A majority of people would like to know the advantages and disadvantages of any item they spend time, money, or energy on whether it’s a new car, home or a complete company. They want to ensure they’re making the best choice possible and that they don’t face unpleasant surprises later on. Due diligence is a method of looking at the investment or purchase to assess the risk.
Due diligence can be classified into various types, including financial, commercial, environmental and intellectual property. The specific areas explored depend on the type of due diligence, but they typically include examining licenses, contracts, loans, employment issues legal and regulatory matters and property, as well as any litigation in the process.
Financial due diligence is about reviewing and assessing the fundamental financial information of a company including earnings, profits, assets, cash flow, liabilities, and debt. This may also involve analyzing ratios and using a variety of financial tools to analyze the company and make predictions about the future performance.
Commercial due diligence examines an organization based on its marketplace and competition. It can help determine whether a company is profitable in the long run. It also helps identify opportunities for synergy and growth through a possible merger or acquisition.
