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1、 Insert Name of CompanyFinancial Due Diligence Report Template - Sample(Company name) Financial Due Diligence Report - Sample Source: PAGE 2 of 33 (Company name) Financial Due Diligence Report - Sample 11.1. Industry OverviewThe objective of this section is to provide a synopsis of the industry with
2、in which the Company is operating. The synopsis should cover the following:i.Brief industry history, growth story, market size, etc.BACKGROUND AND INTRODUCTIONvi. Kind of operations, products/services offered and the marketshare of each. vii. Also cover the various opportunities/threats that the ind
3、ustryis facing and the outlook about the industry and the company.1.3Operations SummaryProvide a summary of the business areas and segments in which the Target Company operates in this section. It should cover the following:i.Service Company Verticals in which the company operates, or;Manufacturing
4、Company Different products which the company manufactures/markets.ii. Table giving the break-up of latest revenue figures intodifferent product lines/service verticals. iii. Broad overview of the value chain (suppliers to customers).Overview of the CompanyThis section aims to provide a background ab
5、out the target Company and its group by providing:i.Yearly achievements. This space has been intentionally left blankii. Companys percentage share in the total market. iii. Key industry-level risks (for example, competition, highattrition, government regulation, dependence on a few customers /suppli
6、ers, etc.). iv. Outlook for the industry and how the same will impact thetarget company. v. General economic conditions and trends adversely affectingthe clients suppliers and customers.1.2.ii. Holding structure.iii. Name of subsidiary/locations of operations diagrammaticrepresentation. iv. Organiza
7、tional structure.v. Number of employees in branches/locations/department, etc. Source: PAGE 3 of 33(Company name) Financial Due Diligence Report - Sample 2. FRAMEWORKThe Framework is a unique manner of depicting the various internal and external factors/forces that affect the working of the Company.
8、 The objective of this section is to bring out the key characteristics of these factors and enable the reader to gain an overall understanding of the environment in which the Company is operating.The framework should cover one slide. An attempt should be made to capture those characteristics which h
9、ave a direct and immediate impact on the working of the Company.Note: Framework will overlap with the previous section of Background and Introduction (BI). However, BI attempts to provide a brief of the industry while Framework provides a synopsis of how the enumerated factors interact. BI gives an
10、understanding about the industry in which the Company is operating and its growth path till date, (since itsinception) and is more macro in analysis as compared to Framework.i. EnvironmentEnvironment will cover all the external forces having a direct and indirect impact on the Company. The typical q
11、uestions that need to be asked are:a. Growth of the respective industry and the key drivers of thesame. b. How much is the industry regulated, organized/unorganized? c. What are the major concerns of the industry? d. Entry and exit barriers.e. Major changes in Governments outlook towards thisindustr
12、y. For example, government concerns about ownership, monopolization etc. f. What is the market size of the industry? g. Structure of the industry. iv. CustomersThe customer analysis should allow the reader to understand the surety of future sales revenue and estimate the extent to which the overall
13、profitability is dependent on certain key customers.a. Major customers of the Company. iii. ValueValue refers to the:a. The value added by the Company to the end product. b. The extent of uniqueness of the companys products andthe reason why the customer chooses the companys products over the compet
14、itors products. ii. Owners/AlliancesMap the ownership structure of the Company/organization while including the:a. Inactive owners. b. Sleeping partners. c. Strategic investors.d. Brief on the major alliances. e. Shareholding structure.f. Brief about the significant changes in ownership.g. The direc
15、t and indirect ownership should also be reflected.For example, if A owns B and B owns C, then A owns C. h. Any special licenses, permissions, approvals required tooperate in the particular industry. Source: PAGE 4 of 33(Company name) Financial Due Diligence Report - Sample b. Comment on how specific
16、 the customer contracts are andwhether these contracts allow the customer to dictate terms. For example, customers may have an option to terminate the contract without notice. c. The extent to which the company can govern theproduct/service prices.d. Mention the percentage of sales being contributed
17、 by the topfive customers. e. The switching costs involved if a customer decided topurchase from a competitor. Any costs that the Company might incurlike loss on account of software licensepurchased specific to an outgoing customer etc.also need to be reviewed. f. Pricing strategies and critical fac
