Home > Boards > Free Zone > User's Groups > Wake Up and Smell the Coffee

What is due diligence (DD) anyway?

Public Reply | Private Reply | Keep | Last ReadPost New MsgNext 10 | Previous | Next
Cassandra Member Profile
 
Followed By 267
Posts 12,413
Boards Moderated 10
Alias Born 02/09/03
160x600 placeholder
Top Stories of the Day
TOP STORIES Restaurant Brands More Than Doubles 2Q Profit, Increases Buyback Authorization
Walt Disney to Require U.S. Employees to be Vaccinated
Top Company News of the Day
J&J Won't Be Held Liable For Illinois Woman's Death in Talc Case -- Reuters
Norfolk Southern Raises Quarterly Dividend by 10 Cents to $1.09/Share
Front Month Nymex RBOB Gasoline Rose 5.41% This Month to Settle at $2.3659 -- Data Talk
Front Month Nymex Natural Gas Rose 7.23% This Month to Settle at $3.9140 -- Data Talk
Soybeans Slide as Traders Liquidate -- Daily Grain Highlights
Regeneron Gets Expanded EUA for Covid-19 Antibody Cocktail -- Update
Regeneron Gets Expanded EUA for Covid-19 Antibody Cocktail
Unemployment Rate Seen Ticking Down to 5.7% -- Data Week Ahead
Gopuff Reaches $15 Billion Valuation With $1 Billion From Blackstone, SoftBank and Others
EURO STOXX 50 Index Ends the Month 0.62% Higher at 4089.30 -- Data Talk
FTSE 100 Index Ends the Month 0.07% Lower at 7032.30 -- Data Talk
STOXX Europe 600 Index Ends the Month 1.97% Higher at 461.74 -- Data Talk
DAX Ends the Month 0.09% Higher at 15544.39 -- Data Talk
STOXX Europe 50 Index Ends the Month 1.23% Higher at 3555.81 -- Data Talk
London Shares End Month With Mixed Results
Colgate-Palmolive On Pace for Largest Percent Decrease Since March 2020 -- Data Talk
Caterpillar Worst Performer in the DJIA So Far Today -- Data Talk
Amazon.com Down Over 7%, on Pace for Largest Percent Decrease Since May 2020 -- Data Talk
ArcelorMittal, Canada Government to Invest $1.42 Billion in Carbon-Cutting Technology
Caterpillar Reports Favorable Currency Impact on 2Q Sales -- Currency Comment
Daimler Management, Board Approve Truck Spinoff
Chicago Business Barometer Rises in July
U.S. Personal Spending +1.0% in June -- Update
U.S. Personal Spending +1.0% in June
Cassandra   Sunday, 04/21/13 02:24:18 PM
Re: None
Post # of 18 
What is due diligence (DD) anyway?

In the world of penny stocks, DD is widely misunderstood to be all of the great things that are claimed to be happening or supposedly will be happening. Usually these "great things" are unverified and typically are never able to be verified or ever come to fruition (regardless of the stock). This kind of information is hype, not DD.

In reality, DD is an important verification and risk assessment function which is legally required in certain circumstances. DD seeks to verify all material claims made by the company including its financial statements, press releases, etc., considers the financial stability of the company and ability to achieve its business plan, vets the officers and directors, reviews the past and present performance of the company, etc., in order to make informed decisions about an investment initially and whether to continue to hold after buying in.

DD regarding a stock investment needs to be continuously performed over time, particularly a penny stock. It can be difficult to do DD on a company with a limited history. However, as time passes, the ability to perform verification and risk assessment DD improves. Often (probably usually), penny stock investments don't live up to their initial hype. Over time when the "great things" fail to materialize and the company has to dilute to stay in business, the stock price declines and often becomes illiquid as new investors are able to assess the past history of failed expectations.

Information and links regarding due diligence:

Quote:
Due Diligence Definitions

1. General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.

2. Business: Duty of a firm's directors and officers to act prudently in evaluating associated risks in all transactions.

3. Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.

4. Negotiating: Duty of each party to confirm each other's expectations and understandings, and to independently verify the abilities of the other to fulfill the conditions and requirements of the agreement. Also called reasonable diligence.

http://www.businessdictionary.com/definition/due-diligence.html
Quote:
Definition of 'Due Diligence - DD'

1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.

2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

Investopedia explains 'Due Diligence - DD'

1. Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed.

2. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction.

http://www.investopedia.com/terms/d/duediligence.asp

Due diligence by Angels (applies to investors in public stock as well:

Quote:
Due diligence is the routine process by which investors diligently investigate the entrepreneur and his/her company to confirm the authenticity of a business endeavor. This may entail researching business founders and their management team, reviewing documents, endless amount of questions, and asking for references. In a recent study conducted by the University of New Hampshire’s Center for Venture Research, angels who practiced increased due diligence received more overall profitable returns. Experience has also shown that without performing detailed research to verify an investment prospect, an investor is taking a significant risk.

http://www.go4funding.com/Articles/Angel-Investors/Due-Diligence-Red-Flags.aspx

Quote:
What is Due Diligence?

Due diligence is used to investigate and evaluate a business opportunity. The term due diligence describes a general duty to exercise care in any transaction. As such, it spans investigation into all relevant aspects of the past, present, and predictable future of the business of a target company.

Why is Due Diligence Conducted?

There are many reasons for conducting due diligence, including the following:

* Confirmation that the business is what it appears to be;
* Identify potential "deal killer" defects in the target and avoid a bad business transaction;
* Gain information that will be useful for valuing assets, defining representations and warranties, and/or negotiating price concessions; and
* Verification that the transaction complies with investment or acquisition criteria.

http://www.astutediligence.com/Diligence_Basics.htm

Public Reply | Private Reply | Keep | Last ReadPost New MsgNext 10 | Previous | Next
Follow Board Follow Board Keyboard Shortcuts Report TOS Violation
X
Current Price
Change
Volume
Detailed Quote - Discussion Board
Intraday Chart
+/- to Watchlist
Consent Preferences