Financial statements

Financial statements are the formal accounting documents presenting a company's financial position (balance sheet), performance (income statement), cash generation (cash flow statement) and equity changes. Under IFRS, they also include the notes to the accounts. In financial due diligence, analysing 3 to 5 years of historical financial statements is the starting point for any earnings quality assessment. Their reliability depends on the level of external verification: full audit vs. review vs. compilation vs. no external control. In Switzerland, the level of statutory audit (ordinary control vs. restricted review vs. waiver) directly signals the financial statement reliability.

‍

Example: due diligence on a Franco-Swiss group reveals an unexplained CHF 3.2 million increase in intangible assets between years N-2 and N-1 in the consolidated IFRS accounts — not explained by an acquisition. Investigation confirms inappropriate capitalisation of internal development costs that artificially inflated assets and reduced reported expenses, requiring a CHF 2.7 million restatement that reduces normalised EBITDA and directly impacts the valuation.

‍

Hectelion critically analyses financial statements across multiple periods as the foundation of every due diligence and valuation engagement.