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Finance: What is Due Diligence? 20 Views
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Description:
What is due diligence? Basically, it's... doing your research. You're preparing to make an investment or purchase, and you want to make sure there are no hidden surprises about the company, property or asset you're interested in.
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- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Investing
- Terms and Concepts / IPO
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- Terms and Concepts / Stocks
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Transcript
- 00:00
Finance a la Shmoop. What is due diligence? When a patient enters a hospital
- 00:08
with stomach problems, well usually a nurse gives them a small bag and a cup to uh.
- 00:12
No wait that's dodo diligence.[two men in hospital] All right you really don't want to
- 00:16
confuse the two, people. All right due diligence D U E is the process of
- 00:20
inspecting a company, or property, or asset, before investing in it or buying
Full Transcript
- 00:25
it. The phrase derives from the notion of a bill being owed i.e. it was due. So for a
- 00:31
buyer being prudent doing their due diligence is a must and as you'd guess
- 00:36
every dalliance of a diligence is different. But let's walk through an[woman reading paper]
- 00:39
example. Forest Lawns, finest installers of funeral acreage in the world, wants to
- 00:45
buy gnomes sweet gnome, finest maker of clay gnomes. The combination on paper
- 00:50
seems fabulous and known sweet gnomes is phenomenally profitable. On just ten
- 00:55
million dollars of sales they have fifteen million dollars of profits. How
- 00:59
can that happen? Well Forest lawns is a billion dollar
- 01:02
mega corporation and begins its due diligence to buy gnomes for a hundred [man holding gnome outside of business]
- 01:06
million bucks in cash. They inspect the books and a number of numbers well don't
- 01:10
add up. There appear to be zero selling costs and lots of revenues seem to
- 01:15
appear out of nowhere. Oddly a ton of revenues come in from
- 01:18
PayPal and eBay as well. Something is just off. Luckily one of Forrest Lawn's
- 01:23
chief investigators watched this video and had the wherewithal to post up a web
- 01:28
cam over the Gnome Sweet Gnome factory at night. To everyone's astonishment they
- 01:34
witnessed the gnomes coming to life out of clay at night, escaping the factory [gnome with knife walking around]
- 01:39
and then mugging people at knifepoint. Wow, close call that could have been a PR
- 01:43
nightmare. Much better to by Gnome Sweet Gnome's competitor, When in Gnome. Where
- 01:48
their product you know doesn't break the law or threaten civilian lives. If Forest
- 01:52
Lawn hadn't done their due diligence they wouldn't have been privy to that [two women in office]
- 01:56
vital piece of information they uncovered. So yeah, that's why you need to
- 02:00
do your due diligence. Because you never know when you're gonna encounter
- 02:04
thieving garden decorations or uh anything else a company doesn't want you
- 02:09
to know about. [gnome attack]
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