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Today we will talk about Financial Due Diligence (FDD)
Ever heard of FDD? Well it's is a wider field where company's historical & current financial performance is put under the microscope in order to identify potential deal breakers. You must have an "eye for detail" if you want to pursue your career in this domain.
Analyzing a target company’s relevant sources of value and risk can increase your chances for a successful transaction. This is why our Financial Due Diligence approach is design to support the deal decision making, negotiation, and eventually, post-announcement planning and execution, mainly targeting valuation related aspects of the deal.
CAs isn't just about Audit and Taxation, There are Numerous Fields where one can make career on and One such Premium field is FDD.
Here is a Difference between Transaction advisory services (TAS) and FDD
> TAS is an umbrella group that covers services for transactions including FDD, Valuation and Modeling, transaction tax, operational due diligence, HR due diligence, etc.
FDD is a sub service line related to the financial and accounting due diligence portion of a deal.
FDD is a sub service line related to the financial and accounting due diligence portion of a deal.
What is FDD?
There are two sides of FDD namely FDD buy-side and sell-side. Before investing in the target company, FDD buy-side does the analysis of financials for key deal issues.
It's also important for the company which is being acquired to do their due diligence first, so that issues can be identified and gaps can be filled prior to buyer getting involved.
Here based on our first hand experience and discussions with professional we have prepared a list of commonly asked questions. Two Types of Questions will be asked in every interview
A. Articleship and Academic Related questions
1. Tell me about yourself?
2. Areas you have worked during your articleship and how you have worked?
They will focus in depth so be very clear with each area you have worked.
3. CV Related Questions: Be very Thorough with every word you have mentioned in your CV Personal as well as professional
4. Ind AS related questions and Accounting treatments.
Especially Ind as 115, Ind as 116 and their Audit Procedures
General Points: They will grill on every line you speak about areas you have worked. Be very thorough with each topic
B. FDD Related questions
1. What do you understand by FDD?
2. Why there is a need for conducting Financial due diligence?
3. Why due diligence is performed on Audited Financials?
4. What are the most important deliverable for FDD?
5. What do you understand by QOE (Quality of earnings)?
6. What do you understand by QOA(Quality of asset)?
7. Define Target working Capital.
8. While performing Due diligence, what all information would you request?
9. What do you think is the most important aspect of due diligence?
10. What do you understand by Confidential Information Memorandum?
11. What do you mean by EBITDA?
12. How will you find Enterprise Value? (You may be given figures and asked to calculate Enterprise Value on the spot)
13. What is Deferred Revenue? What is its importance in Due diligence.
14. What is the most important thing you would look for in annual report while performing due diligence?
15. How to calculate free cash flows?
16. What is negative working capital?
17. Some Excel functions you need to be acquainted with :
Vlookup, SUMIFS, Charts, Pivot Table, etc
18. All Financial Ratios and profitability ratios.
19. What is Operating/Financial Leverage?
20. How will you recognise revenue in case sale is made on FOB basis and in case of CIF basis? Explain. (Interviewer may ask a case based scenario on when will you recognise revenue and how)
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