Meaning of due diligence (what is it, concept and definition)

What is Due Diligence:

Due diligence is an expression from English that can be translated into Spanish as 'due checks', 'due diligence' or 'purchase audit'. Refers to research that is done on a person or company prior to signing a contract or investment.

A due diligence will be, then, all that investigation or audit process that is carried out around the company or person with which a potential buyer or investor will conduct a business. It therefore consists of a thorough review and analysis of all your financial records.

What does an investor look for when subjecting an entity to due diligence? Mainly, to evaluate the costs, risks and benefits of the acquisition.

Thus, the objective of due diligence is to confirm whether, in economic terms, the company or person with which the commercial transaction is to be closed is in a situation consistent with that referred to in the agreement.

In this sense, during the due diligence all those factors that may affect the entity are taken into account, therefore all the reports, studies, documents and independent investigations that are pertinent to determine the situation of a company and its value are analyzed.

The information obtained during the due diligence is of great importance since it has great influence on whether or not the investment or acquisition is suitable for the buyer or investor.

Depending on the legislation of each country, due diligence may refer to a legal obligation or to an independent investigation.