While financial records are a crucial aspect of valuation, site visits play an equally important role in uncovering valuable information that may be concealed within the confines of company books. In this article, we delve into the significance of site visits during a valuation exercise, particularly focusing on the assessment of machinery and equipment. 

Condition Assessment - 

- Beyond basic functionality, a site visit reveals vital details that can impact value that financial records may not disclose. Signs of wear and tear, rust, or leaks indicate potential repair needs, reducing value.

- Observing the maintenance records of the machinery (cleanliness, or presence of lubrication) can hint at its overall health and remaining useful life.

- Observing the operating environment on how machinery is used (dust, temperature extremes, vibrations) can affect its lifespan and value.

Verification Of Data - Cross-referencing machinery details, such as make, model, capacity, quantity, etc., with the information in the Fixed Asset Register (FAR) ensures accuracy in valuation and identifies discrepancies.

Operational Considerations - By being on-site, appraisers can assess the production process, identify raw materials and finished goods, workflow efficiencies and capacity utilisation. This firsthand information is essential for a comprehensive valuation.

Running Parameters - Live observation of machines in action allows appraisers to note live/running parameters and performance numbers, providing a dynamic perspective on an asset's functionality.

Ground-Level Insights - Conversations with machine operators and the plant in-charge provide valuable ground-level insights. This includes information on operation and maintenance history, number of shifts, technology adopted, safety standards, and internal controls. Such details are often missed when dealing with the finance team or the management.

Physical Location and Accessibility - Site visits provide insights into logistical factors such as transportation access, proximity to ports, proximity to suppliers and customers, and site-specific challenges or advantages. These factors can influence valuation assumptions related to logistics costs, supply chain resilience and strategic value.

Special cases that require thorough site inspections:

Absence of FAR - In scenarios where the FAR is absent or not updated to date, site inspections become indispensable for creating an accurate list of machinery and equipment.

Inaccurate data in FAR - Site visits are crucial when FAR has incomplete or inaccurate data due to various reasons. Some specific scenarios include:.

- Assets that have been decommissioned or sold but remain recorded on the FAR (ghost assets).

- Older assets which are in service but are written off from FAR.

- Multiple assets clubbed/merged in FAR as a single entry.

- The FAR has passed through multiple ownerships, rendering it potentially inaccurate.

In valuation, site visits are not just a formality but a vital component uncovering hidden nuances essential for accurate and reliable assessment. A hands-on approach allows appraisers to bridge the gap between financial records and physical reality, providing a holistic view that greatly contributes to the credibility of the valuation exercise.