Introduction
There comes a moment in every young Chartered Accountant’s life when the textbook world of ledgers, ratios, and
standards gives way to something far more real-and unpredictable. For many of us, that moment arrives with our
very first financial due diligence project.
If you’re about to step into the world of M&A, investment banking, or even startup advisory, chances are
someone’s going to ask: “Can you help with due diligence?”
And if you’re sitting there quietly panicking, googling how to do financial due diligence, trust me-you’re not
alone.
This guide isn’t just theory. It’s the real, practical walk-through I wish someone gave me when I was a fresher.
If you know the basics but need that street-smart layer-the kind that comes from actual deal rooms and
late-night Excel breakdowns-keep reading.
What is Financial Due Diligence (and how to do financial due diligence)?
Picture this.
You’re advising a client who wants to buy a company. Big move, right? But before they swipe the cheque worth
₹100 crores, they ask the big questions:
- Is the company even profitable?
- What risks are we not seeing?
- Are these books telling the whole truth?
That, my friend, is where you come in.
Financial due diligence is a deep-dive investigation into a business’s financial health, done before a deal.
You
help the buyer see through the books-uncovering red flags, one-offs, or anything that could change the deal’s
value.
And no, it’s not something only done by fancy bankers or Big 4 hotshots. If you’re a fresher CA in a boutique
advisory firm, a startup CFO’s team, or even corporate finance, you might be doing due diligence sooner than you
expect.
So, How to Do Financial Due Diligence as a Fresher CA?
Let’s break it down into real-world steps-minus the jargon, but with just the right amount of nerdiness to
impress your manager. This section will make how to do financial due diligence feel less overwhelming and more
actionable.
1. Understand the Deal Before You Touch the Numbers
Before Excel even opens, ask:
- Why is this deal happening?
- Is it a full acquisition? A stake sale?
- What’s the buyer trying to gain-growth, cost synergy, market access?
Knowing the deal structure and intent gives you direction. You’ll know what to look for, and more
importantly, what matters most to your client. This isn’t just a numbers game. It’s a business story, and
that’s the first secret of how to do financial due diligence well.
2. Request the Data (a.k.a. Step Into the Data Room Jungle)
You’ll typically get access to a virtual data room packed with:
- Audited financials (past 3–5 years)
- Trial balances, GL extracts
- Ageing reports (debtors, creditors)
- Inventory and fixed asset registers
- Tax filings (GST, TDS, IT returns)
- Pending litigations or notices
Tip: Start a checklist. Organize files. Name folders clearly. You’re not just reviewing data-you’re building
the bones of your analysis. It’s one of the core habits you’ll develop when learning how to do financial due
diligence thoroughly.
3. Analyze Historical Financial Performance
Now the real work begins. Open Excel. Pour some coffee. And go line by line.
What you’re looking at:
- Revenue trends: Is it stable? Seasonal? Falling?
- Profit margins: Are gross margins shrinking or steady? Is EBITDA consistent?
- Working capital: Are receivables stretching? Inventory piling up?
- Cash flows: Is this business actually making money, or just surviving on paper profits?
Build out a clean, simple model. Year-on-year comparison. Common size (% of revenue). Keep formulas easy to
follow. This is where many freshers go wrong-clarity > complexity. It’s a must-know skill for anyone
mastering how to do financial due diligence effectively.
4. Adjust That EBITDA (This Part’s Gold)
Here’s a truth you’ll learn early: reported EBITDA is almost never the real EBITDA.
That’s why understanding how to do financial due diligence well often comes down to identifying these
adjustments:
- One-time costs (lawsuits, closures, floods, restructuring)
- Non-core income (interest, one-off gains)
- Owner-linked expenses (like personal travel or fancy cars booked in the business)
You’re trying to show the buyer what “normal” profits would look like if the business was run professionally.
This is called normalized EBITDA, and it’s usually the starting point for valuation.
5. Scan the Balance Sheet for Skeletons
This part? It’s where red flags like to hide.
- Receivables >180 days? Doubtful.
- Inventory not moving? Might be obsolete.
- Contingent liabilities? Pending tax notices, lawsuits, guarantees—flag them.
Ask questions. Trace anomalies. You’re not being paranoid—you’re doing your job. That’s the mindset shift in
learning how to do financial due diligence with confidence.
6. Check Tax Compliance (Even if You’re Not a Tax Person)
You don’t need to know every section of the IT Act. But do look for:
- Mismatch between GST returns and revenue reported
- TDS not matching 26AS? That’s a red flag
- Pending assessments or disputed demands? These affect valuation and deal risk
Remember: A company that’s sloppy with tax usually has other hidden issues too. Any guide on how to do
financial due diligence will tell you tax checks are non-negotiable.
7. Compile the FDD Report (Make It Speak Business)
The final piece of the puzzle: the Financial Due Diligence Report.
And trust me—it’s not just for the CA in the room. The business head, the investor, and even the legal team
will read it. So make it:
- Structured: Executive summary → Financials → Red flags → Conclusion
- Visual: Use clean tables, graphs, and callouts
- Neutral: Stick to facts, but don’t shy away from risk commentary
Your job is to show the real picture—warts and all. That’s the essence of how to do financial due diligence
professionally.
Questions You Might Google
Q: What’s the difference between audit and financial due diligence?
Audit checks compliance and accuracy. Due diligence checks business reality. Audit is backward-looking; due
diligence is forward-focused.
Q: Can I do financial due diligence as a fresher CA?
Yes. Many firms prefer freshers-they bring energy and Excel skills. Just be curious and hungry to learn.
The more you practice how to do financial due diligence, the sharper you’ll get.
Q: How long does an FDD take?
Small deals: 1–2 weeks. Larger M&As? Easily a month or more. Timelines shift—be ready.
Q: What tools should I learn for FDD?
Excel (advanced). PowerPoint. Data room platforms like Intralinks. And maybe brush up on valuation basics.
Conclusion: Your First Due Diligence Will Be Messy-and That’s Okay
Let’s be real-your first financial due diligence project might feel like a mess. You’ll second-guess your work.
You’ll wonder if you’re missing something obvious. You might even panic when your senior asks you to explain a
margin dip you didn’t spot.
But that’s how you learn. Every good FDD professional was once a fresher who asked too many questions, made ugly
Excel files, and forgot to update the index page in the report.
So if you're still wondering how to do financial due diligence as a fresher-here’s the real answer:
Start. Ask. Observe. Fix. Repeat.
You’ve got the tools. Now it’s time to build the instinct.
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