The process companies go through before mergers and acquisitions to verify that the information about the merging or target company is disclosed properly in the financial statements and all other information related to the companies is fair and appropriate is the due diligence process.
The financial statements of merging companies or the target company are scrutinised and evaluated thoroughly by individuals from both the acquiring company and the target company. These financial statements are analysed to evaluate the accuracy of the data presented in them and all assumptions, standards, concepts and techniques used in preparing these statements are appropriate and accurate. The due diligence process provides a clear and relevant position of the target company to the management of the acquiring company with respect to the actual stability, growth and transparency of business operations (Galpin and Herndon).
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