Seldom do businessmen deviate from the existing line of activity. It’s more of a management philosophy and guiding principle. Managements that invest heavily in assets like mining and manufacturing are likely to feel extreme discomfort while investing in models with virtual capital like software and manpower where the assets cannot be physically measured. Similarly, managements that can visualize the potential of human capital are likely to abstain from the heavy investment needed in physical assets. And then there are so many other possibilities – as wide as the human mind can imagine.
So investors looking at horizontal integration – for example, acquiring business models similar to their own at their own level of working in different geographical markets – and those planning vertical expansion – acquiring a business that involves either forward integration or backward integration, expanding either on the supply chain or becoming a customer of an existing product line – have existing expertise in analyzing the operational aspects of the business that they wish to acquire.
However, they need independent professional expertise to identify the legal and financial status of the documents presented to them. Verico Auditing provides this crucial service to investors.
A thorough analysis is carried out of the financial past performance of the business to be acquired, the existence and realisability and liability of its assets and liabilities respectively, the legal title to its resources and a majority of the matters that are listed on its records and the same is presented in the manner of a due diligence report.
The report is subject to the oversight of not being able to reveal cleverly concealed frauds or misrepresentations by the management, yet, serve as an essential factor for most business decisions that fall in this category of transition.
Several critical decisions revolve around the existence of risk. Risk of default, realisability, fluctuation of interest rate or currency rates – called exchange risk – fidelity, political situation, exposure to concentration of business with a few entities or receivable from a few customers, limitation of flexibility on account of low adaptability of the assets, excessive exposure to obsolescence and several other factors affect business.
It requires expertise, knowledge of theories and studies established that could be relied on and experience to adequately analyze the risk faced by business entities.
Though limited by the occurrence of an incidence, this judgment is relied upon in most decision making that requires a critical risk analysis.