XBRL for Financial Analysis Angus Lund Morgan Stanley

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