Due Diligence

Financial Due Diligence Report Sample

Financial Due Diligence Report Sample

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.

READ  Due Diligence in India-Process, Type and Categories

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

  1. How do you write a financial due diligence report?

    It should include the company's financial data, market analysis, business operations information, etc.

  2. What is included in a financial due diligence report?

    The financial due diligence report includes the analysis of the market, information about the business operations, the company's financial data and so on.

  3. How do you summarize a due diligence report?

    The report's summary should include all the records of the processes involved. This report serves as an evidence of compliance.

  4. How do you write a due diligence plan?

    It should include the company valuation, the capital structure, the financial projections, etc.

  5. What are the three types of diligence?

    The three types of diligence are-
    1. Legal Due Diligence
    2. Financial Due Diligence
    3. Commercial Due Diligence

  6. What are the documents required for financial due diligence?

    Financial due diligence requires up-to-date tax returns documents, the company's investment details, copies of the loans and credit agreements, etc.

  7. What are the deliverables in financial due diligence?

    The deliverables of the financial due diligence include the income statements, cash flow statements, which show the cash outflows and inflows and the balance sheets of the past five years.

  8. What are the parts of a diligence report?

    The below-mentioned elements are included in due diligence, like debts, financial liabilities, valuation studies, inspection, etc.

  9. What does the due diligence report provide?

    It provides the existing risks within the target company. It is used to check the valuation of the assets and liabilities.

  10. What are the two types of due diligence?

    Broadly, there are two types of due diligence, namely, the legal due diligence and the financial due diligence.

  11. What is the purpose of diligence?

    The purpose is to save a party from being legally liable for any loss or damage before or after conducting a transaction.

  12. What are the levels of diligence?

    Due diligence is recognized at three levels. Level I, II and III. Each level detects corruption level. Different levels of risks are detected at different levels.

  13. What are the three levels of Due Diligence?

    The three levels of due diligence are named Levels I, II, and III.

  14. What is a good example of due diligence?

    Some common examples include the investigation of a company's financials, the background of a person in the company and so on.

  15. What is an example of due diligence?

    An example of due diligence is researching different people in the company and knowing their backgrounds.

  16. What is an example of due diligence in a Company?

    Examples include purchasing new equipment or property, integrating with another firm, etc.

  17. What is due diligence, in simple words?

    Due diligence means the analysis or inspection of a company's liabilities and capabilities and checking for any illegal objectives of the company.

READ  Use of AI in M&A Due Diligence – Its Benefits and Drawbacks

Trending Posted

Get Started Live Chat