Why financial due diligence is important?

This topic contains 16 replies, has 17 voices, and was last updated by  Shuvam Koley 4 days, 14 hours ago.

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    Why financial due diligence is important?


    Terry Koh

    Financial due diligence is important so that the buyer can assess the worthiness of the deal. Ultimately, the deal is suppose to make better future returns for the buyer.


    Belema Obuoforibo

    You want to be sure of what you’re buying.



    Financial due diligence is essential to understand the business and its financials currently and determine the value of the acquired business in future in relation to one’s company so that one can decide if the business is worth purchasing.



    It is important because it helps to understand more about the business of the target company, uncover potential liabilities, eliminate risks, access financial health etc.


    ShaySheri McCarthy

    The financial picture painted by the reports is seldom the complete, accurate and relevant picture in terms of the true and tailored value of the company to the buyer in question.


    Ian Smith

    Four things: Profitability – ensuring the target company can make money; Liquidity – Ensuring the target company has access to cash, and how fast; Fund/asset management – how the business deploys and makes money from the deployment of assets; and; Solvency – ensuring the target has adequate cash to repay debt. all of which, following FDD, will provide key negotiation points, valuations and validating business plans when combined with Commercial DD.


    Michael Hubsmith

    The bottom line of a company is often not indicative of the real value of a company. Frequently, bottom-line results give an inflated or deflated value of the target company’s future value. An indepth investigation should provide more insight into the real potential of the company.



    I echo all other comments above. And in my overall summary reason is so you do not overpay for the target company!


    Luka Mladinov

    Financial DD is important to:
    • Confirm an acquisition strategy and whether the target fits that strategy;
    • Verify that the target’s assets and liabilities are as expected;
    • Confirm the key income drivers of the target;
    • Evaluate opportunities for improvement post acquisition;
    • Provide opportunities to re-negotiate purchase price if unexpected information arises;
    • Ensure appropriate warranties are included
    • Understand if company has any significant debt

    Financial DD is important because it should provide a potential buyer with comfort that they know what they are getting into. It should help you establish the true value or cost of an acquisition. It should stop post acquisition. It should highlight risks and ways to mitigate them.


    Majed Faraj

    Financial due diligence provides valuable information to support a fair purchase price and ensures the appropriate warranties and representations are included in the purchase agreement. It also identifies the issues the purchaser and vendor should address to complete a successful transaction.


    Charles Ladas

    Financial DD is important because a company’s financials help a buyer determine whether a target is viable from both a financial and business standpoint.


    Raid Almutairi

    In addition to what has been mentioned above by other participants, FDD is important for both buyer and seller as it will be the ground basis for the negotiation process or phase.


    Mohammad Alageeli

    I would say FDD gives you an idea if the deal would add value to the buyer


    Sumit Ram Bani

    Financial DD is one of the very first areas where buyers would like to investigate whether the financial numbers which have been presented are fair or not.

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