due diligence

noun

|Updated on: 17 Jul 2018

Editor's Note: Doing Your Due diligence

Definition of due diligence

1 law : the care that a reasonable person exercises to avoid harm to other persons or their property

failed to exercise due diligence in trying to prevent the accident

2 business : research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities)

Recent Examples of due diligence from the Web

That does not mean the Miami City Commission’s due diligence on the deal should be lacking.

— greg cote, miamiherald, "David Beckham confronts his biggest fight yet to (finally) bring MLS soccer to Miami," 12 July 2018
My sources are saying that the president was extremely hands-on in the process and was doing his own due diligence.

— Fox News, "Leonard Leo on why Trump appointed Judge Kavanaugh," 10 July 2018
More: 6 tracks that could replace Phoenix on IndyCar schedule in 2019 Boles immediately began talking to IMS and USAC insurance people and conducting other due diligence to make sure the race could work.

— jim ayello, Indianapolis Star, "$15,000 USAC midget race, named for Bryan Clauson, kicks off NASCAR Brickyard 400," 26 June 2018
The extent to which Novartis conducted any due diligence into Cohen or his track record as a Trump insider and Washington player is uncertain.

— ed silverman, STAT, "Trump’s lawyer pitched himself as a fixer to Novartis and got paid $1.2 million," 9 May 2018
Could be due diligence in case a certain player (perhaps a QB) falls.

— christopher dabe, NOLA.com, "Saints make 'plenty of calls' for 'big leap' up 2018 NFL Draft board: report," 26 Apr. 2018
As rodeo has evolved, however, athleticism and technique has replaced workplace due diligence.

— roy bragg, San Antonio Express-News, "The non-Texan professional cowboy is a thing," 11 Feb. 2018
Atrium said the two organizations will spend the next few months conducting due diligence and expect to have a definitive agreement signed later this year.

— deon roberts and john murawski, charlotteobserver, "Renamed Atrium Health plans to combine with another Southern hospital system," 8 Feb. 2018
During Mercury's backward spin, a seemingly innocuous typo can quickly become a professional calamity, so due diligence is absolutely imperative.

— aliza kelly faragher, Allure, "What July's Aquarius Horoscope Means for You," 29 June 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'due diligence.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Doing Your Due diligence

Due diligence has been used since at least the mid-fifteenth century in the literal sense “requisite effort.” Centuries later, the phrase developed a legal meaning, namely, “the care that a reasonable person takes to avoid harm to other persons or their property”; in this sense, it is synonymous with another legal term, ordinary care. More recently, due diligence has extended its reach into business contexts, signifying the research a company performs before engaging in a financial transaction. This meaning may also apply to individuals: people are often advised to perform their due diligence before buying a house, signing a loan, or making any important purchase.

First Known Use of due diligence

1598

in the meaning defined at sense 1

See Words from the same year

NEW! Time Traveler

Other Business Terms

amortize, caveat emptor, clearinghouse, divest, emolument, green-collar, marque, overhead, perquisite

Financial Definition of DUE DILIGENCE

due diligence

noun

What It Is

Due diligence is the careful, thorough evaluation of a potential investment, whether on a corporate or individual level.

How It Works

For individual investors, due diligence often means studying annual reports, SEC filings, and any other relevant information about a company and its securities. The objective is to verify the material facts related to the purchase of the investment, as well as to understand whether the investment fits an individuals return requirements, risk tolerance, income needs, and asset allocation goals.

An individual's due diligence might include reading the company’s last two or three annual reports, several recent 10-Qs, and any independent research they could find. In doing so, they would develop a sense of where Company XYZ is headed, what market factors might affect the stock’s price, and how volatile the stock is. This in turn might give them guidance about whether the investment is right for you, and if so, the size and timing of their investment.

In a merger scenario, due diligence often involves a team of people specially tasked with reviewing and verifying every aspect of an investment in another company. In many cases, this team might include lawyers, accountants, and investment bankers.

Why It Matters

Due diligence helps people and companies understand the nature of an investment, the risks of an investment, and how (or whether) an investment fits into a particular portfolio. Due diligence isn’t just good sense, it’s a duty investors owe to themselves -- doing this sort of "homework" on a potential investment is often essential to making prudent investment decisions.

Source: Investing Answers

Law Dictionary

due diligence

noun

legal Definition of due diligence

1 : such diligence as a reasonable person under the same circumstances would use : use of reasonable but not necessarily exhaustive efforts — called also reasonable diligence

Note: Due diligence is used most often in connection with the performance of a professional or fiduciary duty, or with regard to proceeding with a court action. Due care is used more often in connection with general tort actions.

2 a : the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction

b : the process of investigation carried on usually by a disinterested third party (as an accounting or law firm) on behalf of a party contemplating a business transaction (as a corporate acquisition or merger, loan of finances, or especially purchase of securities) for the purpose of providing information with which to evaluate the advantages and risks involved