The due diligence report is an important document for investors to conduct a comprehensive and in-depth review and evaluation of the target company before making major decisions such as equity investment, mergers and acquisitions, and listing. Its quality and credibility directly affect investors' judgments and decisions. Therefore, how to assess the quality and credibility of due diligence reports is a core skill that investors must master. This paper puts forward the standards and methods for evaluating the quality and credibility of the due diligence report from five aspects: the content, method, source, logic and style of the due diligence report, and combines the professional experience and customer cases of Shangpu Consulting Group Co., Ltd. (referred to as "Shangpu Consulting") in the fields of market research, investment consulting, IPO listing consulting, etc., to show how to use these standards and methods for practical operation.

1. Content

Content is the core of the due diligence report, which determines whether the due diligence report can provide the information needed by investors, reflect the real situation of the target enterprise, and reveal the value and risk of the target enterprise. To assess the quality and credibility of the content of the due diligence report, the following aspects need to be examined:

Integrity. The due diligence report should cover all relevant aspects of the target enterprise, including legal, financial, business, industry, management, etc., and focus on different aspects according to the characteristics of different projects. For example, when conducting IPO listing consultation, it is necessary to focus on whether the target enterprise meets the listing conditions, whether there are listing obstacles, whether it has listing potential, etc.; when conducting merger and acquisition consultation, it is necessary to focus on whether the target enterprise has major legal risks such as litigation, arbitration, administrative punishment, financial risks such as related party transactions and benefit transmission, and business risks such as competitor interference and customer loss.

Accuracy. The due diligence report should be based on true and valid data and information, avoid errors, omissions or distortions of the facts, and update the data and information in a timely manner to reflect the latest situation of the target enterprise. For example, when conducting market research, it is necessary to collect and verify data and information through a variety of channels, including public reports, literature, statistical data, etc., as well as non-public interviews, questionnaires, observations, etc., and according to market changes and customer needs, Data and information are updated regularly or irregularly to provide the latest market analysis and forecasts.

Importance. The due diligence report should highlight the important characteristics of the target enterprise, grasp the core competitiveness and advantages of the target enterprise, reveal the value creation point and growth potential of the target enterprise, and also point out the main risks and challenges of the target enterprise, and put forward corresponding countermeasures and suggestions. For example, when conducting investment consulting, it is necessary to identify the strengths, weaknesses, opportunities and threats of the target enterprise through a SWOT analysis of the target enterprise, and give reasonable investment plans and investment recommendations based on the investor's investment objectives, investment horizon, return on investment and other requirements.

2. method

Methodology is the support of the due diligence report, which determines whether the due diligence report can collect and analyze data and information in a scientific and reasonable way, whether it can use effective and feasible tools and models for evaluation and prediction, and whether it can provide convincing and valuable conclusions and recommendations. To assess the quality and credibility of the due diligence reporting methodology, the following main aspects need to be examined:

Reasonableness. The due diligence report should be based on the characteristics and objectives of different projects, select appropriate methods for due diligence work, and explain the advantages and disadvantages of the methods, scope of application and conditions. For example, when conducting industry research, you can choose PEST analysis, Porter's five-force analysis, industry chain analysis and other methods, respectively, from the macro environment, industry competition, upstream and downstream relations and other angles of analysis, and compare the differences in the depth, breadth, sensitivity and other aspects of the various methods.

Effectiveness. The due diligence report should use the methods that have been widely recognized and applied to carry out the due diligence work, and make necessary adjustments and improvements to the methods according to the actual situation. For example, in financial analysis, you can use financial ratio analysis, financial indicator analysis, financial forecast analysis and other methods, respectively, from the financial situation, financial performance, financial prospects and other perspectives to analyze, and according to the characteristics of different industries and enterprises to select the appropriate ratio, indicators and forecasting models.

Innovative. The due diligence report should be based on the existing methods, combined with their own professional knowledge and experience, develop new and unique methods to carry out due diligence work, and verify the reliability and practicality of the method. For example, in the market segmentation, you can use the traditional geographical segmentation method, population segmentation method, psychological segmentation method and other methods, but also can use the emerging behavior segmentation method, scene segmentation method, demand segmentation method and other methods, and according to the characteristics of different markets and products to design appropriate segmentation variables and segmentation criteria.

Source of 3.

The source is the basis of the due diligence report, which determines whether the due diligence report can obtain sufficient and reliable data and information, cover all aspects of the target enterprise, and reflect the views of stakeholders inside and outside the target enterprise. To assess the quality and credibility of the sources of due diligence reports, the following main aspects need to be examined:

Diversity. The due diligence report should obtain data and information from a variety of channels and channels, including documents, materials, statements, etc. provided by the target enterprise, as well as reports, certificates, opinions, etc. provided by third-party organizations or individuals, and select appropriate channels and channels according to the needs of different projects. For example, when conducting legal due diligence, data and information can be obtained from target companies, courts, arbitration institutions, administrative agencies, law firms and other channels, and appropriate channels and channels can be selected according to the nature and severity of different legal issues.

