory, the method of inventory valuation, the process by which damaged inventory is valued, and other data on current owner inventory methods.

4. Machinery/Equipment—schedules of machinery and equipment owned or leased by the company can provide potential buyers with information on 1) condition, age, and maintenance needs of equipment and machinery; and 2) those items that are used to adhere to local, state, or federal regulatory requirements, and whether existing machinery is sufficient to meet those requirements.

5. Accrued Liabilities—schedules of accrued liabilities inform buyers about the business's accounting mechanisms for unpaid wages, accrued vacation pay and sick leave, payroll taxes due and payable, and accrued federal taxes, among other accruals.

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