5 Financial Modeling Challenges Found in Due Diligence

In the Kingdom of Saudi Arabia, due diligence plays a critical role in mergers, acquisitions, and investment decisions. However, financial modeling issues often surface during this process, affecting valuation accuracy and risk assessment. Below are five common financial modeling problems frequently identified during due diligence, particularly relevant to KSA-based businesses and investors.

One major issue is inconsistent historical data. Many companies operate with fragmented accounting systems, leading to mismatched financial statements that weaken model reliability. This can be especially problematic when aligning data with IFRS standards commonly used in the region.

Another challenge is over-optimistic revenue projections. Financial models sometimes rely on aggressive growth assumptions that ignore market saturation, regulatory constraints, or Saudi economic diversification realities under Vision 2030.

Incorrect cost structures also emerge during review. Operational costs such as labor, energy, and logistics in KSA can vary significantly, and outdated assumptions can distort cash flow forecasts.

A fourth problem is poor working capital modeling. Inaccurate assumptions around receivables, payables, or inventory cycles can misrepresent liquidity needs, which is critical for capital-intensive industries in the Kingdom.

Lastly, lack of scenario and sensitivity analysis reduces model robustness. Without stress-testing against oil price volatility, interest rate changes, or regulatory shifts, decision-makers face increased risk.

Addressing these issues often requires expert support in financial modeling for consulting, ensuring models are realistic, compliant, and decision-ready for the KSA market.