What does 'due diligence' refer to in finance?

'Due diligence' in finance refers to the thorough investigation and evaluation of a potential investment or business opportunity. This process involves auditing various aspects of the investment, such as financial records, contracts, operational capabilities, and market conditions, to verify the accuracy of the information presented and assess the associated risks and benefits. By conducting due diligence, investors aim to confirm facts and make informed decisions that can significantly impact their investments.

This careful examination helps to uncover any hidden liabilities or issues that could affect the investment's viability, ensuring that investors are aware of what they are getting into before committing their resources. This practice is essential in risk management and fosters transparency and accountability in financial transactions.