What is the meaning of due diligence in the context of investments?

Due diligence in the context of investments refers to the thorough process of investigating and evaluating an investment opportunity before making a financial commitment. This comprehensive assessment includes examining various aspects such as the company's financial health, management structure, market conditions, and potential risks associated with the investment. By conducting due diligence, investors aim to gather all relevant information to make informed decisions and mitigate potential risks.

Other aspects related to this process include financial analysis and review of regulatory compliance; however, due diligence encompasses a broader scope that integrates these elements into a holistic overview of the investment opportunity. It is the crucial step that allows investors to confirm that their prospective investments align with their goals and risk tolerance.