The majority of people want to know about the pros and cons of whatever they spend time or money on whether it’s a brand-new car, home or even a whole company. They want to make sure that they are making the best decision they can and will not have unpleasant surprises down the line. Due diligence is the process of examining a purchase or an investment to assess the risk.
There are several different types of due diligence, including environmental, financial, legal, commercial and intellectual property. The specific areas studied depend on the specific type of due diligence, but typically involve examining contracts, licenses, loans, employment issues and regulatory issues and property, as well as any litigation that is pending.
Financial due diligence is the process of verifying and assessing the underlying financial data of a company which includes earnings or profits, assets liabilities, cash flow and debt. This includes studying ratios using financial tools, and sizing up a business to create projections of future performance.
Commercial due diligence evaluates an organization based on its market and competitors, and is a useful tool to determine whether a business is profitable in the long run. It can also help identify opportunities for synergy and growth in the event of a merger or acquisition.