A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.
Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for.
Window dressing may make a fund appear more attractive, but you can't hide poor performance for long.
Financial Position of Organizations "Window dressing" is a term applied in describing actions by organizations to cause their reports of financial performance and financial position to portray the organizations' financial performance and financial position as better than they actually are. The practices used to include "window dressing" in an organization's financial statements range from the flagrantly illegal to questionable legality but certainly unethical.
An organization can improve its measures of short-term liquidity by manipulating the current ratio. By way of illustration, a company can obtain a long-term loan near the end of a financial reporting period. The cash received from the loan will inflate current assets, but on the liability side, the loan will be recorded as a long-term debt. The overall financial position of the company has not changed (with the exception of incurring an interest obligation); however, the company's short-term liquidity position (as measured by the current ratio) will be improved for the upcoming financial statement reports. After the financial reports are issued, the company can repay the loan at minimal interest expense. This sort of window dressing will mislead some investors, lenders, and creditors. Another approach to window dressing is to manipulate expenses, sales, or both to improve a company's income statement.
An organization can improve its measures of short-term liquidity by manipulating the current ratio. By way of illustration, a company can obtain a long-term loan near the end of a financial reporting period. The cash received from the loan will inflate current assets, but on the liability side, the loan will be recorded as a long-term debt. The overall financial position of the company has not changed (with the exception of incurring an interest obligation); however, the company's short-term liquidity position (as measured by the current ratio) will be improved for the upcoming financial statement reports. After the financial reports are issued, the company can repay the loan at minimal interest expense. This sort of window dressing will mislead some investors, lenders, and creditors. Another approach to window dressing is to manipulate expenses, sales, or both to improve a company's income statement.
2 comments:
Hey,
good informative blog man.
Thanks Ram !!!
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