Reliability. The due diligence report should verify the authenticity and validity of the data and information, avoid the use of false, outdated or invalid data and information, and disclose and explain the source of the data and information. For example, when conducting business due diligence, data and information such as business scale, business structure and business quality of the target enterprise can be verified by consulting documents such as contracts, orders and invoices of the target enterprise, as well as conducting interviews or questionnaires with customers, suppliers and partners of the target enterprise, and the sources of the data and information can be disclosed and explained.

Consistency. The due diligence report should compare whether data and information from different sources corrosources or contradict each other, and analyze and explain inconsistent data and information. For example, when conducting financial due diligence, you can compare whether the financial statements provided by the target enterprise are consistent with the audit reports or assessment reports provided by third-party institutions or individuals, and analyze and explain the inconsistent data and information, such as whether there are accounting policy changes, accounting error corrections, changes in accounting estimates, etc.

4. logic

Logic is the framework of the due diligence report, which determines whether the due diligence report can organize and present data and information according to clear and orderly ideas, can draw conclusions and recommendations through a reasonable and effective reasoning process, and can make the contents of the due diligence report easy for investors to understand and accept. To assess the quality and credibility of the due diligence report logic, the following aspects need to be examined:

Structural. The content of the due diligence report should be arranged according to a certain structure, so that the content is hierarchical and orderly, has a beginning and an end, and has main and secondary. Generally speaking, the report can be divided into the following parts: summary, table of contents, body and appendix. The summary part should summarize the main contents, conclusions and recommendations of the due diligence report. The catalogue part should list the titles and page numbers of each part of the due diligence report. The main body part should be introduced in detail in different chapters according to different aspects such as legal affairs, finance and business. The appendix part should provide documents, materials and data used or referred to in the due diligence process.

Progressive. The content of the due diligence report should be arranged in the order from shallow to deep, from the surface to the inside, from summary to specific, so that the content has echo, internal connection and logical advancement. For example, when introducing the situation of the industry in which the target enterprise is located, you can start with the industry overview and introduce the basic situation of the industry scale, growth rate, market share, etc.; then continue from the industry environment to introduce industry policies, competition, technology and other influencing factors; Finally, from the end of the industry prospects, introduce the future prospects of industry trends, opportunities, challenges, etc.

rigor. The due diligence report should arrange the content according to the principle of facts, theory as the guidance and data as the support, so that the content has objective basis, theoretical support and data proof. For example, when giving the valuation of the target company, you can first start from the facts and introduce the history and expected financial status and financial performance of the target company; then start from the theory and choose appropriate valuation methods and models, such as P/E method, Price-to-book ratio method, discounted cash flow method, etc.; finally, starting from the data, calculate the valuation range and median of the target company, and compare it with other companies in the same industry or market.

5. style

Style is the external manifestation of the due diligence report, which determines whether the due diligence report can be presented in a standardized and unified format and language, whether it can reflect the professionalism and authority of the due diligence report, and whether it can improve the readability and aesthetics of the due diligence report. To assess the quality and credibility of the due diligence reporting style, the following aspects need to be examined:

Normative. The due diligence report should follow a certain format and language specifications, so that the content meets the general standards and requirements of the industry or field. For example, in preparing a due diligence report, reference may be made to relevant international or domestic norms or guidelines, such as International Financial Reporting Standards (IFRS), Chinese Accounting Standards (CAS), Chinese Auditing Standards (CAS), etc., and appropriate norms or guidelines may be selected according to the characteristics and objectives of different projects.

Professionalism. The due diligence report should use professional terms and expressions, so that the content reflects the professional level and professional attitude of the due diligence report. For example, in the preparation of the due diligence report, professional vocabulary, symbols, formulas, charts, etc. can be used to describe and explain various aspects of the target enterprise, and to avoid the use of non-professional or vague vocabulary, symbols, formulas, charts, etc.

Simplicity. The report should use concise and clear language and format to make the content easy to understand and convey, and to avoid redundancy or duplication. For example, when compiling a due diligence report, you can use simple sentences, parallel sentences, semicolons, etc. to organize and connect content, and avoid complex sentences, subordinate sentences, commas, etc. At the same time, you can also use headings, paragraphs, lists, indentation, etc., to separate and highlight content, and avoid using too many or too few headings, paragraphs, lists, indentation, etc.