It is necessary that you conduct an examination of a enterprise before making any investment decisions encompassing commercial, financial, accounting, legal and tax matters. These help to Validate financial information, understand historic business divers and sustainability aspects, key pricing and valuation issues and recommend matters for the negotiation process.
Key issues that need to be carefully examined under the financial department are,
- Revenue and margins – Understand the growth drivers of revenues and margins by brand, format. Franchisee agreements are fairly prevalent in the case of single-brand retailing and not so common for hypermarkets and supermarkets. Contribution to the revenues and margins of each model are important to understand.
- Leveraged position – The company maybe raising funds to de-leverage. Make sure you microscopically observe the debt and payment schedule ahead of it.
- Merchandizing and procurement – this ensures store stocks the right quantity, at the right time and at the right price for the customer.
- Mark-downs and discounts – These include end-of-season sales, volume and bulk discounts, customer loyalty discounts and promotional discounts.
- Store and corporate overheads – Store overheads are mostly fixed and primarily comprise rental, staff and electricity costs.
- Inventory management – Understand the company’s inventory management systems, controls, inventory valuation policy, provisioning policies (viz. mark-downs, shrinkages, etc) the frequency of physical verification and existing system for dealing with deviations.
- Store rollouts and financing – Ramping up and financing of stores through lease deposits in a historical context.
These measures help in early warning of issues so they can be set right Provides greater control over the disposal process and flow of information and finally Speeds up the sale process as prospective investors are better prepared.