Financial Due Diligence Checklist

You are a financial due diligence advisor conducting comprehensive financial review.

**Target Company:** {company_name}
**Transaction Type:** {transaction_type} (Acquisition/Investment/Partnership)
**Deal Size:** ${deal_size}
**Industry:** {industry}
**Due Diligence Timeline:** {timeline} days

Create comprehensive financial due diligence report:

**1. Historical Financial Performance:**

**Revenue Analysis (Last 3 Years):**
| Metric | {year_1} | {year_2} | {year_3} | CAGR | Trend |
|--------|----------|----------|----------|------|-------|
| Total Revenue | ${rev_y1} | ${rev_y2} | ${rev_y3} | {rev_cagr}% | {rev_trend} |
| Recurring Revenue | ${rec_y1} | ${rec_y2} | ${rec_y3} | {rec_cagr}% | {rec_trend} |
| Gross Margin % | {gm_y1}% | {gm_y2}% | {gm_y3}% | {gm_change}bps | {gm_trend} |
| EBITDA | ${ebitda_y1} | ${ebitda_y2} | ${ebitda_y3} | {ebitda_cagr}% | {ebitda_trend} |
| EBITDA Margin % | {ebitda_m_y1}% | {ebitda_m_y2}% | {ebitda_m_y3}% | {ebitda_m_change}bps | {ebitda_m_trend} |
| Net Income | ${ni_y1} | ${ni_y2} | ${ni_y3} | {ni_cagr}% | {ni_trend} |

**Red Flags Identified:**
1. {red_flag_1}: {red_flag_1_severity} - {red_flag_1_impact}
2. {red_flag_2}: {red_flag_2_severity} - {red_flag_2_impact}
3. {red_flag_3}: {red_flag_3_severity} - {red_flag_3_impact}

**2. Revenue Quality Assessment:**

**Revenue Composition:**
| Source | % of Total | Growth Rate | Churn Risk | Quality Score |
|--------|-----------|-------------|------------|---------------|
| {revenue_source_1} | {rev_pct_1}% | {rev_growth_1}% | {churn_risk_1} | {quality_1}/10 |
| {revenue_source_2} | {rev_pct_2}% | {rev_growth_2}% | {churn_risk_2} | {quality_2}/10 |
| {revenue_source_3} | {rev_pct_3}% | {rev_growth_3}% | {churn_risk_3} | {quality_3}/10 |

**Customer Concentration Risk:**
- Top 5 customers: {top5_pct}% of revenue
- Top 10 customers: {top10_pct}% of revenue
- **Concentration Risk: {concentration_risk}** (High/Medium/Low)

**Revenue Recognition:**
- Policy: {rev_recognition_policy}
- Compliance with GAAP/IFRS: {compliance_status}
- Changes in recent years: {rev_policy_changes}
- **Assessment: {rev_recognition_assessment}**

**3. Profitability Analysis:**

**Adjusted EBITDA Reconciliation:**
| Line Item | Amount | Recurring? | Adjustment Rationale |
|-----------|--------|------------|---------------------|
| Reported EBITDA | ${reported_ebitda} | Yes | - |
| + One-time legal fees | ${legal_addback} | No | {legal_rationale} |
| + Founder salary above market | ${salary_addback} | No | {salary_rationale} |
| - Stock-based comp | (${sbc_adjustment}) | Yes | {sbc_rationale} |
| - Deferred revenue normalization | (${deferred_adjustment}) | Yes | {deferred_rationale} |
| +/- Other adjustments | ${other_adjustments} | {other_recurring} | {other_rationale} |
| **Adjusted EBITDA** | **${adjusted_ebitda}** | | |
| **Adjustment as % of Reported** | **{adjustment_pct}%** | | |

**Margin Analysis:**
| Metric | Company | Industry Median | Quartile Position | Assessment |
|--------|---------|----------------|-------------------|------------|
| Gross Margin | {company_gm}% | {industry_gm}% | {gm_quartile} | {gm_assessment} |
| Operating Margin | {company_om}% | {industry_om}% | {om_quartile} | {om_assessment} |
| EBITDA Margin | {company_em}% | {industry_em}% | {em_quartile} | {em_assessment} |
| Net Margin | {company_nm}% | {industry_nm}% | {nm_quartile} | {nm_assessment} |

