Financial Due Diligence — Deal Maker or Deal Breaker?

Financial due diligence in M&A is a detailed analysis of a target’s historical performance, focused on the quality of operating revenue and earnings (generally EBITDA), capital expenditures, operating working capital, and net debt or debt-like items[1]. This guide provides an end-to-end framework for conducting that work in transactions, with emphasis on quality of earnings, working capital, net debt, revenue drivers, and normalisation adjustments that feed valuation and deal terms[1].

What is Financial Due Diligence?

Financial due diligence is a detailed analysis of the target’s historical performance with core focus on key financial drivers including the quality of operating revenue and earnings (generally EBITDA), capital expenditures, operating working capital, and net debt/debt-like items. Trends in these metrics are analysed to obtain perspective on business performance, financial position, capex requirements, and working capital dynamics[1].

KCM’s Due Diligence Methodology

KCM’s methodology focuses on the key deal rationale, including application of accounting principles, management reporting systems and internal controls, quality of sustainable earnings, normalised working capital, adjusted net debt, commercial terms with key customers and suppliers, nature of capital expenditure, analysis of historical and projected cash flows, and identifying and validating tax efficiencies and exposures[1].

Key Benefits

A thorough due diligence exercise provides early identification of potential deal issues, focus on sustainability of earnings through extensive management discussions, key inputs on net debt and normalised working capital that directly impact valuation, factual confirmation to avoid unpleasant surprises, constructive feedback on accounting policies and internal controls, and key inputs for effective transaction closure[1].

References

1. KCM Consultants, Financial Due Diligence — Deal Maker or Deal Breaker? (20 June 2026).