The logic and key issues of financial due diligence (with mind map attached)

The logic and key issues of financial due diligence (with mind map attached) Speaking of financial due diligence，First, we must pay attention to the purpose of financial due diligence，Different purposes may have different focus，But the financial concern from a big perspective is whether the performance is real.，If it is true, is there any investment value?，Will profits fall if regulations are adopted?，What is the potential of the enterprise? If resources are imported, can it be quickly standardized?，To meet the needs of listing, mergers and acquisitions, etc.

Require

，If M&A or IPO cannot be met soon

Require

Whether it can meet the second round of financing

Require

，Performance authenticity may be the issue that investors are most concerned about.，Many people may know how to pay attention to financial due diligence points.，But how to obtain useful financial due diligence information is the key to identifying problems。

Financial analysis cannot be limited to the analysis of financial statement data，The collection and analysis of non-report information is also important，especially the market，Analysis of business data，Statement analysis pays more attention to the analysis of historical financial data，Non-financial information can verify the rationality of financial data and gain an understanding of the company's competitive landscape and industry status.，Easier to make decisions on future financial forecasts and company development。

In addition to looking at the data, due diligence also requires analyzing the data.，Analysis of financial indicators，The core is comparison；Compare with industry average，You can tell the good and bad；Compare with the company's own data for several years，You can tell whether it’s getting better or worse。Financial Statements 1、Internal and external financial statements：Private enterprises often set up internal and external accounts due to tax and other considerations.。

Internal accounts represent the company’s true financial status，Accounting is usually done based on cash basis and cash flow, etc.，However, the tax status and invoice status are not in compliance with regulations，Need to adjust；The company's external account system prepares tax reports，Usually recorded based on invoice status，But income、cost、employee salary、social security、

cost

Waiting for incomplete calculation。It is recommended to collect the company’s income tax returns and internal accounting financial statements for the last two years.。

For biennial income tax returns，Collection 2025、2025Annual income tax return and income tax return for the first period of 2025 (directly scan the tax return stamped by the tax bureau)；For the biennial internal account financial statements，If the company is unwilling to provide it due to confidentiality and other considerations,，This can be handled by signing a confidentiality agreement in advance.。

Through internal and external financial statements，A preliminary estimate of tax costs can be made，However, the so-called internal accounts provided by the company may also be fake. Whether there is inflated performance requires further analysis.，Can be manually，Electricity bill，Comparative analysis of freight and other indicators，Whether the enterprise is the size described in the internal ledger，You can tell whether the company is really making money by looking at the treatment of its employees.，A profitable company might use double-layered toilet paper.，A company that is not making money may have dirty bathrooms and no toilet paper.。

1. Consolidated Financial Statements and Parent Financial Statements：For companies with subsidiaries，It is recommended to collect the consolidated financial statements and parent company financial statements for the last two years.，If the company does not prepare consolidated statements，It is necessary to collect the financial statements of the parent company and important subsidiaries for the last two years.，Including the income tax returns and internal accounting financial statements for the last two years。

Sometimes subsidiaries, especially overseas subsidiaries, may have thunderstorms.，Therefore, due diligence cannot only focus on the parent company，You also need to pay attention to the situation of subsidiaries, especially companies in tax-preferential locations or overseas.。3、In addition to obtaining reports, further detailed financial data is required，for example：Sales ledger、Purchase account、Production cost calculation sheet、freight、salary、Electricity bills and other information to learn more about the records of the company’s operations。

business situation

1. Main products or services：To reflect the company’s main products and services，Understand the company's main business，It is recommended to calculate the company’s revenue from different categories of products or services in the last two years.、Cost and gross profit margin。This is usually based on data at the corporate internal account consolidated financial statement level.。
2. Enterprise customers：Understand the company's main markets and customers，Statistics of the sales proportion of the top five customers in the last two years，Understand whether there are major customer dependencies and customer concentration levels。
3. sales model：Understand the company’s sales model，Including consignment、Direct sales, etc.，Statistics of revenue proportion under different sales models。
4. supplier：Understand the company's main materials and suppliers；Statistics on the purchasing proportion of the top five suppliers in the last two years，Understand whether there are major supplier dependencies and supplier concentration levels。
5. competitors：Understand the market competition and main competitors of the company's products，Pay special attention to listed companies and quoted companies of the same type。
6. Core technology and patent status：Understand the company’s core technologies and patents，The patent information can be checked on the patent website。For technology and patent situations，Focus on understanding its advancement and competition

