Financial Analysis

Paper ltd Rock ltd Scissor ltd

Introduction

Due diligence is performed by the buyer in order to evaluate the benefits and liabilities of the suggested acquisition. This is achieved through the investigation of the relevant feature of the targeted company so that risk and opportunity can be highlighted. Financial environment and legal liabilities are the main areas which are evaluated for the full acquisition. Lesser acquisition is based on the purchase of the certain assets or shares. This discussion will focus on the acquisition type analysis such as Paper ltd Rock ltd Scissor ltd which ended up in to Paper Limited Group, where Rock acquired Scissor and Paper acquired Rock.

Discussion

Due diligence execution for potential acquisition is nothing but a kind of financial analysis. It not due to the analysis which I it-self is different simply due to the logistics situation. While analyzing the targeted company, the key areas given more consideration are Market, culture, Personnel, Intellectual property, Brand, Risk management, Capacity, Assets and liabilities, Equity, Profitability, Cash flow, Customers, Product and production process, Information technology and Legal issues (Wood & Hellings, 1970).

Acquisition analysis for Rock/Scissor and Paper/Rock acquisitions

Rock/Scissor

Income Statements

Rock Ltd

Scissor Ltd

Consolidation

Sales revenue

180,000

112,000

292,000

Other revenue

16,000

23,000

39,000

 

 

 

 

Other income

14,000

20,000

34,000

 

210,000

155,000

365,000

Cost of sales

102,000

85,000

187,000

Other expenses

70,000

45,000

115,000

 

172,000

130,000

302,000

Profit before tax

38,000

25,000

63,000

Tax expense

16,000

11,200

27,200

Profit for the period

22,000

13,800

35,800

Retained earnings at start

147,000

13,500

160,500

 

169,000

27,300

196,300

Dividend paid

7,500

5,000

12,500

Dividend declared

10,000

7,500

17,500

Transfer to general reserve

3,000

2,000

5,000

 

 

 

 

Retained earnings at end

148,500

12,800

161,300

 

 

Balance Sheet

Credits

 

 

Share capital

390,000

150,000

540,000

General reserve

65,000

15,000

80,000

Retained Earnings(as above)

148,500

12,800

161,300

10%Debentures

 

100,000

100,000

Dividend payable

10,000

7,500

17,500

Employee Provisions

15,000

68,500

83,500

Deferred Tax Liability

23,400

30,750

54,150

Current Tax Liability

14,000

9,500

23,500

Advance from Scissor Ltd

 

 

 

Loans

140,600

 

140,600

Other non-current liabilities

16,000

2,000

18,000

 

219,000

218,250

437,250

 

822,500

396,050

1,218,550

Debits

 

 

 

Shares in Rock Ltd

 

 

 

Shares in Scissor Ltd

250,000

 

250,000

10% Debentures in Scissor Ltd

 

 

 

Inventory

19,600

19,200

38,800

Receivables

43,600

25,400

69,000

Allowance for Doubtful Debts

-2,500

-1,200

-3,700

Advance to Paper Ltd

 

6,000

6,000

Deferred tax assets

5,250

20,910

26,160

Plant

153,000

150,000

303,000

Accumulated depreciation-plant

-40,000

-27,500

-67,500

Furniture

60,000

100,000

160,000

Accumulated depreciation

-20,000

-30,000

-50,000

Other Assets

353,550

133,240

486,790

 

822,500

396,050

1,218,550

The consolidation of the Rock Ltd and Scissor Ltd will increase the value of the Rock Ltd. The acquisition has indeed shifted the income and margin. Another point is to ensure the control of operating costs (including overheads excluding staff costs), which has been control; through acquisition with the Scissor and has been proved with the financial figures. In some cases adaptation decisions will be implemented. However, in the acquisition it is necessary to ensure that this type of cost reduction does not undermine the business model of the company (Pizzey, 2001).

This is due to the cause's slippage that must be analyzed simply by the budget to the extent that it is a more detailed business plan. It is necessary to understand the climax that can leads to the deterioration of profitability. Hence, the consolidation of these two companies has increase the overall profit of the company along with the worth. As Scissor has patent which was not include in the balance sheet, hence Rock Ltd has valued this patent with at $6,000 along with Life of 6 years (Debarshi B., 2011).

Another element that one less easy to spot, is the integration of teams and sharing corporate culture in particular, in the case of acquisition of companies with a strong team structure. Combinations of "business units" are examples. Hence, Rock and Scissor has similar business culture, it is possible that employee will not find it difficult to adjust in the culture of Rock ...