Due diligence is a process of research and analysis that is initiated before an acquisition, investment, business partnership or bank loan, in order to determine the value of the subject of the due diligence or whether there are any major issues involved. Such findings are then summarized in a report which is known as the due diligence report.
Investors and investee must identify the risks and the opportunities associated with the business under consideration. Conducting effective financial due diligence will help investors identify critical risks, current and future value drivers. Due diligence help ascertain the fairness in valuation of the subject matter under consideration.