Financial Due Diligence Analyzer
Run comprehensive financial due diligence on acquisition targets, investment opportunities, or partnership prospects. Built for PE firms, corporate development teams, and founders evaluating deals.
What This Does
Generates a complete due diligence package:
- Quality of Earnings (QoE) — normalize EBITDA, strip one-time items, identify recurring vs non-recurring revenue
- Working Capital Analysis — NWC trends, peg calculation, seasonal adjustments
- Revenue Quality — customer concentration, churn, cohort analysis, contract backlog
- Debt & Liabilities — hidden obligations, off-balance-sheet items, contingent liabilities
- Cash Flow Bridge — EBITDA to free cash flow conversion, capex requirements
- Red Flag Scanner — 23 common deal-killers ranked by severity
How to Use
Tell your agent: "Run financial due diligence on [company/deal]"
Provide what you have:
- Financial statements (P&L, balance sheet, cash flow) — even partial
- Revenue breakdown by customer/product
- Known deal terms (purchase price, structure)
The agent will generate a structured diligence report with findings, risks, and negotiation points.
QoE Framework
EBITDA Normalization Checklist
| Adjustment Category |
Common Items |
Direction |
| Owner compensation |
Above/below market salary, personal expenses |
+/- |
| One-time revenue |
PPP loans, insurance claims, litigation settlements |
- |
| One-time expenses |
Restructuring, M&A costs, natural disaster |
+ |
| Related party |
Above/below market rent, intercompany charges |
+/- |
| Accounting changes |
Revenue recognition timing, reserve adjustments |
+/- |
| Run-rate adjustments |
New contracts, lost customers, price changes |
+/- |
Revenue Quality Score (0-100)
| Factor |
Weight |
Scoring |
| Recurring vs one-time |
25% |
>80% recurring = 25, >60% = 18, >40% = 12, <40% = 5 |
| Customer concentration |
20% |
Top customer <10% = 20, <20% = 15, <30% = 10, >30% = 3 |
| Retention rate |
20% |
>95% = 20, >90% = 15, >85% = 10, <85% = 5 |
| Contract backlog |
15% |
>12mo coverage = 15, >6mo = 10, >3mo = 6, <3mo = 2 |
| Growth trajectory |
10% |
>30% YoY = 10, >15% = 7, >5% = 4, declining = 1 |
| Pricing power |
10% |
Annual increases + low churn = 10, some = 6, none = 2 |
Working Capital Peg
NWC Peg = Average of trailing 12 months normalized NWC
Normalized NWC = Current Assets (excl. cash) - Current Liabilities (excl. debt)
Adjustments:
- Remove seasonal spikes (use monthly data, not quarterly)
- Strip one-time receivables/payables
- Normalize inventory to steady-state
- Adjust for known post-close changes
If NWC at close > Peg → Seller receives difference
If NWC at close < Peg → Buyer receives difference
Red Flag Scanner (23 Points)
Critical (Deal-killers)
- Revenue concentration >40% single customer
- Declining revenue with no credible turnaround plan
- Negative or deteriorating cash conversion (EBITDA to FCF <50%)
- Undisclosed litigation or regulatory action
- Key person dependency with no succession plan
- Material related-party transactions at off-market terms
- Unrecorded liabilities (tax, environmental, legal)
Serious (Price adjustments)
- Customer churn accelerating quarter-over-quarter
- Gross margin compression >200bps annually
- Capex requirements understated (deferred maintenance)
- Working capital trends moving against buyer
- Aggressive revenue recognition policies
- Unusual pre-close transactions (dividends, bonuses)
- Technology debt requiring material investment
- Regulatory changes threatening core business model
Notable (Negotiation points)
- Management team retention risk
- Vendor concentration >30% single supplier
- IP ownership gaps or licensing dependencies
- Insurance coverage gaps
- Environmental liabilities (real estate)
- Employee benefit obligations (pension, OPEB)
- Tax position optimization opportunities
