Investors often prefer when the target has complex debt structures (e.g., project finance) because their Net Debt analysis is considered the industry gold standard.
Acquire precise terminology for debt-like items, working capital definitions, and carve-out complexities. Key Takeaways for Deal Makers
In conclusion, our financial due diligence review of XYZ Inc. indicates that the Company has a strong financial position, steady revenue growth, and a conservative debt profile. However, we recommend certain areas for improvement, including the development of a comprehensive accounting policy manual and more detailed disclosures for accounting estimates.
KPMG analyzes the target's working capital to determine the normalized level required to run the business.
This critical section highlights:
Reviewing key management salaries, bonus structures, and employee turnover metrics. 3. The Core Concept: Quality of Earnings (QoE) Adjustments
The team requests and reviews a wide range of source documents, including:
: Analysis of customer churn, pricing trends, and bridge analysis of historical vs. projected performance. Cost Synergies
: Pressure-testing management's future assumptions against historical performance and market trends.
: Summary of how findings affect the final Purchase Price Allocation (PPA) or potential post-acquisition disputes Actionable Next Steps
Assessing month-by-month inventory and receivable fluctuations.
KPMG performs a forensic-level examination of the financial data, using advanced data analytics and benchmarking tools to identify trends, anomalies, and risks. The team focuses on the significant risks that may have an impact on the valuation of the target and which should be considered in the share purchase agreement.
This is the core engine of the KPMG FDD report. The goal is to determine the "normalized" earnings power of the business.
