Thursday 17 January 2019

Why Verified and Adjusted XBRL is the Best Choice for Company Analysis

If you read my last post Do Extensions make XBRL Unusable out of the Box?,  you will know that using XBRL without adjusting the tagging could well be calamitous.

So what are your options? Well in the post before that Which Source of Company Financial Data should I use?, I set out the options for finding the best source for comparative analysis. Lets re-iterate them here but I'm also gonna add one further choice.

1. Lifting values straight from the Financial Reports filed by a company
2. Data Vendor - Bloomberg, Thomson Reuters, Capital IQ, FactSet etc
3. XBRL (unadjusted)
4. Verified and Adjusted XBRL (VAXBRL)

The first choice is only an option if you have ridiculous amounts of time. The second if you have ridiculous amounts of cash and you are willing to take the risk the data is completely error free and has been interpreted correctly. Vendor data by its nature has been handled by a third party so really needs to be verified if it is to form the basis of an expensive transaction. This is why it is never used as the primary source for in-depth company analysis in critical departments such as M&A.

My previous post explains the danger of using neat XBRL. Over half the Dow Jones 30 companies had used extensions in a way that could lead to significant errors in your analysis if you just plugged the raw XBRL into your model. Only 20% of companies had no extensions on the face of their Primary Financial Statements. And if the trend over the last five years is anything to go by (which I also examined in my analysis - I was interested to see what that fifth year of data might look like compared to the first), it not going to get any better.

There is a viable alternative. And it is not expensive. And by expensive I mean in terms of time, that most precious of commodities. VAXBRL. Just spend a little time verifying and adjusting the XBRL. This way you'll always know the provenance of the source (direct from the company). And with the right tools, it can become an easy and inherent part of your financial modelling process over which you will have complete control.

What you'll end of with is a set of financials better than any vendors at a fraction of the cost. Now that I think is what the XBRL revolution was supposed to be about.

Of course I wouldn't be telling you this if I didn't have a set of tools up my sleeve that might be just the job. Take a look at our totaliZd product. Download a totaliZd X Sheet at work (ready for adjustments). Yo can now also see a fully adjusted version of an X Sheet and video which I talk about in my next post.

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