What is 'Disclosure'?

Disclosure is the act of releasing all relevant information on a company that may influence an investment decision. To be listed on major U.S. stock exchanges, companies must follow all the Securities and Exchange Commission's disclosure requirements and regulations. To make investing as fair as possible for everyone, companies must disclose both good and bad information.

BREAKING DOWN 'Disclosure'

Disclosure items, as outlined by the SEC, include those related to a company's financial condition, operating results and management compensation. Regulators initially enforced disclosure requirements with the passing of the Securities Act of 1933 and the Securities Exchange Act of 1934. Since then, additional acts like the Sarbanes-Oxley Act of 2002 have extended public-company disclosure requirements.

The SEC requires specific disclosures because selective disclosures placed investors and company stakeholders at a disadvantage. For example, Insiders can use material nonpublic information for their own gain at the expense of the general investing public. Clearly outlined disclosure requirements ensure companies adequately disseminate information so all investors are on an even playing field.

Companies are not the only entities subject to strict disclosure regulations. For example, brokerage firms and analysts must also disclose any information that might influence investment decisions. To limit conflict-of-interest issues, analysts must disclose any equities they own.

SEC-Implemented Disclosure Requirements

The SEC requires all publicly traded companies prepare and issue two annual reports: one for the SEC itself and one for the company's shareholders. These reports come in the form of 10-Ks.

Any company seeking to go public must disclose information as part of a two-part registration composed of a prospectus and a second document that contains any other material information such as a company-supplied strengths, weaknesses, opportunities and threats analysis of the competitive environment. A SWOT analysis identifies an organization's strengths, weaknesses, external opportunities and threats using the market as a benchmark.

The SEC imposes stricter disclosure requirements for firms in the securities industry. For example, company officers of investment banks must make personal disclosures regarding the securities they own and securities owned by family members.

An Example of a Disclosure

On Target Corporation's Fourth Quarter and Full-Year 2017 Earnings investor report, the company highlighted its after-tax return-on-invested capital as a positive. The company added disclosures concerning this number to clear up any confusion for shareholders. The disclosure denoted the limits of non-GAAP financial measures such as ROIC and provided a schedule that included the calculations for the company's ROIC.

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