Due diligence is a term mostly associated with law & finance. Due diligence literally means
investigation. This could be in terms of a product or a service. While the majority of the time,
it is used in case of investments.
Let’s assume, a consumer walks into a shop, they check the expiry date of the product. If it is
a bakery item, then they look for the freshness of the product. If the product is an electric
item, then they check the durability of the product. This basically means that the consumer
wants to be sure before purchasing the product. Here, the consumer is conducting due
diligence for the product. It is also considered a safety measure.
In the movie, Dark Knight, Coleman Reese is hired by Bruce Wayne to conduct due diligence
for the LSI holdings deal. Coleman Reese rather starts to investigate Wayne Enterprises and
finds many irregularities. He is shocked to see that the ‘applied science’ department has
disappeared overnight. Also, the R&D department is devoid of cash.
In the movie, Dark Knight, Coleman Reese is hired by Bruce Wayne to conduct due diligence
for the LSI holdings deal. Coleman Reese rather starts to investigate Wayne Enterprises and
finds many irregularities. He is shocked to see that the ‘applied science’ department has
disappeared overnight. Also, the R&D department is devoid of cash.
Types of Due Diligence
There are many types of due diligence that are conducted by businesses.
- Financial Due Diligence
Financial due diligence is one of the most crucial forms of due diligence. This diligence is
what Coleman Reese conducted. Hence, checking the financial statements. There are four
main financial statements that companies draw. Cash flow statements, income statements,
balance sheets, and the statement of shareholders’ funds.
A thorough check helps in understanding past trends, unusual activity, and the business model. Understanding the company’s budgeting & forecasting figures help in a better grasp of the numbers. Checking cash flow statements gives an understanding of how much actual cash is with the company. - Human Resource Due Diligence
Companies conduct due diligence when a new candidate is hired. They conduct background verification of the candidate by verifying their experience and education certificates. They also tend to collect their information from their previous employer. However, when companies are undertaking a new merger & or acquisition. They tend to check for total employees, the number of divisions, and their salaries. They also analyze the HR policies and health/medical benefits given to employees. - Intellectual property due diligence
The intellectual property of the business is the intangible asset of the business. If they are monetized, they can be found in the assets section of the balance sheet. They comprise trademarks, patents, copyrights, and goodwill of the business. Conducting due diligence on these intangible assets is most important. Checking whether there are any outstanding claims, copyright issues or violations of intellectual property is crucial.
Authored by: Gitika Chandra
60+ hours
9 courses
