Financial Due Diligence (FDD)
An independent review of a target company's historical and projected financials, conducted for a buyer or lender before completing a transaction.
Also known as: FDD, Buy-side due diligence
One-line definition
FDD is the structured investigation of what the numbers really say — revenue quality, cost sustainability, working capital dynamics, debt positions, and cash generation.
Key workstreams
- Quality of Earnings (QoE) — EBITDA bridge.
- Net Debt — identification of all debt and debt-like items.
- Net Working Capital — NWC trend and peg analysis.
- Cash flow and capex analysis.
- Tax and accounting policy review.
Output
A written report with findings, risks, and deal-relevant observations used by the buyer to negotiate price adjustments or SPA protections.
Related terms
Quality of Earnings
The TS work-product that bridges reported EBITDA to a defensible run-rate figure a buyer can underwrite.
Net Debt
The gap between Enterprise Value and Equity Value in a deal — gross debt minus cash, plus a long list of debt-like items.
Net Working Capital (NWC / WCR)
Net Working Capital (NWC), also called Working Capital Requirement (WCR) — the normalised working capital a target needs to operate, and a direct lever on the M&A purchase price.
Vendor Due Diligence (VDD)
A due diligence report commissioned by the seller and made available to potential buyers, designed to accelerate the sale process.