A Complete Guide to a Due Diligence Report

A Complete Guide to a Due Diligence Report

November 14, 2022 Admin
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The information gathered throughout the due diligence process is compiled in a due diligence report. The due diligence process, which entails a systematic investigation and analysis of all aspects of a proposed transaction, is carried out in order to improve investment decisions and mitigate risk for a company. The due diligence process includes a comprehensive evaluation of an entity's financial viability in terms of assets and liabilities, a detailed analysis and verification of its operations, and a comprehensive examination and verification of its material facts regarding a proposed transaction. It also entails analyzing a company's financial records and comparing them over time with those of competitors to understand the financial status and performance of the company. Further due diligence process also takes into account all legal and tax aspects including that of the directors of the Company. The results of these investigations are then compiled in a report known as the due diligence report.


Why due diligence report is needed

Prior to making an acquisition, investment, business partnership, or taking a bank loan or other major decisions, due diligence is done to assess the value of the subject (a company or an entity) and identify major issues. The data gathered during this process is compiled into a report which clarifies how the business intends to increase profits. It presents a quick overview for understanding the situation at the time of purchase, sale, etc. Getting a clear picture of how the business will perform in the future is the ultimate goal of the report.

A Complete Guide to a Due Diligence Report

Drafting of the Due Diligence report

A due diligence report must answer the following points.

  • Past operational and financial performance?
  • Who is your target audience?
  • What is your objective?
  • Which aspects of the business will be key to decision-making?

Where is a due diligence report used?

The format and the content of a due diligence report may vary depending on the industry type and the purpose of the report.


  • Real Estate - Due diligence reports are used by real estate investors and developers to assess a property's potential profitability, CAP rate (the capitalization rate is used to denote the projected rate of return on an investment property), anticipated vacancy rates, and potential capital improvements. The following items should also be on the real estate professional's due diligence checklist:
  1. Property taxes
  2. Comparable properties
  3. Inspection reports
  4. Opportunities for further development
  • Business Valuation - Business valuations are essential for making better decisions if a company is growing, going public, or going through a merger or acquisition, etc. A due diligence report for valuations is generally centred on:
  1. Financial statements
  2. Financial projections
  3. Capital structure
  4. Strengths, weaknesses, opportunities and potential threats in the marketplace

When looking for funding from outside investors or when requesting a business loan, it might be necessary to submit a business valuation due diligence report


  • Sales, Acquisitions, or Mergers - A company that is for sale and is considering a merger or the acquisition of another organization will need a due diligence report. The report should provide a brief overview of the pertinent financial data, upcoming business opportunities, and challenges.

This includes:

  1. Corporate records
  2. Financial information
  3. Debt
  4. Information on real estate, owned or leased
  5. Legal documents
  6. Supplier and customer information
  7. Joint venture, marketing, and licensing agreements

Aspects covered in a due diligence report:

  • Viability: A thorough analysis of the company's business and financial plans can be done to determine the target company's viability.
  • Monetary Aspect: Analyzing ratios and using key financial data is necessary to get a good handle on the situation.
  • Environment: No company operates independently. Consequently, it is essential to consider the macro environment and how it will affect the target company in the long run.
  • Personnel: Key considerations include the competence and reputation of the people running the company.
  • Existing & Potential Liabilities: Any ongoing legal matters and regulatory concerns must be examined.
  • Technology: Assessing the technological capabilities of a business is a crucial factor to be taken into consideration. Such an evaluation is crucial since it informs choices on future projects.

Types of Due Diligence Report

  • Business Due Diligence: This entails detailed scrutiny of each party in a transaction, as well as the business's prospects and the investment's potential.
  • Financial Due Diligence: The viability of the company's finances, operations, and business depend on this stage. It gives the acquiring company a clear picture of whether the acquisition is profitable or not. Internal controls, tax conformity, auditing processes, and accounting regulations are all carefully examined.
  • Legal Due Diligence: This kind of due diligence focuses on any potential legal issues associated with a transaction. It scans for any potential legal pitfalls or obstacles. Typically, it includes both internal and external business transactions.

Due Diligence Checklist:

The following documents are taken into account for the due diligence process:

Comprising balance sheets, financial statements, income and expense statements, profit and loss accounts, articles of association, memorandum of association, shareholding pattern, certificate of incorporation of the Company, income tax returns, bank statements, employee records, director and management information, utility bills, statutory registers, tax registration certificates, intellectual property registration and other application documents, operational, legal and other financial documents, and so on.


Importance of Due Diligence Report 

  • A thorough report aids in understanding the business and its long-term plans to generate extra earnings, whether monetary or not.
  • The report acts as a quick reckoner or ready-to-serve document to help understand the issues and difficulties that may arise during a purchase or sale. 
  • It provides a comprehensive picture of the company's past, present, and projected future performance.
  • Before finalizing the transaction, an acquirer can identify and comprehend the risks, liabilities, and issues that exist in the company with the help of the due diligence report.
  • It also aids in averting losses and undesirable outcomes in the future.

Top due diligence service provider

Resurgent India Ltd is a SEBI-registered Category-I Merchant Banker with a talent pool of experienced professionals and an in-depth understanding of the nooks and corners of the market.

Our due diligence report includes a thorough investigation and critical assessment of all important aspects of a company, including its financial, operational, and legal performance. Our investigation also identifies risks and vulnerabilities that might not be apparent to an outsider to help companies make smart business decisions.

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