Due Diligence Definition
The Due Diligence definition is an extensive qualitative and quantitative look at a company. It helps company leaders make the best informed business decision about a company. Furthermore, Due Diligence is often associated with audits, where it is required before a public offering. In addition, it is associated with mergers and acquisitions to reduce the risk in the market for these activities.
Due Diligence Meaning
Due Diligence often becomes necessary when a large transaction is about to take place like a merger or loan agreement, or when the company’s financials are going to be presented to the public. Oftentimes, due diligence requires the assessment to be both qualitatively as well as quantitatively.
Qualitative Due Diligence
A qualitative act of due diligence may be to assess the mental state and capability of the management. This can be done through the following:
- Plant tours to see how the company is run
- Interviews with several employees, suppliers, buyers and others who deal with the company on a day to day basis
- Anything in between
Quantitative Due Diligence
In comparison, quantitative due diligence includes thorough investigations of the books and records. This can range from asset appraisals to day to day transactions. A thorough understanding of internal controls and its effectiveness also become necessary to ensure the risk for the business is as low as possible.
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