Changing the World of Financial Analysis

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Changing the World of Financial Analysis

  1. 1. Changing the World of Financial Analysis Mark Schnitzer XBRL Analyst Supply Chain Chair
  2. 2. XBRL will Benefit Companies, Analysts and Investors <ul><li>Timely </li></ul><ul><li>Reliable: accurate and well-defined </li></ul><ul><li>Direct from the company </li></ul><ul><li>Machine readable </li></ul><ul><li>Future applications will allow deeper automatic analysis </li></ul>
  3. 3. Why are Investors Interested in XBRL? <ul><li>XBRL is useful to us in two ways </li></ul><ul><ul><li>We can integrate the data that we bring in directly into our models </li></ul></ul><ul><ul><li>If the data we send out is in XBRL inside a RIXML document then it will be easier for our clients to integrate it with published company data </li></ul></ul><ul><li>If companies provide financial information in XBRL, we will use it </li></ul>
  4. 4. How an Analyst Will Use XBRL <ul><li>Analysts integrate the data from companies with information from financial intermediaries directly into their Excel spreadsheets </li></ul><ul><li>Data can be collated and aggregated easily </li></ul><ul><ul><li>Broad surveys can be automated, e.g. pension analysis </li></ul></ul><ul><ul><li>Strategists can aggregate reliable sector and market data </li></ul></ul><ul><li>Sell side analysts can publish to buy side portfolio managers and analysts in a standard format using XBRL and RIXML </li></ul>
  5. 5. XBRL Will Enable Better Financial Analysis <ul><li>Improve data quality </li></ul><ul><ul><li>Direct access to as reported data </li></ul></ul><ul><ul><li>Data validation on entry </li></ul></ul><ul><li>Global access to timely data </li></ul><ul><li>Reduce re-keying of data </li></ul><ul><ul><li>Reduce cost of information </li></ul></ul><ul><li>Enable a new paradigm of financial applications </li></ul><ul><ul><li>Sophisticated analysis </li></ul></ul><ul><li>Should not be apparent to the investor that they are even working with XBRL </li></ul>
  6. 6. Analysts Live in Spreadsheets <ul><li>Build a spreadsheet model with historical and forecasted income statement, balance sheet and cash flow statement for every company under coverage. </li></ul><ul><li>Model is the basis for valuation and investment decisions. </li></ul><ul><li>Model is used to build investment thesis or corporate finance decision. </li></ul><ul><li>Data from companies is keyed in. </li></ul><ul><li>Analysts incorporate data from multiple data sources into their models. </li></ul><ul><li>Integration of data sources occurs on the desktop. </li></ul><ul><li>Critical data in the model typically comes from the company. </li></ul>
  7. 7. Data Sources <ul><li>Financial information providers </li></ul><ul><ul><li>Lack of transparency into as reported data </li></ul></ul><ul><ul><li>Time lag between creation and delivery to market </li></ul></ul><ul><li>Direct from the company </li></ul><ul><ul><li>Discovery of data can be time consuming and difficult </li></ul></ul><ul><ul><li>Inconsistent locations and methodologies </li></ul></ul><ul><ul><li>No guarantee of permanency </li></ul></ul><ul><li>Stock Exchanges </li></ul><ul><ul><li>Tightly coupled with capital markets </li></ul></ul><ul><li>Regulatory repositories </li></ul><ul><ul><li>Authoritative and permanent </li></ul></ul>
  8. 8. XBRL Will Improve Models <ul><li>Analysts typically type earnings data into spreadsheet models. </li></ul><ul><ul><li>Can take hours to enter data. </li></ul></ul><ul><ul><li>Analysts need to compare analyst forecast, company earnings release, consensus earnings and final published earnings. </li></ul></ul><ul><li>Time is important. </li></ul><ul><ul><li>Cannot wait for information providers to distribute data. </li></ul></ul><ul><ul><li>Need in time for conference call. </li></ul></ul><ul><li>Error-free data </li></ul><ul><ul><li>Mistakes cost money. </li></ul></ul><ul><ul><li>Analysts do not need to spend time checking the keyed-in data. </li></ul></ul>
