Financial Due Diligence Support Services | Nainit Savla & Associates

Financial Due Diligence Support

Q: What is quality of earnings analysis?

QoE analysis identifies and adjusts for one-time items, accounting policy choices, and non-recurring revenues to arrive at a normalised, sustainable EBITDA — the basis for transaction valuation multiples.

Q: How long does a financial due diligence exercise typically take?

Typically 3 to 6 weeks depending on target complexity and data availability. Accelerated timelines of 2 to 3 weeks are achievable for smaller businesses with clean records.

Q: What is vendor due diligence and who commissions it?

VDD is commissioned by the seller to proactively identify and resolve issues before a formal sale process — accelerating the timeline and strengthening the seller's negotiating position.

Q: What financial documents are typically reviewed during due diligence?

Audited financials for 3 to 5 years, management accounts, GST and income tax returns, bank statements, AR/AP ageing, fixed asset register, loan agreements, related-party details, and key contracts.

Q: Does due diligence replace a statutory audit?

No. Statutory audit provides an opinion on historical financial statements for regulatory compliance. Due diligence is a commercial investigation focused on transaction-specific risks and the quality of earnings. Both may be required.

Financial due diligence is the independent investigation of a business's financial records, performance, and position undertaken before a transaction — whether an acquisition, merger, equity investment, or strategic partnership. It protects buyers and investors from undisclosed liabilities, inflated earnings, or unreliable financial reporting. Our due diligence support service provides structured, evidence-based analysis that gives decision-makers the financial clarity they need before committing capital.

Quality of Earnings (QoE) Analysis

Assessment of the sustainability, repeatability, and accuracy of the target company's reported earnings — adjusting for one-time items, accounting policy choices, and management estimates to arrive at normalised EBITDA.

Balance Sheet Review

Independent review of assets, liabilities, and net worth — assessing recoverability of debtors, adequacy of provisions, off-balance-sheet liabilities, contingent liabilities, and the reliability of reported net worth.

Working Capital Assessment

Analysis of the target's working capital cycle — debtor days, creditor days, inventory days — and determination of a normalised working capital position as a reference for transaction pricing adjustments.

Tax Due Diligence

Review of income tax, GST, TDS, and other statutory compliance history — identifying pending assessments, undisclosed tax demands, potential disallowances, and contingent tax liabilities that could materialise post-transaction.

Cash Flow Analysis

Historical free cash flow analysis — reconciling reported profits with actual cash generation, assessing capex requirements, and evaluating the quality and predictability of operating cash flows.

Data Room Preparation

Organisation and preparation of financial information for investor or acquirer data rooms — structuring documents, preparing management presentations, and responding to due diligence questionnaires.

What is Financial Due Diligence?

Financial due diligence (FDD) is a structured examination of a target company's financial statements, accounting policies, revenue recognition practices, cost structures, working capital dynamics, and tax compliance history — conducted by an independent advisor on behalf of a buyer or investor. The output is a due diligence report that presents the findings, highlights risks, and provides the buyer with the information needed to finalise transaction pricing and negotiate warranties and indemnities.

Our due diligence support integrates with financial modelling and investment readiness services for end-to-end transaction advisory support.

When Is Due Diligence Support Required?

Before acquiring a business or making a strategic investment in a company
Before a private equity or venture capital fund invests in a portfolio company
Before a management buyout (MBO) or buyout of a co-founder's stake
Before a merger or business combination between two entities
Before a bank extends a large credit facility based on the borrower's financial statements
When a seller wants to prepare their business for investor scrutiny (vendor due diligence)

Frequently Asked Questions

What is quality of earnings analysis?

Quality of earnings (QoE) analysis examines whether a company's reported EBITDA or net profit accurately reflects the true, ongoing earnings power of the business. It involves identifying and adjusting for one-time or non-recurring items (such as asset sale profits, insurance claims, or restructuring charges), management accounting policy choices that inflate reported profits, customer or contract concentrations that may not continue post-transaction, and related-party transactions at non-market terms. The adjusted, normalised EBITDA derived from QoE analysis is the basis for transaction valuation multiples.

How long does a financial due diligence exercise typically take?

A typical financial due diligence exercise takes 3 to 6 weeks depending on the size and complexity of the target business, the availability and quality of financial records, the scope of the diligence mandate, and the speed of management responses to information requests. For smaller transactions or businesses with clean, well-maintained records, an accelerated timeline of 2 to 3 weeks is achievable. For large or complex transactions involving multiple entities, subsidiaries, or significant tax issues, 6 to 8 weeks is more realistic.

What is vendor due diligence and who commissions it?

Vendor due diligence (VDD) is a financial due diligence exercise commissioned by the seller of a business — rather than the buyer — to proactively identify and resolve issues before a formal sale process begins. By having a clean VDD report available for prospective buyers, the seller can accelerate the transaction timeline, reduce buyer uncertainty, and negotiate from a stronger position. VDD is particularly valuable for businesses with complex financial structures or those expecting scrutiny from institutional buyers or PE firms.

What financial documents are typically reviewed during due diligence?

Typical documents reviewed include: audited financial statements for 3 to 5 years, management accounts for recent periods, GST and income tax returns, TDS returns and Form 26AS, bank statements, accounts receivable and payable ageing schedules, fixed asset register, loan agreements, related-party transaction details, pending litigation and tax demands, and key contracts (customer agreements, supplier contracts, employment contracts). The document list is agreed with the client at the outset based on the scope and transaction type.

Does due diligence replace a statutory audit?

No. Due diligence and statutory audit are fundamentally different exercises serving different purposes. A statutory audit results in an opinion on whether the historical financial statements present a true and fair view under applicable accounting standards — performed for regulatory compliance. Due diligence is a commercial investigation focused on transaction-specific risks, the quality and sustainability of earnings, and the adequacy of financial disclosures for the purpose of making an investment or acquisition decision. Due diligence is not a substitute for an audit, and vice versa — transactions may require both.

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Independent financial due diligence support for buyers, investors, and sellers — structured analysis, clear findings, and transaction-ready reports.

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