The Weekly Nibble: REITs Versus Properties

Here are some of the most interesting articles that have appeared in the Motley Fool Singapore’s website this week.

1. Differences Between Investing in REITs and Actual Properties

My Foolish colleague, Jeremy Chia, looks at the differences between investing in a real estate investment trust (REIT) and a property.

One of the main advantages of investing in REITs as opposed to properties is the liquidity offered. REITs are traded on the stock exchange just like stocks. An investor can easily buy and sell a REIT whereas it would not be such a case for properties.

However, the ease of buying and selling can also create short-term thinking for investors. We should not buy a REIT that we are not willing to hold for at least a few years.

2. Industry Focus

For those who wish to know how to evaluate stocks from a certain industry, you can take a look at the articles below:

  • On evaluating restaurant stocks – click here
  • On evaluating pharmaceutical stocks – click here
  • On evaluating bank stocks – click here

3. How Companies Can Manipulate Their Earnings

Marriage can teach us many things in life, and one of them can also be financial accounting. Relating to his own experience after marrying an accountant, Stanley Lim shows us how companies can inflate their revenue or deflate their expenses by using accounting tricks.

One of the ways a company can show higher revenue than it has is by reporting future revenue. Stanley tells us how it works:

“For companies that engage in credit sales, the revenue it generates might not be the cash it would receive from the business. Therefore, a company can boost its revenue by extending longer credit terms to its customers for larger orders. In this way, the company is recording sales that are larger than usual. It might appear that the company is growing its revenue but in actual fact, the company is merely recording its future revenue first by extending its credit terms.”

On the other hand, companies can “decrease” their expenses by differing credit losses, as shown by the excerpt below:

“Lastly, a company would need to record a loss if it has determined that some of its customers might not be able to pay back its debt to the company. In such cases, sometimes the company can choose to extend the credit term for the customers. In this way, the company would not have to record the loss and would be able to show a much higher profit for that period. This method is quite often used in many industries, and even with banks, when they extend the credit terms for some of their defaulted loans so that the banks would not have to write-off the loans straight away.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.