Types of Due Diligence
Due diligence is a vital part of making informed decisions particularly prior to an important transaction like a merger or an acquisition. The process involves researching and assessing various aspects of the venture or other entity to ensure that all parties understand the risks that are involved. Due diligence may be operational, financial, legal or environmental.
Financial due diligence is the process of evaluating the financial health of a firm by looking over its profit and loss statements and balance sheets. This allows stakeholders identify potential risks and decide if the company is suitable for their investment. Operational due diligence evaluates the management’s performance, IT systems, and production capabilities. This could reveal hidden risks and liabilities that might not have been disclosed by financial records.
Legal due diligence is the review of all legal documents, such as license agreements, contracts, lawsuits pending and other legal documents. This could uncover the potential legal risks and liabilities, as well as ensure that the business adheres to all legal requirements.
Due diligence in pursuing sustainability is becoming more crucial as consumers and employees require that businesses take a stance on green issues such as carbon neutrality. This kind of due diligence can reveal a range of issues that must be addressed, ranging from how a business manages its environmental footprint to the way it handles recycling and other sustainable practices.
0 comments on Types of Due Diligence