18、tors affecting the salesprices including industry trends and product life cycles. g. Comment on the level of dependency of the company on itscustomers. h. The market segment, respective products/services and theprice segmentation for each. i. j.Key marketing strategies.Distribution channels being us
19、ed and the breakup of the distribution costs in terms of transportation, storage, etc. vi.CompetitorsThe review of competitors gives an important insight into the operations of the Company as it highlights why some customers have opted for the competitors products and not of the Company as well as r
20、eflects upon the possibility of existing customers of the Company, moving to its competitors.a. Identify the major players and their respective market sharealong with the market share of the company. b. The difference in the market share between the companyandi. The nearest competitor having a highe
21、r market share and the competitors growth rate in revenue. ii. The nearest competitor having a lower market shareand the competitors growth rate in revenue.c. Identify any specific areas where the company hassignificant strengths and/or weaknesses as compared to its competitors. vii.Information Revi
22、ew the following:a. Information management mechanism/platform.b. Review the appropriateness of the management skills andany skill gaps (any specific skills that the operations of the company require and are missing in the key management team). c. Appropriateness of the reporting structure of themana
23、gement. d. Long- and short-term perspective of management for thecompany vision, mission, etc.k. Bottlenecks in distribution. For example, dependence onvery few wholesalers, transporters, etc. v.ManagementGive a synopsis about the management team leading the company and cover the following:a. Brief
24、about the management, their background, key skillareas and time spend with the organization. Source: PAGE 5 of 33(Company name) Financial Due Diligence Report - Sample b. Year of installation and the frequency of up gradation. c. Data backup and disaster recovery plan.d. Flexibility and appropriaten
25、ess of the system to theoperations of the company. viii. Business ProcessesGive a diagrammatic representation of the processes in place for HR, invoicing, etc., and:a. Comment on the efficiency of the organizational processesby reviewing the extent to which these processes adhere to the segregation
26、of duties (for example, independence of recording, processing and reviewing). b. Identify the various avenues of the management to trackinformation and the processes. ix.SuppliersReflect on the dependence of the company on key suppliers by: a. Giving the percentage of the total vendor cost beingcont
27、ributed by the top five vendors. b. The extent to which the terms of the vendor contractsremove any exposure to the companys supplies. c. Commenting on the bargaining power of the company withthe vendors (esp. key supplies). Based on the vendor selection process covered under the head of processes.
28、d. Purchase commitments.e. Review what are the alternate sources for supplies? f. Identify the extent to which the close substitutes areavailable for the companys supplies. This space has been intentionally left blank Source: PAGE 6 of 33(Company name) Financial Due Diligence Report - Sample 3 THE P
29、ROPOSED TRANSACTION/TRANSACTION SUMMARYObjective of this section is to provide a summary of the transaction thatthe client is proposing to enter into with the target company. Background on client one paragraph. Background on target company one paragraph.Example:YY is exploring the possibility of acq
30、uiring controlling stake in XX bypurchasing the entire shareholding/possibility of merging with XX. Theconsideration of this transaction would be paid in cash to the majorityshareholders of XX. The consideration of this transaction will be paidthrough a combination of cash and allocation of XX share
31、s. Put a diagrammatic representation of the pre- and post- transaction structure. Give an explanation of the steps involved in : This space has been intentionally left blank Changes in shareholding structure. Transfer of funds. Source: PAGE 7 of 33(Company name) Financial Due Diligence Report - Samp
32、le 4 KEY FINDINGS/EXECUTIVE SUMMARY Objective of this section: This section on executive summary covers the major findings of the Due Diligence process. The findings are classified under four major heads, namely: A summary of the key issues arising pursuant to the financial due diligences should be
33、provided in the following manner: The discussion should proceed in the following order: The discussion of the individual issues under the relevant sub-heads should proceed in the following order:Past treatment and the current status of the item under consideration. Use a table if detailed break-up i
34、s to be discussed.Issue with the reasons. Give details of the reasons. Implications.Propose a going-forward treatment. Summary of the financial statements. Summarized table of the issues.Detailed discussion about Issues in the order given above. Deal Issues. Valuation Issues. Representation Issues.