**4. Working Capital Analysis:**

**Working Capital Metrics:**
| Metric | Current | Industry Avg | Assessment |
|--------|---------|--------------|------------|
| Days Sales Outstanding (DSO) | {dso} days | {industry_dso} days | {dso_assessment} |
| Days Inventory Outstanding (DIO) | {dio} days | {industry_dio} days | {dio_assessment} |
| Days Payable Outstanding (DPO) | {dpo} days | {industry_dpo} days | {dpo_assessment} |
| Cash Conversion Cycle | {ccc} days | {industry_ccc} days | {ccc_assessment} |

**Working Capital Requirements:**
- Current working capital: ${current_wc}
- Normalized working capital: ${normalized_wc}
- **Working capital adjustment needed: ${wc_adjustment}**

**5. Balance Sheet Review:**

**Asset Quality:**
| Asset Category | Book Value | Est. Market Value | Variance | Quality |
|----------------|------------|-------------------|----------|---------|
| Cash & Equivalents | ${cash_book} | ${cash_market} | {cash_variance}% | {cash_quality} |
| Accounts Receivable | ${ar_book} | ${ar_market} | {ar_variance}% | {ar_quality} |
| Inventory | ${inv_book} | ${inv_market} | {inv_variance}% | {inv_quality} |
| Fixed Assets | ${fa_book} | ${fa_market} | {fa_variance}% | {fa_quality} |
| Intangibles | ${intang_book} | ${intang_market} | {intang_variance}% | {intang_quality} |

**Liabilities & Contingencies:**
| Category | Reported | Undisclosed/Contingent | Total Exposure | Risk Level |
|----------|----------|------------------------|----------------|------------|
| Debt | ${debt_reported} | ${debt_contingent} | ${debt_total} | {debt_risk} |
| Operating Leases | ${lease_reported} | ${lease_contingent} | ${lease_total} | {lease_risk} |
| Legal/Litigation | ${legal_reported} | ${legal_contingent} | ${legal_total} | {legal_risk} |
| Tax Liabilities | ${tax_reported} | ${tax_contingent} | ${tax_total} | {tax_risk} |
| Warranties/Returns | ${warranty_reported} | ${warranty_contingent} | ${warranty_total} | {warranty_risk} |

**6. Cash Flow Analysis:**

**Cash Flow Quality (Last 12 Months):**
| Metric | Amount | % of Revenue | Assessment |
|--------|--------|--------------|------------|
| Operating Cash Flow | ${ocf} | {ocf_pct}% | {ocf_assessment} |
| Free Cash Flow | ${fcf} | {fcf_pct}% | {fcf_assessment} |
| CapEx | (${capex}) | {capex_pct}% | {capex_assessment} |
| FCF Conversion (FCF/Net Income) | {fcf_conversion}% | - | {fcf_conv_assessment} |

**Cash Flow Sustainability:**
- Non-cash working capital changes: ${wc_changes}
- One-time items: ${onetime_cf_items}
- **Normalized FCF: ${normalized_fcf}**

**7. Debt & Leverage Analysis:**

**Debt Schedule:**
| Facility | Balance | Rate | Maturity | Covenants | Status |
|----------|---------|------|----------|-----------|--------|
| {facility_1} | ${balance_1} | {rate_1}% | {maturity_1} | {covenants_1} | {status_1} |
| {facility_2} | ${balance_2} | {rate_2}% | {maturity_2} | {covenants_2} | {status_2} |
| {facility_3} | ${balance_3} | {rate_3}% | {maturity_3} | {covenants_3} | {status_3} |
| **Total Debt** | **${total_debt}** | **{avg_rate}%** | - | - | - |

**Leverage Metrics:**
| Metric | Current | Post-Transaction | Covenant Level | Buffer |
|--------|---------|------------------|----------------|--------|
| Net Debt/EBITDA | {current_nd_ebitda}x | {post_nd_ebitda}x | <{covenant_nd_ebitda}x | {nd_ebitda_buffer}x |
| EBITDA/Interest | {current_coverage}x | {post_coverage}x | >{covenant_coverage}x | {coverage_buffer}x |
| Debt/Equity | {current_de} | {post_de} | <{covenant_de} | {de_buffer} |

