Due Diligence Report: Overview, Types and Benefits

 

The process of systematic analysis and risk mitigation associated with an investment or business decision is known as due diligence. The due diligence process includes the analysis of the financial viability of a business with regard to its assets and liabilities, a comprehensive study and evaluation of its operations, and a thorough examination and verification of its material facts with regard to a proposed transaction. A due diligence report includes the compilation of the data obtained throughout the due diligence process.

 

Usage of a due diligence report

Depending on the industry and the report's objective, a due diligence report's format and content may change.

 

  • Real Estate - The potential earnings of a property, its capitalization rate, expected vacancy rates, etc., are all evaluated by real estate investors and developers using due diligence reports. A real estate professional's due diligence checklist should also include the following:
  1. Property taxes
  2. Comparable properties
  3. Inspection reports
  4. Opportunities for further development

Types of Due Diligence Report

  • Business Due Diligence: Business due diligence entails scrutiny of every party involved in a transaction, the business's prospects and potential and the potential of investments.
  • Financial Due Diligence: Financial due diligence involves determining the viability of the business and its operations, and assessing the financial health of an organization. It provides the acquiring business with a clear view of the target business’ profitability. Internal controls, tax compliance and auditing processes are all closely scrutinized in the due diligence process.
  • Legal Due Diligence: Legal due diligence focuses on legal complications associated with a transaction. It looks for any possible legal pitfalls or barriers. Both internal and external company transactions are often scrutinised in the process.

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