The following summarizes the typical scope of our financial due diligence and tax due diligence which we would expect to perform in connection with the due diligence associated with your specific project though the scope of work and our involvement will depend on your instructions. We will prepare an English-based diligence report documenting our accounting and tax findings.
1. Normalized EBITDA – Analyze “normalized” EBITDA and understand trends over the last several fiscal years and most recent LTM period. Identify items that could potentially have a continuing significant impact on future earnings, as well as exclusion of non-recurring and non-cash items.
2. Other Quality of Earnings – Determine reasons for revenue movement and change in margins by business segment. Understand customer pricing/fee structure, unit economics/KPI analysis and historical trends by business segment.
3. Working Capital – Analyze working capital balances, focusing on trends, seasonality and sustainability. Further analyze working capital by significant business line.
4. Commitments and Contingencies – Analyze the existence of guarantees, legal obligations, off balance sheet liabilities, contingent liabilities and off balance sheet pension liabilties.
5. Capex – Understand the level of capital expenditures (distinguished between growth and maintenance) by business segment.
6. Pension – Understand the structure of pension plans adopted by the Target and analyze the associated funding risks. Analyze pension liablity, actuarial assumptions employed, quality of pension assets, net periodic benefit costs andtiming and risk of projected cash contribution. Note that pension structure may be complicated, depending on the target in Japan.
7. Tax – Understand the level of tax compliance conducted by the Target and Advisors, and issues pointed out in the past by the tax authority. Further identify tax risks which could have significant impact on the future earnings and financial balance.