Summary of Financial Due Diligence test
The Financial Due Diligence test covers business valuation, financial and operational risk, and the verification of account balances. Its focus is the review a buyer carries out ahead of a merger, acquisition, or asset purchase.
This test will help you find candidates who get the price of a deal right and can identify issues in the target company’s books ahead of your team’s commitment to the deal.
Covered skills
- Business valuation
- Financial health, hygiene, and risk analysis
- Verification of individual account head
- Deal structuring
Use the Financial Due Diligence test to hire
In due diligence, a small error in a valuation or a missed warning sign can change how a deal looks. Yet a resume that lists deal experience can’t show whether a candidate does this work accurately.
The Financial Due Diligence filters candidates who can value a target company and detect early signs of financial distress. They can also re-perform checks to make sure receivables, assets, and liabilities are correctly stated.
Give it to every applicant, since it takes only 10 minutes, and you can filter a big pool on what people can do rather than where they’ve worked. The same scores then guide the rest of your decisions, like who moves on to the technical interview, what the interview can skip, and whether a finalist’s result matches what you saw in the room.
That means fewer wasted interviews, a lower risk of a mis-hire, and fewer errors in your team’s review of a target company’s books.
Job roles employers can hire using the Financial Due Diligence test
Employers can use the Financial Due Diligence test for any role that values, reviews, or structures transactions, such as:
- Financial due diligence analysts, who examine a target’s accounts ahead of the closing
- Mergers and acquisitions (M&A) advisors, who guide buyers on price and deal terms
- Transaction advisory consultants, who support clients through the financial review of a purchase
- Investment banking associates, who build valuation models and support deal execution
- Corporate development managers, who assess acquisition targets for their own company
- Buy-side financial analysts, who judge whether a target is worth its asking price
- Financial forensic auditors, who trace irregularities in accounts and transactions
About the Financial Due Diligence test
Financial due diligence is a buyer’s review to ensure the target company’s earnings, assets, and liabilities align with the seller’s reported figures. Performing this step accurately is vital to ensure the buyer does not overpay, assume hidden obligations, or accept deal terms that do not reflect actual risk.
Wetest’s Financial Due Diligence test assesses candidates on deal structuring, business valuation techniques, quality of earnings and inventory analysis, and buy-side audit verification procedures. It also covers market efficiency impacts, such as the speed at which share prices reflect available information. In the quality of earnings section, candidates must judge how much of the company’s reported profit is earned through sustainable, recurring business activities.
This intermediate-level, Financial Due Diligence test will help you hire people who can help your team negotiate with a clear understanding of the target’s value and which risks to account for in pricing.
What does the Financial Due Diligence test measure?
The test assesses candidates’ valuation, risk, and verification skills. It covers three areas:
Valuation methods:
- Net asset valuation
- Break-up value
- Net realizable value
- Dividend discount models
- Earnings-based exchange ratios for share swaps
- Price adjustments for market efficiency
Transactional and operational risks:
- Overtrading
- Financial distress
- Inventory impairment
- Working capital lock-up
- Real estate valuation risk
Any one of these risks can change the target’s value or the way the deal should be structured.
Due diligence procedures:
- Assessing working capital
- Verifying title to physical assets
- Re-performing trade receivable aging
- Cut-off and completeness testing for liabilities
FAQ
It takes 10 minutes to complete the Financial Due Diligence test.
The Financial Due Diligence test is set at an intermediate level. For senior and partner-level hires, use the results to check core methods; interviews and a review of past work should then cover deal leadership.
No, the Financial Due Diligence test is not an interview replacement. The test shows candidates’ ability to use core due diligence methods and makes the hiring pool smaller. However, it does not show if a candidate can handle clients, meet deadlines, and negotiate. Pair the test results with a structured interview to see how the candidates explain and defend their judgments.
