Accounting is the language of businesses. Those who wish to value companies and invest
successfully in the long term have to be able to understand and interpret financial statements.
The primary purpose of accounting is to quantify operational processes and to present them
to stakeholders including shareholders and creditors but also suppliers, employees and the
financial community. The financial statement forms a condensed representation of these
processes. It delineates the assets and liabilities as well as performance indicators such as
turnover, profit and cash flow.
Evaluating and interpreting this data against the background of business activity is an important component of the valuation process. Developing an understanding of this ‘language of businesses’ and, at the same time, including qualitative factors in the analysis provides a solid foundation for anyone interested in valuing enterprises.
Accountancy illustrates, in one snapshot, the corporate world in the past and the present.
Company valuation joins in at this point and attempts to predict the future development and
the risks of an enterprise with the help of data obtained from the financial statement.
