Due diligence is a crucial aspect of making informed choices especially prior to major transactions like the merger or acquisition. The procedure involves looking into and analyzing various aspects of a company or venture to ensure that both parties are aware of the potential risks that are involved. Due diligence can be financial, operational or legal.
Financial due diligence is the process of evaluating the financial health of a business by reviewing its profit and loss statements and balance sheets. This allows stakeholders to identify potential risks and determine if the company is suitable for their investment. Operational due-diligence checks the quality and capabilities of management, IT systems, and production systems. This could reveal hidden risks and liabilities which might not have been identified through financial records.
Legal due diligence involves the examination of all legal documents, such as contracts, license agreements, in-progress litigation and other legal documents. This can expose any legal risks and liabilities, while also ensuring that the business is adhering to all legal requirements.
Due diligence in pursuing sustainability is becoming more essential as consumers and employees demand that companies adopt positions on green issues like carbon neutrality. Due diligence can uncover a range of issues, including how a business manages its environmental impact or how they manage recycling and other sustainable practices.
