It is an investigation or research done by the company on a prospective employee or a company to be bought by the interested party. A casual due diligence is done when hiring an employee such as verifying their qualification or demanding a recommendation letter from their former company.
But when a company is going for a merger, investment or acquisition in a new business then, a third party is hired to do an audit on the prospect to weigh the possibility of a profit or loss.
Due diligence helps companies to avoid making mistakes and improve on their decision-making.
Also Read: What you need to see during Background Check