|
Due diligence is the investigation, audit, review or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for an acquisition. The theory behind due diligence holds that performing this type of investigation contributes significantly to informed decision making by enhancing the amount and quality of information available to decision makers and by ensuring that this information is systematically used to deliberate on the decision at hand and all its costs, benefits, and risks.
- Due diligence is a systematic way to analyze and mitigate risk from a business or investment decision.
- An individual investor can conduct due diligence on any stock using readily available public information.
- The same due diligence strategy will work on many other types of investments.
- Due diligence involves examining a company's numbers, comparing the numbers over time, and benchmarking them against competitors.
- Due diligence is applied in many other contexts, for example, conducting a background check on a potential employee or reading product reviews.
|