35、Post closing Issues.Each finding should be quantified specifying the impact on the valuation of the firm. Also, recommendation should specify the appropriate steps the client should take, (example: adjust valuation/ask for assurance and warranties from the target companys management, etc.).Before di
36、scussing the key issues for XX in the transaction, provide a summary of the financial statements of the Company during the review period (in the next slide).This space has been intentionally left blank Source: PAGE 8 of 33(Company name) Financial Due Diligence Report - Sample Deal issues are strateg
37、ic business issues that depend upon magnitude of risk and likelihood of its occurrence. Clearly and precisely specify the issue along with recommendation. The issues highlighted should reflect the key risks/challenge the transaction faces. For example: Are our findings consistent with the clients vi
38、ews concerning: ExamplesContinuity of Business: Dependence on Suppliers: Single supplier/customers Contract Terms: Yearly renewal of contract, termination clauses, continuance of Business.Geographical Rights: The Company has limited distribution rights against contrary understanding of the buyer. Ex
39、amples Adjusted ProfitabilityThe table below provides a few examples regarding proposed adjustments on profitability for Quarter No., Year: Issues concerning the basis for pricing. The key reasons for doing the deal.The key assumptions about the target business. Key areas of value creation. 4.2 VALU
40、ATION ISSUESValuation issues affect the valuations of the target company and should be quantified to bring out the impact on the valuation of the target for helping the client complete the deal at the best price. Clearly and precisely specify the issue along with recommendation. For example: Issues
41、concerning the basis for pricing. Possible negotiation points: Value of earnings/assets. Maintainable earnings. Key value drivers. Gaps in Business Plan: Expense estimation and expenses not accounted for compared with historical trends and peer group benchmarking.Recommendations for each issue, if a
42、ny.Highlighting additional upside. Maintaining value on sell side.Recommendations for each issue, if any.Achievability of Projections: Revenue Projection Gaps contracted vs not contracted. Project Delivery and Capacity: Companys ability to manage the number of projects as projected in the Business P
43、lan. Source: PAGE 9 of 33(Company name) Financial Due Diligence Report - Sample Net Adjusted Assets(insert information)The table below provides a few examples regarding the reported net assets as at Month Date, Year*: (insert information) Give details for each adjustment to the profitability and the
44、 net assets, separately.The details should proceed in the following steps:Past treatment and the current status of the item under consideration. Use a table if detailed break-up is to be elaborated.Details of each adjustment with the reasons. Implications and explanation of how the proposed adjustme
45、nt amount has been calculated. Propose a going-forward treatment. Contingent liabilitiesRepresentation that there are no contingent liabilities, apart from the one disclosed in the financial statements for FY XX. Further, an assurance must be sought that any contingent liability that arises in futur
46、e pertaining to the period before the proposed merger will not impact the dynamics for the current transaction and will be to sellers account. Operational liabilitiesAll provisions and liabilities for the six months ending Month, Year or a later transaction date have been adequately provided for as
47、at the transaction date. All loans and related charges have been appropriately disclosed. Receivables and other current assetsThe receivables and other current assets outstanding as of the transaction date are good and recoverable. Impact of any losses on recoverability of the same post completion of transaction on A few examples are given below:YYY should evaluate the following assurances and warranties to be appropriately included into the relevant transaction documents for
