Financial Due Diligence aims to identify and assess in detail the factors that have a significant impact on a company's financial health, organisation and strategy.
Important financial ratios are also assessed, including liquidity, profitability, debt, cash generation, inventory turnover or receivables, among others. As an important element of the final valuation of a company is the value of normalised EBITDA (earnings before interest, tax, depreciation and amortisation), which is determined by the selling party at an earlier stage of the transaction process, one of the key objectives of financial Due Diligence is also to confirm its amount. EBITDA is usually normalised for non-recurring events (e.g. fire, damages, penalties) or unrelated to the company's operations (e.g. costs of discontinued operations, owner's costs).
What actions do we take during financial due diligence?
The study focuses on the factors affecting the company's result and capital, as well as an analysis of its liabilities. FInancial Due Diligence is carried out from an industry perspective, examining all the weaknesses of the company. We then focus on market conditions. We are also interested in identifying potential synergies that will determine the post-investment forecast. We subject the company's income statement and balance sheet to analysis, which protects the investor from liability for negative liabilities and allows us to understand normal EBITDA performance.