Overview
Financial due diligence examines a target business before an investment or acquisition. It looks beyond reported profits to the quality and sustainability of earnings, the cash the business actually generates, its working capital needs and the liabilities that may not be visible in the balance sheet.
Findings feed directly into valuation, deal structure, price adjustments and the protections in the transaction documents.
Who needs this service
Legal and regulatory framework
- Engagement-based; guided by ICAI technical guidance on due diligence
- Companies Act, tax and regulatory records of the target
Scope of services
Quality of earnings
- EBITDA normalisation for non-recurring and non-arm's length items
- Revenue recognition and cut-off review
Cash and working capital
- Cash conversion analysis
- Normalised working capital level
Balance sheet
- Debt and debt-like items
- Contingent liabilities and off-balance sheet items
- Related party balances
Compliance
- Tax, GST and statutory dues
- Key contracts from a financial standpoint
How the engagement works
- ScopeAreas of focus agreed with the client.
- Data requestInformation list and data room.
- AnalysisReview, management discussions and adjustments.
- ReportingFindings, red flags and deal considerations.
Documents typically required
Key forms and due dates
| Item | Timeline |
|---|---|
| Timeline | Typically 3 to 6 weeks depending on scope and data availability |
Deliverables
- Due diligence report
- Quality of earnings and net debt schedules
- Red flag summary
The scope of each engagement is agreed in writing and depends on the nature, size and regulatory requirements of the entity.
Frequently asked questions
What is quality of earnings?
An analysis of whether reported earnings are sustainable, recurring and backed by cash, after removing one-off and non-arm's length items.
What is vendor due diligence?
Due diligence commissioned by the seller before a sale, to identify issues early and give buyers a reliable starting point.