- Integration complexity indicators
Valuation Sanity Check
Quick Multiples Reference (2025-2026)
| Sector |
EV/Revenue |
EV/EBITDA |
Notes |
| SaaS (<$10M ARR) |
4-8x |
15-25x |
Higher for >120% NRR |
| SaaS ($10-50M ARR) |
6-12x |
20-35x |
Rule of 40 premium |
| Professional Services |
1-2x |
8-12x |
People-dependent discount |
| Manufacturing |
0.5-1.5x |
6-10x |
Asset-heavy adjustment |
| Healthcare Services |
1-3x |
10-15x |
Regulatory moat premium |
| Fintech |
5-15x |
20-40x |
Wide range, growth-dependent |
| E-commerce |
1-3x |
10-18x |
Brand and margin quality |
Purchase Price Allocation
Enterprise Value
- Net Debt (total debt - cash)
- Transaction Expenses
- Working Capital Adjustment (vs Peg)
+ Earnout (if applicable, risk-adjusted at 50-70% probability)
= Equity Value to Seller
Output Format
Your due diligence report should include:
- Executive Summary — deal overview, key findings, go/no-go recommendation
- Quality of Earnings — normalized EBITDA bridge with adjustments
- Revenue Analysis — quality score, concentration, trends
- Working Capital — NWC peg, seasonal analysis, close estimate
- Cash Flow — EBITDA to FCF bridge, capex analysis
- Red Flags — scored findings with severity and $ impact
- Valuation Check — multiples comparison, sanity test
- Negotiation Points — specific items for purchase agreement
Built by AfrexAI — AI context packs for business operations ($47 each).
More tools:
1---2name: afrexai-financial-due-diligence3description: Financial Due Diligence Analyzer4---5# Financial Due Diligence Analyzer67Run comprehensive financial due diligence on acquisition targets, investment opportunities, or partnership prospects. Built for PE firms, corporate development teams, and founders evaluating deals.89## What This Does1011Generates a complete due diligence package:12- **Quality of Earnings (QoE)** — normalize EBITDA, strip one-time items, identify recurring vs non-recurring revenue13- **Working Capital Analysis** — NWC trends, peg calculation, seasonal adjustments14- **Revenue Quality** — customer concentration, churn, cohort analysis, contract backlog15- **Debt & Liabilities** — hidden obligations, off-balance-sheet items, contingent liabilities16- **Cash Flow Bridge** — EBITDA to free cash flow conversion, capex requirements17- **Red Flag Scanner** — 23 common deal-killers ranked by severity1819## How to Use2021Tell your agent: "Run financial due diligence on [company/deal]"2223Provide what you have:24- Financial statements (P&L, balance sheet, cash flow) — even partial25- Revenue breakdown by customer/product26- Known deal terms (purchase price, structure)2728The agent will generate a structured diligence report with findings, risks, and negotiation points.2930## QoE Framework3132### EBITDA Normalization Checklist33| Adjustment Category | Common Items | Direction |34|---|---|---|35| Owner compensation | Above/below market salary, personal expenses | +/- |36| One-time revenue | PPP loans, insurance claims, litigation settlements | - |37| One-time expenses | Restructuring, M&A costs, natural disaster | + |38| Related party | Above/below market rent, intercompany charges | +/- |39| Accounting changes | Revenue recognition timing, reserve adjustments | +/- |40| Run-rate adjustments | New contracts, lost customers, price changes | +/- |4142### Revenue Quality Score (0-100)43| Factor | Weight | Scoring |44|---|---|---|45| Recurring vs one-time | 25% | >80% recurring = 25, >60% = 18, >40% = 12, <40% = 5 |46| Customer concentration | 20% | Top customer <10% = 20, <20% = 15, <30% = 10, >30% = 3 |47| Retention rate | 20% | >95% = 20, >90% = 15, >85% = 10, <85% = 5 |48| Contract backlog | 15% | >12mo coverage = 15, >6mo = 10, >3mo = 6, <3mo = 2 |49| Growth trajectory | 10% | >30% YoY = 10, >15% = 7, >5% = 4, declining = 