Financial Due Diligence Report Sample

Monisha Chaudhary

30 Mar, 2024

The due diligence report contains information about partnerships, investments, mergers or acquisitions. The report requires financial research to be carried out in order to assess the economic risks, if any. All these findings revealed in the analysis are summarized in a report which is known as the Due Diligence Report. This report is then sent to an executive team member responsible for evaluating the transaction. The report consists of information about the company’s financial data, corporate structure, and sales and marketing analysis. It also contains data about the staff members, sales and marketing analysis, etc.

Specifics of the Financial Due Diligence

The following records are necessary for the financial due diligence-

1. The Income Statements for the past five years show all the profit and loss therein.
2. All the assets and liabilities are shown in the Balance Sheets.
3. The Gross Margin and Profit Margin.
4. The turnover of the asset
5. Interest Coverage. These are the earnings before taxes and interest divided by the interest expense.
6. The debt-to-equity ratio goes on to show how much debt is there as compared to the assets.
7. Operating Margin- This reflects the profit percentage of the company from the operations of the company before subtracting interest and tax charges.

What to analyze specifically in the financial due diligence?

First of all, we see if there are previously existing similar documented plans against which to compare them. Are there any key revenue items for the business and their reliability? How likely are the key costs of the business going to evolve over the period of time? If unusual items are present on the assets of the balance sheet, then in what way is the value arrived at? It is also to be checked if the company is filing all the necessary tax returns, like TVA/VAT, profit-related taxes, etc., on time.

Documents to be provided

The financial due diligence report shall consist of (but not be limited to) the following documents for the proper inspection:-

• The details of the current outstanding loans, if any.
• Documents regarding the grants given by the government.
• The last three audited annual accounts copies.
• The estimated net profits of the prevailing financial year
• The year-end cash balance
• Projections relating to the current financial year, four upcoming years, EBITDA, and overhead costs.
• Discussing the company’s financial affairs with the company’s accountants.
• Information about the company’s principal bank and to obtain a standard bank reference.
• Data on any prevailing or anticipated legal action on the company’s financial affairs or status. The details of the legal advisor of the company and the authority to speak to them.
• The list contains details about the premises occupied by the company or leases by the company. In the case of a lease, the lease’s expiry dates, etc.
• The principle insurance policies summary.

Conclusion

As we have witnessed so far, the importance of financial due diligence accordingly. The report should consist of all the important details pertaining to the company’s accounts, earnings and losses. The financial sector is the sector where there are always high chances of legal actions arising. Hence, the report of the financial due diligence should be extremely proper without leaving any substantial details.

FAQs