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AVH Consultants provides advisory services around M&A transactions, restructurings, raising capital, and forensic investigations, while also offering multi-situational capabilities including business modeling, Public Private Partnerships, and infrastructure advisory and valuations.
Our advice is backed by a complete understanding of issues and challenges faced by the client and the business environment they operate in. We provide customised solutions based on a careful analysis of client needs, culture and organisational processes.
Our service offerings include:
- Corporate Finance
- M&A Transaction Services
- Valuations & Financial Modelling
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Financial Statement Analysis
Financial Statement Analysis is a method of reviewing and analyzing a company’s accounting reports (financial statements) in order to gauge its past, present or projected future performance. This process of reviewing the financial statements allows for better economic decision making.
Globally, publicly listed companies are required by law to file their financial statements with the relevant authorities. For example, publicly listed firms in America are required to submit their financial statements to the Securities and Exchange Commission (SEC). Firms are also obligated to provide their financial statements in the annual report that they share with their stakeholders. As financial statements are prepared in order to meet requirements, the second step in the process is to analyze them effectively so that future profitability and cash flows can be forecasted.
Therefore, the main purpose of financial statement analysis is to utilize information about the past performance of the company in order to predict how it will fare in the future. Another important purpose of the analysis of financial statements is to identify potential problem areas and troubleshoot those.
Meaning and definition of Balance Sheet Analysis
Balance sheet analysis can be defined as an analysis of the assets, liabilities, and equity of a company. This analysis is conducted generally at set intervals of time, like annually or quarterly. The process of balance sheet analysis is used for deriving actual figures about the revenue, assets, and liabilities of the company.
Goal of Balance Sheet Analysis
The balance sheet analysis is helpful for the investors, investment bankers, share brokers, and financial institutions, for verifying the profitability of investment for a specific company.
How to perform a Balance Sheet Analysis
It is not a difficult task to perform a Balance Sheet Analysis. The main steps include:
- The primary step involves adding up liabilities and the paid up equity share capital. The sum must tally with the sum of total assets. After the process of tallying is done, contrast the total assets with total liabilities. However, this evaluation does not include the issued shares’ amount in the liabilities. If the total assets are exceeding the total liabilities, the financial standing and performance of the company is considered to be good.
- The next step involves looking at the current assets and liabilities. Sometimes, it is considered as a good sign to have more unsecured liabilities.
- Another important step is calculating the ROA by dividing the net income by assets. Producer companies feature a high ROA unlike the real estate and leasing companies which feature a low ROA.
- The fourth step involves special concern for copyrights and patents. It is important to consider the ratio between invested amount for research and the consequent returns.
- Next step involves calculating the debt asset ratio by dividing total liabilities by total assets. A lower liability dimension reflects a better performance by the company.
- Another step includes estimating the receivables turnover ratio which signifies the relation between investment in sales and money receivable. A better financial status is reflected in high amount of money receivables.
- Another important ratio is the inventory turnover ratio which indicates the company’s capability of producing goods with available assets.
- The final step includes analyzing other features of company including goodwill, credit ratings, and current projects. This analysis is helpful in evaluating the company activities in near future.