Due diligence consists of an investigation or audit of a potential investment to confirm all facts, and this includes reviewing all financial records. The first step in conducting due diligence is looking at the capitalisation of the company and determining how big the company is. The next step is looking at the numbers, and this includes revenue, profit and margin trends. You also need to size up the industries the company operates in and who it competes with. Then it’s time to look at price/earnings to growth or PEG’s ratio. Make sure you look at the history of management and board members. The last few steps in the due diligence process include a balance sheet exam, stock price history and examining short and long-term risks.
