Conducting Your Own Financial Due Diligence?

professional profile

April 23, 2024

by a professional from James Madison University in Washington, DC, USA

Conducting Your Own Financial Due Diligence?

➡️ Analyze changes in gross margin month over month:

RED FLAG #1: Feb 2023 Gross Margin of 10%, when the 2023 annual average is 25%.

RED FLAG #2:redactedJune 2023 Gross Margin of 50%, when the 2023 annual average is 25%.

Does this make sense?

This is an efficient technique I often use to identify potential accounting errors or one-time events that you should discuss with the seller or ownership.

Note: DIY Financial Due Diligence is not recommended and carries substantial risks! It could easily cost you over $100,000.


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Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA
Actually see this a lot -- and to your point, after looking at a rolling two-or three month window to see if it is a simple timing issue of when a revenue or expense was booked (a couple days off at the end of the month could lead to the above), if it isn't simple timing, it is a great starting point for a discussion with the seller to better understand.
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Reply by a searcher
from Ivey Business School at Western University in Burlington, ON, Canada
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