Due Diligence
Categories: Board of Directors, Ethics/Morals, Company Management, Regulations
When a patient enters a hospital with stomach problems, usually a nurse gives them a small bag and cup to...
Oh wait. That’s doo-doo diligence. You really don’t want to confuse the two.
All right. Due diligence is the process of inspecting a company or property or asset before investing in it or buying it. The phrase derives from the notion of a bill being owed, i.e. it was…uh…due. So for a buyer being prudent, doing their due diligence is a must. And, as you’d guess, every dalliance of a diligence is different. But let’s walk through an example.
Forest Lawns, finest installers of funeral acreage in the world, wants to buy Gnome Sweet Gnome, finest maker of clay gnomes.The combination, on paper, seems fabulous, and Gnome Sweet Gnomes is phenomenally profitable: on just $10 million of sales, they have $15 million of profits.
How can that happen? Forest Lawns is a billion dollar mega corporation, and begins its due diligence to buy Gnomes for $100 million cash. They inspect the books, and a number of numbers…don’t add up. There appear to be zero selling costs...and lots of revenues seem to appear out of nowhere. Oddly, a ton of revenues come in from PayPal/eBay and, well, something is just…off.
Luckily, one of Forest Lawn’s chief investigators watched this video, and had the wherewithal to post a camera over the Gnome Sweet Gnome factory at night. To everyone’s astonishment, they witness the gnomes coming to life at night, escaping the factory, and then mugging people at knifepoint.
Uh…wow. Close call. That could have been a PR nightmare. Much better to buy Gnome Sweet Gnome’s competitor, When in Gnome, where their product, you know…doesn’t break the law or threaten civilian lives.
If Forest Lawn hadn’t done their due diligence, they wouldn’t have been privy to that vital piece of information they uncovered.
So yeah…that’s why you need to do your due diligence. Because you never know when you’re going to encounter thieving garden decorations.
Or, uh…anything else a company doesn’t want you to know about.
Related or Semi-related Video
Finance: What is Due Diligence?20 Views
Finance a la Shmoop. What is due diligence? When a patient enters a hospital
with stomach problems, well usually a nurse gives them a small bag and a cup to uh.
No wait that's dodo diligence.[two men in hospital] All right you really don't want to
confuse the two, people. All right due diligence D U E is the process of
inspecting a company, or property, or asset, before investing in it or buying
it. The phrase derives from the notion of a bill being owed i.e. it was due. So for a
buyer being prudent doing their due diligence is a must and as you'd guess
every dalliance of a diligence is different. But let's walk through an[woman reading paper]
example. Forest Lawns, finest installers of funeral acreage in the world, wants to
buy gnomes sweet gnome, finest maker of clay gnomes. The combination on paper
seems fabulous and known sweet gnomes is phenomenally profitable. On just ten
million dollars of sales they have fifteen million dollars of profits. How
can that happen? Well Forest lawns is a billion dollar
mega corporation and begins its due diligence to buy gnomes for a hundred [man holding gnome outside of business]
million bucks in cash. They inspect the books and a number of numbers well don't
add up. There appear to be zero selling costs and lots of revenues seem to
appear out of nowhere. Oddly a ton of revenues come in from
PayPal and eBay as well. Something is just off. Luckily one of Forrest Lawn's
chief investigators watched this video and had the wherewithal to post up a web
cam over the Gnome Sweet Gnome factory at night. To everyone's astonishment they
witnessed the gnomes coming to life out of clay at night, escaping the factory [gnome with knife walking around]
and then mugging people at knifepoint. Wow, close call that could have been a PR
nightmare. Much better to by Gnome Sweet Gnome's competitor, When in Gnome. Where
their product you know doesn't break the law or threaten civilian lives. If Forest
Lawn hadn't done their due diligence they wouldn't have been privy to that [two women in office]
vital piece of information they uncovered. So yeah, that's why you need to
do your due diligence. Because you never know when you're gonna encounter
thieving garden decorations or uh anything else a company doesn't want you
to know about. [gnome attack]