What is Window-Dressing?

When used in terms of the presentation of financial issues such as stocks or accounting documents, window-dressing is the practice of created a perception of the value of an asset or status of the company that is not completely forthcoming. The actual practice of window-dressing can be employed at any time of the fiscal year, although the use of this strategy tends to be more common at the end of a given accounting period. While employed more often than is sometimes believed, window-dressing is a deceptive practice that can lead to a number of negative repercussions.

A key component to understanding the concept of window-dressing is to realize that using accounting tricks of this type usually do not involve the presentation of a fabrication. Instead of being built on a foundation of lies, most types of window-dressing involve emphasizing positive facts above and beyond their actual importance, while selectively soft pedaling or even omitting other information that is less positive. Thus, the information contained in the presentation is real information that can be verified. However, the presentation is not properly balanced in the way the particulars are portrayed.

Window dressing may be employed as a means of minimizing the impact of negative aspects of the investment. For example, a company that wishes to secure a new investor may place a great deal of emphasis on the success of one particular product, while failing to mention that another product that is more costly to produce is barely breaking even. By accentuating the positive, the window-dressing increases the interest of the potential investor, making an actual transaction more likely.

Using window dressing when presenting information to the public is fairly common. A company may choose to only briefly mention weak stocks or mutual funds that are performing below par, and focus the attention on increased demand for a product or service, or a significant return that was realized from the recent maturation of a bond issue. Window-dressing may also be used as part of the strategy in advertising campaigns, as well as in presenting financial data to current and prospective investors.