Question 12.C-R-Q.2: It was mentioned in the chapter that, in the context of a pl...
It was mentioned in the chapter that, in the context of a planned takeover, the financial health of the target business is an important aspect of a due diligence investigation. Identify nine areas that might be investigated when dealing with this aspect.
Aspects of financial health that may be investigated include the following:
■ profit margins and any changes occurring over time
■ profit forecasts and the assumptions underpinning them
■ level of financial gearing and the debt capacity of the target business
■ level of working capital and forecast future requirements
■ unusual accounting practices such as those relating to revenue recognition, depreciation and inventories valuation
■ settlement periods for trade receivables and payables
■ adequacy of financial resources to meet planned operations
■ issues raised in the auditors’ reports
■ capital expenditure plans and existing commitments.