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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

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
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
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
Workflow: Updating Financial Models
Current Workflow
Process with XBRL

Report published to the web in
HTML or PDF format

Report published in XBRL
format

Analyst manually transcribes
numbers into spreadsheet
model and…

Numbers automatically loaded
into spreadsheet by an Excel
add-in

…analyses results quickly in
order to get a comment out

Analyst has more time to
analyse results with
confidence
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
Workflow: Comparing Financial Information
Current Workflow
Process with XBRL

Comparable data are sourced
from separate financial reports

Query submitted to XBRL data
aggregator

Data must be checked to
ensure it is complete and
comparable

Results returned effectively
immediately

More time is spent on collation
and verification than on
analysis

More time to analyse more
companies
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
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
Conclusions

XBRL will improve the
relevance and quality of
financial analysis
Stocks with higher corporate
governance standards have
outperformed
180
GMI “Top 26”
160

Companies should look at
XBRL as a way to improve
communication with their
stakeholders
140
S&P 500
120
100

Greater transparency results
in a lower cost of capital
80
1999
2000
2001
2002
2003
2004
Source: Governance Metrics International