Advantages

。

Related party transactions and related party transactions

1. Related party transactions：Understand the related party transactions between the company and related parties (other related companies outside the scope of consolidated statements)，Focus on related purchasing and related sales，Including the amount of related purchases and sales、Proportion and price fairness。
2. Related transactions：Statistics on the company's related-party balances at the end of the latest period，Usually through other receivables、Learn about other payables and prepaid accounts。

The occupation of company funds by related parties must be resolved before reporting。Financial accounting basics

1. income、Cost accounting principles and methods：Understand how your company calculates revenue costing，Some companies use invoicing or cash basis to recognize revenue carryover costs.，Usually requires adjustment to accrual basis。
2. Financial accounting software：Understand whether there is manual accounting in the company's financial accounting software。If there is a manual accounting situation，Need to first standardize the conversion into electronic accounts。
3. Invoice status：Understand the issuance of corporate invoices，including procurement、Sales invoice status。At the same time, understand whether the company has false invoicing and ticket buying.。
4. Cash flow and personal cards：Find out if the company has a personal card，Payment status via personal card。
5. Procurement supply and sales documents：Understand the company's warehouse account situation，Understand the retention and circulation of purchase, supply and sales documents，Confirm whether there is a warehouse purchase, sale and deposit account。

tax situation

1. Tax preferential policies：Understand corporate tax incentives，Including turnover tax and income tax。
2. Taxation method：Understand how businesses are taxed，Approved collection or audit collection。The latest issue of listing on the New OTC Market must be collected for audit purposes。
3. personal income tax：Understand whether the enterprise has not withheld and paid personal income tax，Especially companies that paid dividends during the reporting period。
4. tax cost：When there are two sets of internal and external accounts，Usually certain adjustments will be made based on the external account.。Understand business considerations regarding tax costs。Report account
5. long term equity investment：Whether the enterprise has subsidiaries through long-term equity investment accounts in financial statements、Merged enterprises and associated enterprises，You can check it through Qixinbao。
6. capital reserve：Understand the formation of each capital reserve according to the capital reserve account in the financial statements。
7. Other receivables：Understand whether there are shareholders and other related parties occupying company funds based on other receivables items in the financial statements，and interest-related information。
8. fixed assets：Focus on whether the company's property has a property ownership certificate，Whether depreciation of major fixed assets is calculated in a timely manner。
9. Construction in progress：Focus on whether the land under construction has a title certificate and whether there are long-term fixed assets that have not been transferred to the account.，Therefore, no depreciation has been provided。
10. intangible assets：Focus on the property rights of intangible assets，Including property rights such as land use rights and patents；For land with government subsidies, etc.，Understand whether the form of government subsidy is direct reduction or exemption or payment first and then refund。
11. advance payment：Pay attention to whether there is a large amount of advance payment that has been outstanding for a long time and whether there is any money occupied by related parties.、exists

cost

The account has not been recorded for a long time due to non-invoicing.、Are there any assets that have not been invoiced and have not been recorded in accounts for a long time and have been transferred to fixed assets?。

1. Other payables：Focus on the existence of private capital loans and interest rates；Pay attention to whether other payables from related parties can be offset with other receivables from related parties, etc.。
2. Notes receivable and payable：Pay attention to whether there is bill financing without real transaction background，If it exists, it must be ensured that the payment has been completed on the base date，No redemption risk。
3. Non-operating income：Pay attention to government subsidies through this subject，Understand government grant compliance。
4. Non-operating expenses：Learn about administrative penalties and other matters through this subject，Pay attention to whether there are administrative penalties, etc. during the reporting period。
5. Stock status：Pay attention to the company's inventory accounts and actual situation，Ensure that the book amount is consistent with the actual amount on the base date。

Budget situation concerns historical data，Then we should be more concerned about some future financial indicators.，For example, gross profit、sales period、future sales trends、The impact of future business format adjustments on revenue recognition, etc.，What is our tax cost if we operate properly?，What are the influencing factors? Is it the norm now or should we consider the norm in the future?。Is there sufficient performance support in the future?，What is the future direction of development?。attached：Mind mapping framework in financial due diligence

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