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“[W]e are disappointed with the lack of clarity in much of the narrative disclosure that's been filed with the SEC so far. . . . [M]any of the problems could easily have been fixed in just a few hours by a qualified copy editor.
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Christopher Cox, former SEC Chairman, March 23, 2007
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DISCLOSURE DRAFTING TIPS
Welcome to my disclosure drafting tips! I hope to use this page to highlight some common errors that I find as I read annual reports, proxy statements, Forms ADV (or is that Form ADVs?), and other disclosure documents. The names have been changed to protect the innocent, but I promise: every “before” that you see here is real.
Please check back often. I will add a new tip every week or two. If your company has any particularly gnarly disclosure paragraphs that you want me to tackle, please send them along!
Tip: Can you explain that, please?
Before
We use days sales outstanding (“DSO”), days inventory on hand (“DIOH”) and days payable outstanding (“DPO) to evaluate our working capital performance. DSO is calculated as trade receivables, net divided by average daily revenue during the last month of the reporting period. DIOH is calculated as inventories divided by average daily cost of products sold and chargeback billings during the last quarter of the reporting period. DPO is calculated as accounts payable divided by average daily cost of products sold and chargeback billings during the last quarter of the reporting period.
Before, with commentary
We use days sales outstanding (“DSO”), days inventory on hand (“DIOH”) and days payable outstanding (“DPO) to evaluate our working capital performance. [That’s all very nice, but what do these metrics mean and why are they useful? Do you want them to be big numbers or small numbers?]
After
We use days sales outstanding (“DSO”), days inventory on hand (“DIOH”), and days payable outstanding (“DPO) to evaluate our working capital performance. DSO, which represents the number of days between a sale and the customer’s payment, is calculated as trade receivables, net divided by average daily revenue during the last month of the reporting period. DIOH, which represents how many days’ worth of inventory we keep in stock, is calculated as inventories divided by average daily cost of products sold and chargeback billings during the last quarter of the reporting period. Ideally, DSO and DIOH are low numbers. DPO, which represents the number of days it takes us to pay our suppliers, is calculated as accounts payable divided by average daily cost of products sold and chargeback billings during the last quarter of the reporting period.
Tip Archive
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