Due Diligence report

Mar, 03 2020

A complex verification procedure which is usually used in world practice, in order to find out the possible risks a business may face in future before entering into an agreement with a client, partner or contractor. The more detailed data about the transaction is provided, the more reliable decision can be made. The research includes the following:

Analysis of the reliability of the data provided on individuals (names, place of registration, ownership of various assets, etc.).
Comprehensive assessment of the financial well-being of a potential partner, taking into account existing assets, debts, etc.
Checking the history of transactions and facts concerning the proposed agreements.

The ultimate goal of the whole procedure is the most complete picture of future interaction and risk assessment. A report is made at the end of the due diligence procedure.

Basic Elements of a Due Diligence Report

The resulting document must be clear and unambiguous enough so that there are no two-digit interpretations and no additional explanations will be required.

This document must provide a client with confidence in making a certain decision so that it is possible to clearly assess all the possible risks of an investment in question. As a result, a company may decide refuse to sign a contract if, based on the due diligence report, potential risks are too high.

The financial due diligence report may contain the following information:

Overall image of the company structure and beneficiaries’ ownership rights as well as all changes for the last reporting year
General description of the activities history and types of commercial transactions
Presentation of the company’s products and services
Analysis of data on the market position and the main competitors (this also includes industry reports on the current state in this market segment)
Data on key partners and customers as well as analysis of the turnover volume for the last year
Analysis of information on terms of commercial transactions and suppliers for the last year
Details of any liabilities to customers, suppliers, creditors and all other liabilities that may affect the operation of the company
Data on personal assets and real assets, including cars and other vehicles, buildings and land, other real estate
Analysis of data on leased premises, obligations under lease agreements, and debts (if any).
Data on intangible assets (intellectual property).
Availability of agreements on the acquisition or alienation of property.

Structure and personnel

This section must include the following data analysis:

List of directors, general management structure, powers and responsibilities of individuals.
The list of those managers who left their positions for the past year and the reasons for such resignations.
Information about staff turnover in all departments
Analysis of data on key employees and their retention policy
Data on average wages and their structure, including various social benefits (vacation, pension and other benefits).

Assets and liabilities

When analyzing the assets and liabilities, the following data is collected:

Capitalization and assessment of fixed assets’ depreciation.
Analysis of the net book value of property and equipment.
Details of any liabilities, various capital expenditures in accordance with the data from the contracts.
Details of available reserves
Detailed information about debtors and creditors with an analysis of debt repayment schemes

Financial condition

This includes:

Data on income and expenses for the last year.
Analysis of the revealed difference in net income for the last year.

Trading indicators

When analyzing trading indicators, the following aspects are checked:

Extracts from management reports for the last year
Detailed data on trade indicators and variance analysis with planned indicators (if any).

Applicable taxes

This includes the following:

Analysis of applied taxation schemes
Collecting data on taxes paid and identifying any inconsistencies / arrears.

If you have any questions regarding the due diligence report, please feel free to contact our specialists. They will advise you on any question you have. Our phone number in Moscow is: +7 (495) 788-80-96. We will be also glad to see you at our office in Moscow.

Author of the article

Valentina Khlavich

Managing Partner

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