1 |50| Pricing power | 10% | Annual increases + low churn = 10, some = 6, none = 2 |5152### Working Capital Peg53```54NWC Peg = Average of trailing 12 months normalized NWC5556Normalized NWC = Current Assets (excl. cash) - Current Liabilities (excl. debt)5758Adjustments:59- Remove seasonal spikes (use monthly data, not quarterly)60- Strip one-time receivables/payables61- Normalize inventory to steady-state62- Adjust for known post-close changes6364If NWC at close > Peg → Seller receives difference65If NWC at close < Peg → Buyer receives difference66```6768## Red Flag Scanner (23 Points)6970### Critical (Deal-killers)711. Revenue concentration >40% single customer722. Declining revenue with no credible turnaround plan733. Negative or deteriorating cash conversion (EBITDA to FCF <50%)744. Undisclosed litigation or regulatory action755. Key person dependency with no succession plan766. Material related-party transactions at off-market terms777. Unrecorded liabilities (tax, environmental, legal)7879### Serious (Price adjustments)808. Customer churn accelerating quarter-over-quarter819. Gross margin compression >200bps annually8210. Capex requirements understated (deferred maintenance)8311. Working capital trends moving against buyer8412. Aggressive revenue recognition policies8513. Unusual pre-close transactions (dividends, bonuses)8614. Technology debt requiring material investment8715. Regulatory changes threatening core business model8889### Notable (Negotiation points)9016. Management team retention risk9117. Vendor concentration >30% single supplier9218. IP ownership gaps or licensing dependencies9319. Insurance coverage gaps9420. Environmental liabilities (real estate)9521. Employee benefit obligations (pension, OPEB)9622. Tax position optimization opportunities9723. Integration complexity indicators9899## Valuation Sanity Check100101### Quick Multiples Reference (2025-2026)102| Sector | EV/Revenue | EV/EBITDA | Notes |103|---|---|---|---|104| SaaS (<$10M ARR) | 4-8x | 15-25x | Higher for >120% NRR |105| SaaS ($10-50M ARR) | 6-12x | 20-35x | Rule of 40 premium |106| Professional Services | 1-2x | 8-12x | People-dependent discount |107| Manufacturing | 0.5-1.5x | 6-10x | Asset-heavy adjustment |108| Healthcare Services | 1-3x | 10-15x | Regulatory moat premium |109| Fintech | 5-15x | 20-40x | Wide range, growth-dependent |110| E-commerce | 1-3x | 10-18x | Brand and margin quality |111112### Purchase Price Allocation113```114Enterprise Value115- Net Debt (total debt - cash)116- Transaction Expenses117- Working Capital Adjustment (vs Peg)118+ Earnout (if applicable, risk-adjusted at 50-70% probability)119= Equity Value to Seller120```121122## Output Format123124Your due diligence report should include:1251. **Executive Summary** — deal overview, key findings, go/no-go recommendation1262. **Quality of Earnings** — normalized EBITDA bridge with adjustments1273. **Revenue Analysis** — quality score, concentration, trends1284. **Working Capital** — NWC peg, seasonal analysis, close estimate1295. **Cash Flow** — EBITDA to FCF bridge, capex analysis1306. **Red Flags** — scored findings with severity and $ impact1317. **Valuation Check** — multiples comparison, sanity test1328. **Negotiation Points** — specific items for purchase agreement133134---135136Built by [AfrexAI](https://afrexai-cto.github.io/context-packs/) — AI context packs for business operations ($47 each).137138**More tools:**139- [AI Revenue Leak Calculator](https://afrexai-cto.github.io/ai-revenue-calculator/) — Find where you're losing money140- [Agent Setup Wizard](https://afrexai-cto.github.io/agent-setup/) — Deploy AI agents in minutes141- [Full Context Pack Store](https://afrexai-cto.github.io/context-packs/) — 10 industry packs, $47 each
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