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XBRL for Financial Analysis

XBRL for Financial Analysis. Angus Lund, Morgan Stanley Equity Research 17 November 2004. Contents. XBRL for Financial Analysis Updating Financial Models Comparing Financial Information Summary and Conclusions. XBRL for Financial Analysis.

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XBRL for Financial Analysis

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  1. XBRL for Financial Analysis Angus Lund, Morgan Stanley Equity Research 17 November 2004

  2. Contents • XBRL for Financial Analysis • Updating Financial Models • Comparing Financial Information • Summary and Conclusions

  3. XBRL for Financial Analysis • XBRL will be initially adopted for regulatory reasons • UK Inland Revenue • Financial Services Authority • We believe companies should leverage this investment to make their financial results available in XBRL

  4. XBRL: a major advance in financial reporting • HTML or PDF renditions of reports only exploit the ease of distribution that the Internet offers • In practice they are of little more value than a photocopied press release • XBRL will allow accurate, relevant, scalable querying of financial information

  5. Use Case: Updating Financial Models Quick Comments • Immediate response to earnings releases • Time pressure restricts the level of analysis Detailed Analyses • More detailed analysis of filings • Routine reports should be easier to complete

  6. Current Workflow Report published to the web in HTML or PDF format Analyst manually transcribes numbers into spreadsheet model and… …analyses results quickly in order to get a comment out Process with XBRL Report published in XBRL format Numbers automatically loaded into spreadsheet by an Excel add-in Analyst has more time to analyse results with confidence Workflow: Updating Financial Models

  7. Use Case: Comparing Financial Information Very detailed comparisons • In-depth analysis of specific areas of company financials • Frequency of reports limited by time to collate Very broad thematic reports • Key report for investors on market-wide issues • Number of companies included restricted by time

  8. Current Workflow Comparable data are sourced from separate financial reports Data must be checked to ensure it is complete and comparable More time is spent on collation and verification than on analysis Process with XBRL Query submitted to XBRL data aggregator Results returned effectively immediately More time to analyse more companies Workflow: Comparing Financial Information

  9. Why XBRL will improve financial analysis • Accuracy • Greater confidence in numbers used for analysis • Reliable results in higher quality conclusions • Timeliness • More time to focus on analysis, not process • Shorter “time to market” • More frequent high-quality analysis

  10. Other points to consider • Numbers aren’t everything; context matters too • We need more companies to report using XBRL • We need software tools to be able to manipulate XBRL

  11. 180 160 140 120 100 80 1999 2000 2001 2002 2003 2004 Conclusions • XBRL will improve the relevance and quality of financial analysis • Companies should look at XBRL as a way to improve communication with their stakeholders • Greater transparency results in a lower cost of capital Stocks with higher corporate governance standards have outperformed GMI “Top 26” S&P 500 Source: Governance Metrics International

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