Financial statements and relevant information for private equity funds
Roberto M. Cagnazzo
by Roberto M. Cagnazzo
The landscape of companies of interest to private equity (PE) funds has changed significantly in recent years. Investors are now more open to considering smaller-scale transactions (target companies with production values below EUR 25 million).
This shift creates opportunities for companies that, though often limited in revenue volume, demonstrate strong potential in profitability, growth, new market entry, and product development capabilities.
In this new scenario, it is crucial for investors to access reliable information for an accurate assessment of company performance, supported by regular updates. Financial statements and their informational content have grown in importance for those entering the world of PE, as they ensure financial data is presented clearly and transparently, with a high level of detail, accuracy, and reliability.
To attract a PE fund, a company must ensure that its financial statements reflect its economic, financial, and asset position accurately, providing a clear, comprehensive picture. Only through precise, detailed financial reporting can a company build investor trust and secure essential funding for growth and development.
The quality of financial statements is a core factor in attracting PE interest, and relies on several key elements:
Transparency and accuracy:
Financial statements and prospective data must be prepared with precision, following accounting and tax regulations as well as leading national and international practices.
Completeness of information:
Quality financial statements should provide all relevant information, allowing investors to perform a thorough assessment of profitability, assets, and financial stability. This information should incorporate not only historical financial data but also future projections based on realistic scenarios.
Valuation of balance sheet items:
Normalising historical financial data, especially in preparing forward-looking data, is delicate. Any overestimation of assets or underestimation of liabilities can compromise the credibility of the entire financial disclosure.
Cash flow analysis:
Operating cash flows are essential for PE analysis, as they reflect a company’s ability to generate cash flows that can remunerate invested capital. Technical expertise is essential for preparing an accurate cash flow statement.
Performance indicators:
Selecting and correctly using Key Performance Indicators (KPIs) aligned with financial information is crucial for providing investors with standardised data to evaluate the target company's performance, profitability, and financial stability.
Disclosure of extraordinary operations:
Any extraordinary transactions intended as part of a growth strategy should be clearly described in prospective data communications. Although these are high risk and uncertain, they often serve as essential pathways for attractive growth dynamics to PE funds.
In conclusion, to attract PE and other risk capital investors, companies must present financial statements that meet regulatory and best practice standards, and offer a clear, detailed view of the company’s financial performance and future potential.
GGI member firmThree & PartnersTurin, ItalyT: +39 011 591 867
Accounting, Tax, Law Firm Services, Corporate Finance
Roberto M. Cagnazzo, Founding Partner, is a chartered accountant and statutory auditor with considerable experience in domestic and international taxation acquired as Head of Tax in some of Italy’s leading multinational groups, and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin.Contact Roberto.
Three & Partners is a boutique firm based in Turin and deep-rooted in the north-west of Italy, with a clear European identity and a strong international vocation. The firm provides integrated tax, corporate, legal, and business advice, and assistance all over Italy on a wide range of domestic, European, and international matters.
