The need to obtain a report of a professional appraiser arises as necessary, and, as a rule, such a need is connected with the execution of the law, with the fulfillment of the official requirement to submit an independent appraisal report. An independent desire to receive a report of an independent appraiser on the value of a company’s property usually arises when it is necessary to substantiate the value of a property, and the report of an independent appraiser is a generally accepted justification for the value of property. At the same time, often the need to determine the value of a company’s property is not connected with the necessity to apply for an independent appraisal.
In those cases when it is necessary to estimate the value of a company’s property and there is no need to receive a report from an independent appraiser, it is possible to carry out such an assessment independently. Such cases may occur when making decisions:
- On granting the client a deferment of payment (commodity loan);
- On issuance of borrowed funds to the borrower;
- On the purchase of bonds of any company;
- Business reorganization;
- On property disputes between owners;
- On financial investments (investments) in the authorized capital of any company (for example, by acquiring a stake in an LLC or acquiring shares of a joint-stock company);
- On buying / selling a business.
The ability of a manager to quickly orient himself in the company’s reporting, to see its weaknesses makes it possible to quickly determine the real value of a company’s property. In order, without resorting to complicated calculations, to understand the actual value of a company’s property, it is necessary to take several very important steps:
To analyze the composition of the property reflected in the asset balance;
- Examine the amount of debt obligations;
- Analyze cash receipts;
- Examine the financial result of the company.
Understanding the property is especially important in the current economic situation. The balance sheets of a company may reflect property (including property rights), which actually has a different, lower value, or practically nonexistent. Among the “unrealistic” assets there may be financial investments reflected in the balance sheet at actual value, but which can no longer be sold at least for the same value, not to mention earning income: for example, investments in authorized capital that do not pay dividends; investments in securities, the value of which falls; accounts receivable, unreal for collection; depreciated reserves; pledged property; intangible assets that do not bring economic returns.
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The importance of studying debt is based on their repayment. If the debt is not repaid on time, the lender will demand a return. Difficulties in the financial flow and the delay in debt payments can cause paralysis in the company’s activities, since in the absence of cash funds, creditors will take actions to enforce collection at the expense of property. Under close influence should be short-term obligations (current debts). If the volume of current debts exceeds the volume of liquid assets (cash and cash equivalents), then problems with creditors will not keep you waiting. After the transfer of property of the company to creditors, it may be unrealistic to restore activity.
This is what enterprises are created for. If a company works stably, its cash receipts do not decrease (they may decrease if there is a seasonality pattern in the company’s activity). Analysis of cash receipts it is advisable to carry out the inextricably linked the dynamics of revenue from the income statement and receipts from the cash flow statement. Positive cash flow does not always indicate the financial stability of the company. The outflow of money can be financed not by proceeds from current activities, but by receiving loans (credits).
The stability of the company is expressed in its financial result – in net profit. It is clear that the higher the company’s net profit, the better. Nevertheless, the sharp fluctuations in net profit, even in the direction of increasing, should be treated with extreme caution and to understand what they are connected with. The sharp increasing fluctuations in net profit can be explained by the sale of property and the winding down of activities; with the implementation of non-company transactions, not related to its current activities. Carrying out the analysis in the designated areas, it is already possible to come to an understanding of the assessment of the financial status of the company and without the services of professional appraisers and without complicated calculations using the method of financial analysis.
These areas of analysis allow us to quickly and correctly assess the assets of the company and make management decisions in a timely manner without delay.