GuidesFinancialNovember 5, 2026Dennis Raisich

Financial due diligence

Financial due diligence examines how much a company earns on a sustainable basis, which debts count against the purchase price and whether the business plan holds up. It provides the numbers that the valuation and the purchase price are built on.

In short

The focus is on adjusted EBITDA, net debt, net working capital and the business plan.
Adjustments cover one-off effects, owner salaries that are out of line with the market, and transactions with related parties.
In Switzerland, hidden reserves in financial statements under the Code of Obligations deserve special attention.
The numbers belong next to the contracts: revenue that no contract supports does not belong in the plan.

What does financial due diligence examine?

Topic	What it shows	Typical question
Adjusted EBITDA	Sustainable earnings, excluding special items	What does the company earn in a normal year?
Net debt	What is left of the enterprise value for the shares	Which debts and debt-like items does the buyer deduct from the price?
Net working capital	The capital tied up in day-to-day business	What level of inventory and receivables does the business normally need?
Cash flow	How much of the profit turns into cash	How much has to be invested every year?
Business plan	Expectations for the coming years	Is the plan consistent with contracts, customers and past results?

What is adjusted EBITDA?

Earnings before interest, taxes, depreciation and amortization (EBITDA) is the figure buyers rely on most often. But financial statements rarely show a “normal” year. That is why the figures are adjusted, a step that practitioners also call quality of earnings. Typical adjustments are:

one-off income and costs, such as a gain on the sale of an asset or a lawsuit,
an owner’s salary that differs from the market rate,
transactions with related parties at prices a third party would not pay, such as rent for a building that belongs to the owner,
costs that disappear or are added after the sale.

What do hidden reserves mean in Swiss financial statements?

Swiss law allows companies to make additional depreciation and valuation adjustments and so build up hidden reserves (Art. 960a para. 4 of the Swiss Code of Obligations (CO)). Financial statements under the CO can therefore understate profit. When hidden reserves are released, profit is overstated in that year. Financial due diligence strips out both effects. Financial statements under Swiss GAAP FER or IFRS are meant to give a true and fair view, which makes them a better basis for this.

What counts as net debt and net working capital?

Buyer and seller usually agree on an enterprise value on a cash-free, debt-free basis. For the shares, the buyer pays this value minus net debt. What counts toward net debt is often the biggest point of dispute: besides bank loans, it can include shareholder loans, deferred payments, leases, unfunded pension obligations, declared dividends or tax liabilities.

Then there is net working capital. If the seller collects receivables shortly before the reference date and pays suppliers later, the cash position looks good and the buyer has to put in more money afterward. That is why the parties often agree on a normal level and settle any deviation through the price.

How is the business plan reviewed?

A plan is an expectation, not evidence. Financial due diligence compares it with past results and with the contracts. Is revenue growing faster than ever before? Does a large share depend on a few customers? Can a customer terminate on a change of ownership? Questions like these link the numbers to legal due diligence.

Financial due diligence with AI

majiq reads revenue, EBITDA and net debt per company directly from the financial statements and recalculates them, over several years and for every company in the group. Every number is linked to its source, and unusual items are recorded as findings. majiq also cross-checks the financial statements against the contracts and the plan and shows contradictions as findings. More on this in AI in due diligence.

Frequently asked questions

Who carries out financial due diligence?

Usually auditors and accountants, and for larger deals specialized transaction services teams. They are hired by the buyer or, in a vendor due diligence, by the seller.

Isn’t the statutory auditor’s report enough?

No. The audit checks whether the financial statements comply with the rules, not what a buyer can expect on a sustainable basis. Many smaller Swiss companies also have only a limited statutory audit or waive it entirely by opting out of the audit.

What is the difference between locked box and closing accounts?

With a locked box, the price is fixed on the basis of a balance sheet from before signing, and the seller warrants that no money has flowed out since then. With closing accounts, the price is adjusted after closing based on a balance sheet as of the reference date.