Question

Identify two (2) pieces of information not included in the principal financial statements that you think would be important to someone considering whether to invest in your company. Explain your reasons for believing that this information would be important in making an investment decision.

Answer 1

There are some off-balance sheet items that can be critical pieces of information from investors standpoint

1. Off-balance sheet financial obligations - An investor should definitely look out for any material obligations a company might have in a JV/unconsolidated subsidiary. These non-apparent obligations can become outstanding at any point and impact company performance. Some of the historical financial frauds were covered up with such off-balance sheet obligations like for Enron

2. Ongoing legal matters - An investor should conduct proper due-diligence towards any ongoing legal case not looking good in company's favor. It might be the case that a strong growth technology company have a law suite on patent infringemet and its likely to loose the case!!

Though these are some of the important items to be considered before making an investment, proper due diligence also requires a good understanding of

1. Business Model Viability and competitive advantage

2. Management team's skill and track record

3. Future outlook of the company and industry