Common Financial Due Diligence Mistakes #2: Overtrusting the Balance Sheet

In stock acquisitions, buyers focus heavily on balance sheet reconciliations and revenue trends, assuming that consistency equals quality. While balance sheet integrity is essential, it is not sufficient on its own. We often identify issues only visible through a full P&L review, such as: -Abnormal or non-recurring expenses buried in 'Other Expenses' -Margin deterioration masked by revenue growth -Shifts in cost structure that are not obvious from balance sheet movements -Operating expenses misclassified to avoid scrutiny A reconciled balance sheet does not mean earnings are sustainable. Lesson: In stock deals, balance sheet accuracy must be paired with a detailed P&L analysis to assess true operating performance and risk. How we help: At Centurica, our Quality of Earnings reviews include detailed balance sheet and P&L analysis, revenue and expenses normalization, to ensure buyers are valuing businesses based on true, sustainable earnings—not accounting distortions.