Due diligence is the comprehensive appraisal of a business or individual prior to a transaction, such as a merger, acquisition, or investment. This process involves evaluating financial, legal, and operational aspects to ensure that all relevant information is disclosed and understood.

Characteristics
– Thorough Investigation: Involves examining financial statements, tax returns, contracts, and other relevant documents.
– Risk Assessment: Identifies potential risks and liabilities associated with the business or investment.
– Verification of Information: Confirms the accuracy of the information provided by the seller or target company.
– Time-Consuming: Can take weeks or months to complete, depending on the complexity of the transaction.
– Involves Multiple Disciplines: May require input from legal, financial, and industry experts.

Examples
– Financial Due Diligence: Reviewing a company’s financial records to assess profitability and cash flow.
– Legal Due Diligence: Investigating any pending litigation, regulatory compliance, and contractual obligations.
– Operational Due Diligence: Evaluating the efficiency of business operations, including supply chain and management practices.
– Market Due Diligence: Analyzing market conditions and competitive landscape to understand the business’s position and potential growth.