Does anyone have guidelines to analyze business tax filings (Form 1120 etc?

September 24, 2022

by a searcher from Babson College - F.W. Olin Graduate School in Boston Metropolitan Area, MA, USA

Hello all,

Usually have seen Financial Statements for target opportunities. However, for a couple of the business opportunities, I have got their tax filings and I am unsure of how to analyze and what to look for? I understand that tax returns are more authentic than non-accountant prepared Financial Statements. (Disclaimer: I am neither a finance nor an accountant professional.). It seems overwhelming with all the different Schedules and the number of pages. The Due Diligence will be performed by accounting professionals if we move forward. Just looking for any advise/guidelines on areas to look at for a quick analysis as a first pass?
Thanks!!

Reply by a searcher
from University of Texas at Austin in San Antonio, TX, USA

When looking at the business returns (which are typically prepared by the same accountant who prepared the GAAP financial reports) you want to first understand the method that has been elected (cash or accrual). The cash method still allows for expensing depreciation of fixed assets which is an accrual accounting concept. The business tax return will have both a balance sheet and income statement of sorts within it. It will also have a reconciliation of the financial statement net income to taxable net income. One of the most helpful elements will be the fixed asset depreciation schedule. That is going to show you a lot of details about the assets owned by the company such as how old they are, how many there are, etc. I'm happy to help you out more if you want to set up a time for a call###-###-####

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