Conducting a valuation (e.g. of an asset, investment or security) without financial data would be like riding a bicycle without wheels, much less a saddle or a frame.
Accurate financial data is necessary to calculate intrinsic value, allowing companies (and individuals) to make informed decisions. Various ways of calculating valuation hinge on the accessibility of financial statement data. Consider the following:
If you’re valuing an asset, you might calculate the net asset value by reviewing the company’s balance sheet to separate your tangible from intangible assets. Then, subtract the value of the intangible assets from the total assets. Next, deduct your total liabilities from the remaining amount. The final figure is your company’s net asset value.
Accessible data can be retrieved, understood, shared and used within an organisation. Fulfilling these functions should not require technical skills or expertise.
The problem is that the financial statement data is not always accessible for valuation, meaning:
The result? Inaccurate forecasts, inflated costs and potential compliance issues (e.g., breach of data, privacy issues, etc.) stemming from poor data management practices, such as failing to (properly) structure data or upload it in a shareable format.
As a tech company, we’ll share some of the tried and true techniques we’ve worked on with our financial clients to make financial data more accessible during critical procedures. For example, we helped UK-based firm DF Capital Bank reduce invoice processing time by 95%, allowing them to access key invoice data in seconds, not minutes. In particular, we’ll share three strategies (improving data structure, leveraging the cloud and taking a security-conscious approach) that can reduce Time to Data (TTD).
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Unstructured or poorly structured data obfuscates its readability. In particular, we’re referring to:
Practising a rigorous methodology for structuring data can massively improve its comprehensibility, making it accessible to more stakeholders. But what does rigorous methodology mean?
One approach might be to develop standard templates for structuring financial data. Or, better yet, you could use a (reputable) financial statement data tool to extract the data in a predefined format. Either way, when viewing your data, ask yourself – is this data structured in the most comprehensible way?
The rise of cloud-based software has been undeniable in the last few years. Businesses no longer have to fork out for unwieldy on-premise installations. At its best, cloud computing offers a fast, scalable and, most importantly, accessible means of storing and sharing data.
During the valuation process, you can deploy various cloud computing tools to improve content accessibility. Here are a few examples, in order of technical complexity:
And, of course, some firms are developing their (own) proprietary cloud-based valuation platforms and software, as cloud is generally an affordable option. For example, Oracle estimates that one instance of 1TB block storage only costs $43 per month. In practical terms, a cloud-based tool could store a large volume of real-time and historical data.
There is only one potential downside to using cloud-based technology – users must be mindful of their data security, particularly when exchanging sensitive financial data.
You must protect sensitive asset/security/investment data during valuation. The financial services industry is heavily regulated, meaning that data must be kept secure (examples of data protection laws include the General Data Protection Regulation (GDPR) in the EU and the Gramm-Leach-Bliley Act (GLBA) in the US). Yet, protecting data serves a greater purpose than just ticking regulated safety boxes – it also makes the data more accessible by:
Therefore, you should check that your cloud-based finance tool has certain security features, including:
Investing time in completing due diligence on the security builds internal confidence in handling financial data.
Completing valuations should be collaborative, explainable and dynamic. If you experience problems accessing data, various solutions exist to help mitigate this. Rather than throwing technological solutions at the problem, it’s important to understand how you can share data within your organisation.
Financial Statements AI is our extraction and calculation tool for balance sheets and income statements. Leverage raw and structured data to improve the accessibility of your financial data during valuation with features like:
The data is then available to registered users across your organisation.
Try Financial Statements AI for free by booking a demo or emailing us at hello@evolution.ai.
