Due Diligence and Valuation Process Checklist
Due diligence and Valuation of a company is part of an examination which provides reasonable investigation on important matters and qualifies the financial value of a business. It helps to have a holistic approach when determining the metrics that are being utilized in understanding business and financial components in important transactions like Mergers and Acquisitions. When a purchasing company uses data to make decisions on the potential investment risk, the true value of the business needs to be thoroughly underwritten. A proper decision is difficult to be made without uncertainty if there isn’t thorough due diligence and confidence in the valuation which are essential to determine whether the business price is suitable.
What Can Lions Financial Do for You?
During the due diligence and valuation process, Lions Financial helps clients create the comprehensive plan and business valuation based on the unique characteristic of the company.
Lions Financial can provide you a holistic solution to create value during the Investment Underwriting period. We implement a four-step SIRE process to help our clients achieve business success:
- Survey: We will begin process with a questionnaire to have a general understanding of your business and identify the unique composition of key factors for the transaction. We clarify your business objectives and gain understanding of the unique current issues that need to be addressed.
- Insight: To have a deep insight of your specific business, we will incorporate industry research, determine product offerings available from many sources, create an assessment for reasonable factors to take into consideration for specific business evaluation.
- Recommendation: Then, we will come up with solutions for Due Diligence that is tailored to the Risks associated for your company completing upcoming transaction. We also will provide different formal formats of accepted business valuation metrics
- Execution: We will implement the strategy with your company during Due Diligence regarding elements that need to be corrected executed on based on Risk factors and business expectations. We help complete business valuation assessments and achieve a better result with our professional experience, integration of technology, understanding of your industry, and staying attuned to the compliance and regulatory requirements.
The Key Items to Know in Due Diligence and Valuation Process
Determining the net worth of a company is one of the most important factors to take care of when selling or purchasing a company. It is possible to get an accurate estimate of what one’s company may be worth, or aid in the evaluation stage of purchasing a company, if the following methods are applied:
- Asset Valuation
Asset Valuation is the summing up of the company’s tangible and intangible items. It is wise to use the book market value of these items to determine their worth; though accounting for possible depreciation due to usage is also a factor. Things such as equipment, inventory, real estate, stocks, patents, and trademarks should all be considered in this valuation.
- Historical Earnings Valuation
The business’s gross income, along with its ability to repay debt and capitalization of cash flow or earnings determines its current value. Should the company fail to bring in new or repeat business, the value of the company will drop when it is low enough that the company is unable to make payments on its bills.
- Relative Valuation
With this method, you would take a look at the business within the same sector, in the same range of net worth, and see how much they are selling for. While this may be inaccurate due to possible issues found during the discovery process of a purchaser, it gives a somewhat ballpark figure to base your personal estimate off of, which is used as more of a guideline rather than an actual estimate. This method is unlike the others and is meant to be used in conjunction with other valuation tactics.
- Future Maintainable Valuation
Future maintainable is the idea that the profitability of the business in the future will determine its value in the current day. This method is used mainly when profits are expected to remain stable, but if a company fluctuates heavily, then it may not be the best decision to use this. To calculate this, evaluate sales, expenses, profits and gross profits from the past three years to create a forward projection using averages and conduct a standard trend analysis.
- Discount Cash flow valuation
When profits are not projected to remain stable for the foreseeable future, it is prudent to use the discount cash flow valuation method. This takes your business’s future net cash flows and discounts them back to present day values. Using these figures, you can find the future net worth of the business, along with how much money your current/future assets will attain in the future.
A Due Diligence and Valuation period:
- 1-page Due Diligence and Valuation Report
- 10- to 12-paragraph Market Data topline. Example:
Description of EBITDA & NPAT, current and full processing capacity, power security contracts, production & development
- 2-page Company Presentation
- 4- to 6-paragraph Executive Summary expansion of Summary,
- 4- to 6-paragraph Portfolio Premiums. Example:
- Exploration success
- Current reserves with table showing Comparison Summary
- Graph showing Analysis of Reserve and Resource Replacement Ratios
- Experience and qualifications of team members -CEO, CFO, COO
- Profitability Profile
- Exploration potential in other assets
- 2-paragraph Portfolio Risks
- Commodity price risk and exchange rate risk
- Single largest risk
- 2-paragraph Corporate Strategy.
- News summary last 3 to 4 years
- One Page Listing Information
- 1-paragraph on prior mergers & acquisitions, with dates
- Management and Governance table
- Assets & Projects, and Cash Flows
- Technologies & Markets
- Valuation, Revenue Estimations and Analyst Certifications
Contact Lions Financial to find a better strategy and holistic valuation for your business. Lions Financial helps Financial Institutions and Businesses, together with their tax and legal advisors, during Due Diligence and Valuation period to make the optimal financial decisions for success. Contact us for an initial consultation to help determine how our team can help with your current business need.