What Is Left Out of Financial Statements

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Many articles, books, and online tutorials explain what is included on the financial statement, and in the annual report. But of equal importance and rarely discussed is what is not included. At times, the information that is left out can be more important than what is shown.

Disclosures about information not shown or explained well enough are supposed to be provided in the footnotes. But for nonaccountants, some of the note explanations are so cryptic and complex that they make no sense. So the solution may be to contact the company's Shareholder Relations Department and ask your question. In a responsive corporation, someone will return your call and explain the footnote to you. If you are thinking of investing in a company, one preliminary fundamental test worth making is telephoning the department and asking a question. The response will reveal whether future inquiries will be responded to satisfactorily, or whether the corporation does not have a service orientation.

It may be that finding the excluded information will be more difficult than interpreting what is there. Thus, many individuals working on their own will find this level of fundamental analysis to be time consuming as well as complicated. Two solutions should be considered: First, perform investment research with the expert help of a financial planner. Pick one who bases this research on experience and an understanding of the fundamentals, and who holds the professional designation Certified Financial Planner (CFP). It will cost money to hire a planner, but the benefits of expert selection may be

Shareholder Relations Department a department within a publicly listed corporation set up specifically to address concerns and answer questions from shareholders. A test of corporate transparency and investor services is to test this department's response to financial questions.

financial planner an individual with experience and credentials to advise investors on how to pick stocks and other products. A qualified planner should hold the CFP designation.

Certified Financial Planner (CFP)

a professional designation awarded to individuals who hold a BA degree, complete an education program, pass a 10-hour exam, and complete three years of experience in the field.

investment club an informal organization of individuals who meet to share research chores, pool their money, and identify profitable investments; funds contributed by members are invested as a unit in the investments selected through the club members' research.

worthwhile. The second alternative is to organize or join an investment club. This is an organization of individuals, usually numbering between 10 and 20, who share research and meet regularly to discuss stocks and other investments. Usually firmly based in the fundamentals, investment clubs have proven to be successful forums for individuals who are not comfortable investing without consultation with others.

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