  9. 9. Web Services Are Critical <ul><li>Moving from document centric electronic paper world (forms) to virtual documents based on evolving taxonomies </li></ul><ul><li>Mapping of spreadsheets to data sources provides: </li></ul><ul><ul><li>Transparency </li></ul></ul><ul><ul><li>Ability to audit </li></ul></ul><ul><ul><li>Ease of discovery </li></ul></ul><ul><li>Alternatives, such as web pages and downloadable spreadsheets, diminish the value of the data to the investment community </li></ul>
  10. 10. Typical Pensions Project <ul><li>Surveyed pension exposure of 250 companies </li></ul><ul><ul><li>5 companies per day meant 10 weeks initial data collection </li></ul></ul><ul><ul><li>Time from idea to report was too long </li></ul></ul><ul><li>XBRL will shorten time to market </li></ul><ul><ul><li>Near-instant data collection </li></ul></ul><ul><ul><li>Less need to update out-of-date information </li></ul></ul><ul><li>Less intensive data collection means </li></ul><ul><ul><li>More ideas make it into reports </li></ul></ul><ul><ul><li>Shorter turnaround </li></ul></ul><ul><ul><li>More time can be spent on in-depth analysis </li></ul></ul>
  11. 11. Finding Pension Information in a Regulatory Filing
  12. 12. Advantages for the Analysts <ul><li>Faster integration of data into models </li></ul><ul><li>Clearer linkage to source documents </li></ul><ul><li>Fewer data entry and transposition errors </li></ul><ul><li>Greater reliance on the reported data </li></ul>
  13. 13. Portfolio Manager/Analyst <ul><li>Background </li></ul><ul><ul><li>Deals with vendor-packaged information in proprietary formats </li></ul></ul><ul><ul><li>Still re-keying information into spreadsheets and databases </li></ul></ul><ul><ul><li>Expensive to maintain financial models </li></ul></ul><ul><li>Opportunity for XBRL </li></ul><ul><ul><li>Vendor feeds will be uniform and consistent with company-provided information </li></ul></ul><ul><ul><li>Re-keying will be reduced by reliance on company tagged information </li></ul></ul><ul><ul><li>Integrate analyst forecasts with data from companies and information providers using web services </li></ul></ul>
  14. 14. Retail Investor <ul><li>Background </li></ul><ul><ul><li>Uses popular financial information sites, e.g. Yahoo </li></ul></ul><ul><ul><li>May lack the expertise to process content in regulatory filings </li></ul></ul><ul><ul><li>Need assistance to find critical hints in reported details and financial footnotes </li></ul></ul><ul><li>Opportunity for XBRL </li></ul><ul><ul><li>Provide expert systems to take investor through key ratios and valuation techniques </li></ul></ul><ul><ul><li>“ Red flag” some potential issues </li></ul></ul>
  15. 15. Next Generations of Investor Applications <ul><li>Will be unlike anything we see today </li></ul><ul><li>Investors today have access to financial statements but not understanding </li></ul><ul><ul><li>Where does an investor find revenue? SPEs? </li></ul></ul><ul><ul><li>What is the difference between revenue and income? </li></ul></ul><ul><li>Investor tools will be more powerful than even the in-depth analyst models that currently exist </li></ul><ul><li>Functionality will be available to all investors </li></ul><ul><li>Insight will become more important than spreadsheet skills </li></ul>
  16. 16. Conclusion: XBRL makes markets more efficient <ul><li>Better informed investors </li></ul><ul><li>More accessible information for regulators </li></ul><ul><li>Greater access to global markets </li></ul><ul><li>Lower cost of information </li></ul><ul><li>Higher valued added analytics </li></ul><ul><li>More informed investment decisions </li></ul><ul><li>Lower cost of capital </li></ul>
  17. 17. Contact Information <ul><li>Mark Schnitzer </li></ul><ul><li>[email_address] </li></ul>

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