13 Affirmative Results – What Investors Look for in Financial Statements
What Investors Look for in Financial Statements
There are three main documents investors or buyers want to get their hands on if they are to form an opinion on a potential business. What investors look for in financial statements are:
- Income Statement
- Balance Sheet
- Cash Flow Statement
In general these three reports should be easily accessible and readily available for investors to scrutinize when you have made your decision to sell your business.
This is almost always the first step for an investor to begin the process of getting comfortable with whether they are wasting their time or not, even if they might be considering your business as a potential candidate for acquisition. What investors look for in financial statements is good financial prudence.
To many times I have seen where sellers attempt to withold the financials of their company or don’t even have accounting software that can spit out a quick financial report, essentially placing them in a position where they have to scramble one together.
This is usually not a good sign and not what investors look for in financial statements. This implies to an investor upfront that there is a lot of work to be done if this business is to be acquired. Have a look at my post on Income Statements this might help a bit.
In many cases this turns investors or buyers away right out the gate because essentially they have nothing to look at which tells the story of the financial performance of the business. I mean, why else would a buyer or investor be interested in your company if not to manke money?
In this article I am going to list the basics of a what investors look for in financial statements and simplistically note the obvious to each line item and how it applies to a buyer’s thinking looking at it.
What Investors Look for in Financial Statements?
It looks something like this
“Also….. Another question is, do you have an accounting software solution that can help you keep track and provide reports at a moments notice?”
There are three main components that make up a full financial report and they are the:
The Income Statement deals with the performance of the company and tells you how much money you are brining in each month, how much money you are spending, and how much profit you are making. This is the go to report when a seller thinks about what investors look for in financial statements.
The Balance Sheet deals with a point in time relative to your income generating assets, your liability generating liabilities (can’t find another good way to say that and not complicate things) and your equity generating activities which for all intents and purposes of a business, you should want to be increasing.
The Cash flow Statement deals with cash. The increases and decreases in cash relative to operating activities, investing activities and Financing activities. Therefore ultimately telling you how much cash you are left with at the end of all these activities for, again, a point in time.
So, if it wasn’t obvious enough, all of these reports are based on a chosen point in time relative to when and what you want to look at in the report. Needless to say investors or buyers want to usually see reports that are broken out both monthly and yearly.
I tried to simplify this as much as I could because the illustrations I think highlights the elements of each perfectly and I know you are not trying to take an accounting exam by reading this post, but if you are, there are the links above you can explore to answer, what investors look for in financial statements.
But for sellers who aren’t accountants or financial analyst, I believe this makes sense enough for you to have the question answered, what do investors want to see in financial statements.
In Closing
What investors look for in financial statements are all three reports and to be sure you don’t limit your opportunities, you should have your accounting software in place for your business. Its just way too affordable and user friendly not to have this in place if you are to ask yourself, what investors look for in financial statements.
Yes, many companies rely on their accountant or CPA to provide them with the record keeping as they should for a growing business.
Though to simply discard the thought of putting the accounting technology in place to reduce the paperwork and tediousness of reporting is to be short of prudency, bordering on neglect.
So get this done as soon as possible if you haven’t already.
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The Data Processing and Hosting Services industry provides infrastructure used for a variety of information technology (IT)-related activities, ranging from online hosting to automated data entry services.
Over the five years to 2021, businesses have increasingly outsourced their IT infrastructure needs, directly benefiting industry operators.
The advent and popularization of cloud computing, one of the industry’s fastest-growing product offerings, has similarly led to greater demand.
As a result, the industry has fared well during the majority of the five-year period, with revenue expected to grow at an annualized rate of 5.0% to $196.5 billion.
However, the COVID-19 (coronavirus) pandemic is expected to lead to a decline in business investment in industry services, although this was tempered somewhat by increased usage of industry services in other capacities.
Industry revenue is expected to increase 1.7% in 2021, as the overall economy recovers from the economic fallout of the coronavirus pandemic.
Profit is expected to decline slightly over the five years to 2021, as growth earlier in the period is countered by declines in later years.
Beef and Pork Wholesaling
The Beef and Pork Wholesaling industry has experienced favorable conditions over the five years to 2021.
The industry, which serves as the middleman between beef and pork producers and retailers, is expected to perform well as both consumer spending and consumption of beef and pork rises.
Prices of key inputs, such as corn and diesel, have risen during the five-year period, increasing operating costs.
Although operators have dealt with recent studies linking beef and pork consumption to heart disease and shifting consumers’ tastes, the industry has shown resilience as operations have expanded.
Revenue has been on a steady growth during the five-year period.
However, the restrictions placed on the economy as a whole due to the COVID-19 (coronavirus) pandemic led to a decrease of 0.9% in 2020.
This contraction in revenue was offset by the increase in per capita disposable income as a result of enhanced employment benefits and stimulus checks.
As the economy begins to reopen in 2021 and the easing of restrictions occurs, consumer spending is expected to increase due to pent-up demand.
Consequently, research estimates industry revenue to increase at an annualized rate of 2.4% to $91.4 billion over the five years to 2021, with a 2.0% growth in 2021 alone due to the expected economic rebound.
Beer Wholesaling
Revenue growth for the Beer Wholesaling industry has been hindered by shifting alcohol consumption trends among consumers, particularly millennials.
Americans have been consuming less beer and opting for alternative alcoholic beverages.
However, the industry has continued to benefit from laws that prevent the vertical integration of breweries and retailers.
After the Prohibition era, nearly every state enacted a three-tier distribution system, requiring three distinct levels within the alcoholic beverage supply chain, including producer, distributor and retailer.
As a result, beer wholesalers have a protected role, purchasing beer from producers before storing and transporting it to downstream retailers.
Research estimates that industry revenue has grown at an annualized rate of 2.3% to $82.9 billion over the five years to 2021.
Since 2020, the COVID-19 (coronavirus) pandemic has resulted in rising demand for industry operators, with revenue projected to rise 1.0% in 2021 alone.
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