I have never been much of a spender, but when I started investing in real estate, I knew that I had found my calling. I was capable of turning a simple loan into a large return, and it was really fantastic to see my efforts pay off. Unfortunately, sometimes money was tight, and I found myself taking out loans to invest in new deals. However, I was able to learn a few tricks of the trade to save money on loan interest, such as limiting the payback timeline and perfecting my credit. This blog is all about saving you money on interest.
When an investor is choosing investments for their portfolio, it is important for them to choose those investments that have a solid history of transparent financial reporting. A full disclosure of all financial information leads to less risk, more trust, and an overall stronger portfolio for the investor. The following are some of the important aspects of transparency when it comes to investing:
Importance of Transparency in Financial Reporting
Transparency with regard to financial reporting includes providing accurate documentation available to those involved with a transaction. This includes high-quality financial statements that are clear, easy to understand, and candid. To make a sound investment, you need this information about all companies you are considering.
The more financial information you have on your investments, the more certainty you have that have made sound investment decisions. When financial statements are not transparent to investors, they can never be 100 percent certain about the true risks or fundamentals of an investment or company. It also puts investors at a disadvantage if the company does not disclose its debt. Companies that are not clear with disclosing their debt prevent investors from understanding their bankruptcy risk.
Why Some Companies Are Not Transparent
There are a variety of reasons for a lack of transparency with their investors with regard to financial reporting. A very small fraction of companies are intentionally fraudulent, with the ultimate goal of cheating investors. Thankfully, those situations are few and far between. Other companies don't intend to be misleading in their financial reporting, but they withhold just enough to meet the standards set forth by law.
There are some companies that are just more complex than others, operating many businesses within one corporation. That can make it difficult to provide a clear financial report to investors. They don't intentionally mislead investors, but they do become more difficult to follow, particularly if those different businesses have nothing in common with one another. If you are considering an investment that has complex financial information that is difficult to understand, have an attorney or financial advisor assist you before moving forward.
The Take Away for Investors
For investors to have a strong portfolio, it is important to have access to a full financial accounting of those with whom they are invested. Companies that are clear with where their money is coming from, how they are spending capital, and how much debt has accrued end up with more comfortable investors. Always work with finance professionals, like Duff & Associates, if you are new to investing to ensure you are making smart choices.
Share27 May 2016
