Scribd Logo
Upload

Welcome to Scribd!

  • 22 views

    Financial Due Diligence

    Uploaded by

    Soundararajan Srinivasan
    Financial due diligence confirms the accuracy of financial information provided about a business by reviewing areas like earnings, debt, working capital, taxes, IT resources, and human resources to understand the business's financial health and risks.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Financial Due Diligence

    Uploaded by

    Soundararajan Srinivasan
    22 views13 pages
    Financial due diligence confirms the accuracy of financial information provided about a business by reviewing areas like earnings, debt, working capital, taxes, IT resources, and human resources to understand the business's financial health and risks.

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Financial due diligence confirms the accuracy of financial information provided about a business by reviewing areas like earnings, debt, working capital, taxes, IT resources, and human resources to understand the business's financial health and risks.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    22 views13 pages

    Financial Due Diligence

    Uploaded by

    Soundararajan Srinivasan
    Financial due diligence confirms the accuracy of financial information provided about a business by reviewing areas like earnings, debt, working capital, taxes, IT resources, and human resources to understand the business's financial health and risks.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 13

    Financial Due

    Diligence
    Financial Due Diligence
    • Financial Due
    Diligence confirms
    the accuracy of the
    financial information
    provided about the
    business.
    Financial Due Diligence
    • The PE firm will hire
    accountants to
    review all the
    financial information.
    • We will take a look at
    the main areas for
    investigation…
    Financial Due Diligence
    • Quality of Earnings
    • Thisconfirms the historic
    earnings of the company after
    stripping out non recurring costs
    and expenses
    • Thisfocuses particularly on the
    EBITDA because this is a major
    driver of the valuation.
    • ThePE firm will use the adjusted
    EBITDA x EBITDA multiple =
    Valuation
    Financial Due Diligence
    • These adjustments include:
    • Management adjustments -
    compensation or expenses
    • Business
    related
    adjustments - accounting
    related
    • ProForma adjustments -
    adjusting for the impact of
    acquisitions or divestitures
    Financial Due Diligence
    • Debt

    • The PE firm needs to


    understand the level of
    existing debt and debt-
    like items as these have
    to be deducted before
    the sellers receive their
    sale consideration
    monies.
    Financial Due Diligence
    • These can include:
    • Unpaidcapital expenditure or
    ordered machinery
    • Deferred compensation
    • Accounts payable
    • Tax related liabilities
    • Legal settlements
    • Tax liabilities - historic and future
    • Liabilities
    associated with certain
    cash transactions
    Financial Due Diligence
    • Normalised Working Capital
    • The PE firm will want to
    ensure that the company has
    sufficient working capital to
    keep operating - any shortfall
    in the calculation will be
    deducted from the sale
    proceeds as it will be
    assumed that the sellers have
    articificially reduced the
    working capital levels.
    Financial Due Diligence
    • The Due Diligence also
    needs to understand the
    working capital requirements
    of the business through the
    economic cycle to ensure
    that the company is not
    being acquired at a time
    when the working capital
    requirement is articifically
    low.
    Financial Due Diligence
    • Tax Structure
    • Thisfocuses on State, Local
    and Federal taxes to ensure
    that the tax affairs of the
    company are in good order
    and as efficient as possible.
    • Thecompany does not want
    to pay more tax than it is
    legally obliged to.
    Financial Due Diligence
    • IT Resources
    • While not directly financial in nature,
    the IT in the business is at the core of
    the ability of the business to manage
    and report its performance properly.
    • Ifthe IT in the company does not
    work or is out of date it may affect
    the accuracy of some or all of the
    financial information in the company
    • It
    may also require considerable
    investment to bring it up to speed.
    Financial Due Diligence
    • Human Resources
    • HR has a responsibility
    for payroll and all
    associated tax
    • There are also important
    state and federal
    regulatory filings that
    must be complied with.
    Financial Due
    Diligence

    You might also like