ShmoopTube

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Finance a la Shmoop. What is due diligence? When a patient enters a hospital

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with stomach problems, well usually a nurse gives them a small bag and a cup to uh.

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No wait that's dodo diligence.[two men in hospital] All right you really don't want to

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confuse the two, people. All right due diligence D U E is the process of

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inspecting a company, or property, or asset, before investing in it or buying

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it. The phrase derives from the notion of a bill being owed i.e. it was due. So for a

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buyer being prudent doing their due diligence is a must and as you'd guess

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every dalliance of a diligence is different. But let's walk through an[woman reading paper]

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example. Forest Lawns, finest installers of funeral acreage in the world, wants to

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buy gnomes sweet gnome, finest maker of clay gnomes. The combination on paper

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seems fabulous and known sweet gnomes is phenomenally profitable. On just ten

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million dollars of sales they have fifteen million dollars of profits. How

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can that happen? Well Forest lawns is a billion dollar

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mega corporation and begins its due diligence to buy gnomes for a hundred [man holding gnome outside of business]

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million bucks in cash. They inspect the books and a number of numbers well don't

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add up. There appear to be zero selling costs and lots of revenues seem to

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appear out of nowhere. Oddly a ton of revenues come in from

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PayPal and eBay as well. Something is just off. Luckily one of Forrest Lawn's

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chief investigators watched this video and had the wherewithal to post up a web

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cam over the Gnome Sweet Gnome factory at night. To everyone's astonishment they

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witnessed the gnomes coming to life out of clay at night, escaping the factory [gnome with knife walking around]

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and then mugging people at knifepoint. Wow, close call that could have been a PR

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nightmare. Much better to by Gnome Sweet Gnome's competitor, When in Gnome. Where

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their product you know doesn't break the law or threaten civilian lives. If Forest

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Lawn hadn't done their due diligence they wouldn't have been privy to that [two women in office]

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vital piece of information they uncovered. So yeah, that's why you need to

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do your due diligence. Because you never know when you're gonna encounter

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thieving garden decorations or uh anything else a company doesn't want you

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to know about. [gnome attack]

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