A career in Financial due diligence (FDD) or Transaction advisory (TAS) is arguably the best career path for accountants. The valuable skillsets acquired in FDD will accelerate your career and open doors that are closed to most professionals. However, getting a coveted position in this industry boils down to your preparation. The interview process is devoted to determining if you are intelligent, capable, reliable, and a good cultural fit.
Most likely, you are coming from a field like audit and assurance, financial analysis, or consulting. First off, congrats on making it this far. But next, realize that you still have a long way to go. Competition for FDD roles is stiff, and you need to fine-tune your strategy in order to land a job. That’s why we’ve created the best FDD interview guide on the market. Our guide was designed by FDD professionals with several years of experience working for the best Big 4 and middle-market firms in the U.S.
What is FDD?
Financial due diligence is a comprehensive analysis of a company’s financial and operational information to evaluate its financial health, growth potential, and risk profile. This process is typically performed during the due diligence phase of an M&A transaction to assess the target company’s financial viability and identify any potential risks. Financial due diligence includes reviewing financial statements, operations, financial management, and market conditions to provide a complete picture of the company’s financial strengths and weaknesses.
Arguably the main objective of financial due diligence is to provide a clear understanding and confirmation of a company’s historical performance. In order to provide a clear picture of historical performance, FDD professionals must ensure that historical earnings are accurately presented. The financial due diligence process is intended to provide a non-biased, accurate presentation of a company’s historical financial performance. Through the process, the FDD firm will provide the client with a few standard deliverables: (i) a quality of earnings analysis, (ii) a net working capital analysis, and (iii) a debt and debt-like analysis.
Quality of Earnings Analysis
Quality of Earnings Analysis is a review of a company’s financial statements, focusing specifically on the quality and sustainability of its earnings. It is a comprehensive analysis of a company’s revenue, expenses, and cash flow, designed to determine whether the company’s earnings are based on genuine, recurring revenue sources or if they are artificially inflated through one-time events, aggressive accounting practices, or other factors.
A quality of earnings analysis typically includes a review of key financial metrics, including revenue growth, gross margins, operating expenses, and cash flow. It also examines the company’s accounting practices, identifying any unusual transactions or red flags that may indicate artificially inflated earnings. The goal of a quality of earnings analysis is to provide a clear understanding of the quality and sustainability of a company’s earnings, which is critical information for investors and other financial professionals who are evaluating the financial health of a company.
Net Working Capital and Debt-like Analysis
Net Working Capital and Debt-Like Analysis is a review that focuses on a company’s liquidity and its ability to meet its short-term obligations. This analysis typically includes a review of the company’s current assets and liabilities, including cash, accounts receivable, inventory, accounts payable, and short-term debt.
Net working capital is calculated as the difference between a company’s current assets and its current liabilities. This calculation provides an understanding of the company’s ability to meet its short-term obligations and pay its bills.
The debt-like analysis focuses on the company’s long-term obligations, including any debt or other liabilities that may affect its ability to meet its financial obligations in the future.
The goal of the net working capital and debt-like analysis is to provide a clear understanding of a company’s liquidity and its ability to meet its financial obligations. This analysis is critical information for investors and other financial professionals who are evaluating the financial health of a company and its ability to meet its financial obligations over time.
Financial Due Diligence Interview Process
The interview process is designed to assess the candidate’s skills and experience, as well as their understanding of financial due diligence, accounting, and financial analysis.
Here are some tips for preparing for a financial due diligence interview:
- Research the FDD firm: Before the interview, research the company’s background, services, and core values.
- Review common financial accounting terms and concepts: FDD interviews often include discussions of financial statements, accounting principles, financial ratios, and other key financial concepts. Brush up on these concepts to ensure that you are familiar with the common terminology and able to discuss them confidently in the interview.
- Review your own experience and qualifications: Prepare a list of your own qualifications and experience, including the specific financial-related projects that you have worked on, the industries you have experience in, and the tools and techniques you have used in your work.
- Practice your case-study skills: Many financial due diligence interviews include case studies or scenario-based questions. Prepare for these by practicing your case-study skills and by preparing answers to common questions about your previous experience.
- Dress professionally: Dress professionally and arrive on time for the interview. Be polite and professional throughout the interview process.
- Be prepared to ask questions: Show your interest in the company and the role by asking thoughtful questions during the interview. This can demonstrate your knowledge of the company and the role, as well as your commitment to the financial due diligence process.
By preparing for a financial due diligence interview, you can demonstrate your knowledge, experience, and commitment to the role, and increase your chances of landing the job.
Our study guide provides an in-depth overview of each of these key workstreams, example adjustments, and an example case study.