**8. Tax Review:**

**Tax Positions:**
| Item | Status | Amount at Risk | Probability | Expected Value |
|------|--------|----------------|-------------|----------------|
| {tax_item_1} | {tax_status_1} | ${tax_risk_1} | {tax_prob_1}% | ${tax_ev_1} |
| {tax_item_2} | {tax_status_2} | ${tax_risk_2} | {tax_prob_2}% | ${tax_ev_2} |
| {tax_item_3} | {tax_status_3} | ${tax_risk_3} | {tax_prob_3}% | ${tax_ev_3} |

**Effective Tax Rate:**
- Book ETR: {book_etr}%
- Cash ETR: {cash_etr}%
- Difference explanation: {etr_difference_explanation}

**Tax Attributes:**
- NOL carryforwards: ${nol_value}
- Tax credits: ${tax_credits}
- **Post-transaction availability: {tax_attributes_availability}**

**9. Quality of Earnings:**

**Overall Quality Score: {qoe_score}/100**

**Quality Factors:**
| Factor | Score | Weight | Weighted Score | Comments |
|--------|-------|--------|----------------|----------|
| Revenue quality | {rev_quality_score}/100 | 25% | {rev_weighted} | {rev_comments} |
| Earnings sustainability | {earnings_quality}/100 | 25% | {earnings_weighted} | {earnings_comments} |
| Cash generation | {cash_quality}/100 | 20% | {cash_weighted} | {cash_comments} |
| Accounting policies | {accounting_quality}/100 | 15% | {accounting_weighted} | {accounting_comments} |
| Management credibility | {mgmt_quality}/100 | 15% | {mgmt_weighted} | {mgmt_comments} |

**10. Financial Projections Review:**

**Management Projections vs Historical:**
| Metric | Historical CAGR | Projected CAGR | Difference | Reasonability |
|--------|----------------|----------------|------------|---------------|
| Revenue | {hist_rev_cagr}% | {proj_rev_cagr}% | {rev_cagr_diff}% | {rev_reasonability} |
| Gross Margin | {hist_gm_change}bps | {proj_gm_change}bps | {gm_diff}bps | {gm_reasonability} |
| EBITDA | {hist_ebitda_cagr}% | {proj_ebitda_cagr}% | {ebitda_cagr_diff}% | {ebitda_reasonability} |

**Key Assumptions Review:**
1. {assumption_1}: {assumption_1_assessment}
2. {assumption_2}: {assumption_2_assessment}
3. {assumption_3}: {assumption_3_assessment}

**11. Transaction Adjustments:**

**Purchase Price Adjustments:**
| Item | Amount | Rationale |
|------|--------|-----------|
| Working capital adjustment | ${wc_adj} | {wc_adj_rationale} |
| Debt-like items | ${debt_like_adj} | {debt_like_rationale} |
| Transaction expenses | (${transaction_exp}) | {transaction_exp_rationale} |
| Earn-out adjustment | ${earnout_adj} | {earnout_rationale} |
| **Net Adjustment** | **${net_adjustment}** | |
| **Adjusted Deal Value** | **${adjusted_deal_value}** | |

**12. Risk Summary & Recommendations:**

**Critical Issues (Deal Breakers):**
1. {critical_issue_1}: {critical_impact_1}
2. {critical_issue_2}: {critical_impact_2}

**High Risk Issues (Require Price Adjustment):**
1. {high_risk_1}: Estimated impact ${high_impact_1}
2. {high_risk_2}: Estimated impact ${high_impact_2}
3. {high_risk_3}: Estimated impact ${high_impact_3}

**Medium Risk Issues (Require Indemnification):**
1. {medium_risk_1}
2. {medium_risk_2}
3. {medium_risk_3}

**Final Recommendation:**
- **Overall Financial DD Rating: {overall_rating}** (Strong Buy / Buy / Hold / Pass / Strong Pass)
- **Recommended Price Adjustment: ${price_adjustment}** ({adjustment_pct}%)
- **Recommended Escrow: ${escrow_amount}** ({escrow_pct}% of deal value)
- **Key Conditions:**
  1. {condition_1}
  2. {condition_2}
  3. {condition_3}

**Next Steps:**
1. {next_step_1}
2. {next_step_2}
3. {next_step_3}

Provide: Comprehensive financial due diligence report + risk assessment + transaction recommendations.