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May
16
If you don't have a few thousand dollars to blow each month on a data service that scans the SEC's database, aggregates the full financial statements (instead of summarizing them like Yahoo! Finance), and puts relevant information at your fingertips, I've got good news for you — you no longer need it. On Wednesday I sat in on a conference call with the SEC to discuss some upcoming changes to their EDGAR filing standards. XBRL will be the new standard, and it is very exciting for "regular" investors.
Without getting too technical, Extensible Business Reporting Language (XBRL) is an XML-based specification for publishing business and financial information. In Plain English, it means that annual and quarterly reports filed by public companies will have to be "tagged" so that information is quickly and easily accessible. Once tagged, it can then be easily pulled from the SEC's database and quickly (and automatically) formatted and customized.
What This Means For Regular Investors
Before I give an example of now versus soon, let's discuss what this means. First, you won't have to pay a big company to get data. Those guys have supercomputers working 24/7 to scan documents and pull information, and then they have people in the background verifying it — and you would be paying for all of that.
Once XBRL becomes the standard, the company filing the report is responsible for creating a tagged, XBRL document that is ready to be read by a standard reader (like the SEC's reader, discussed later), or ready to be manipulated by a customized software solution. No longer will annual reports need to be "scraped" for content; no longer will you have to worry about typos or other human error.
Second, it means that you will get information the second that the big boys do. There will be no data lag. You won't have to wait for something to be filed, then read, then parsed, then verified, then made available. Will this greatly affect your investing? Probably not. But it levels the playing field a little more.
Test Drive XBRL
I can talk until I'm blue in the face, but you really need to try it to see how much better it is. The SEC has made a work-in-progress interface that you can use to really experience the benefits of XBRL. Let's walk through it to compare the future with the present.
First, go to the SEC's Interactive Financial Report Viewer. You'll see some companies listed on the left. Click the plus sign next to 3M Co. After a few seconds, a list will open and you'll see Annual and Quarterly Reports for the company. For this example, click Annual Report (2006-12-31) and you are taken right to 3M's Income Statement. Want to see the full Statement of Cash Flows? Along the top, click "Cash Flow from Operations — Indirect Method" to see that section, or click "Statement of Cash Flows" to see the rest. Head over to "Statement of Financial Position" to view the balance sheet.
Sure beats the heck out of going to the EDGAR database, entering "MMM" into the search box, searching for Form 10-K, clicking [HTML], interpreting which file to open, scrolling down to the Table of Contents, finding the Financial Statements, scrolling down to the Statement of Cash Flows, and then scrolling up and down to get your data!
We're Not Done Yet!
The SEC's barebones, beta viewer has some awesome functionality. You can draw a chart for easy comparison between periods, or export the financial statement to Excel without having to reformat everything once it's in your spreadsheet.
Not sure what an item is? Click the description to learn more. On 3M's balance sheet, I click "Property, Plant, and Equipment, net" and I get the definition:
Tangible assets: 1) Held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and 2) are expected to provide economic benefit for more than 1 year; net of accumulated depreciation.
By clicking "All Reports" at the top, I can see all of the financial statements together.
First XBRL, Then XBRL Tools
As XBRL becomes the standard, you will start to see more robust stock screeners and less costly data aggregators. Sites like Yahoo! Finance, Morningstar, Google Finance, and others will have to start presenting full financial statements to stay competitive. Though the data is free today to anyone willing to visit the SEC's EDGAR database, it is still a pain to do so.
As XBRL becomes the standard, we will enter into a whole new world of financial reporting. EDGAR changed the face of financial reporting in the 1980s; XBRL will change it again.
Don't Get Your Panties In a Bunch
Before you start drooling (like I am), we have a ways to go. XBRL is just rolling out now and it's going to start with just the largest companies. Over the next three or so years, the SEC will expand its XBRL filing requirements to eventually include all companies. As they work the kinks out of the program, it will get better and better.
And I commend the SEC for taking further initiatives. You can visit their Interactive Data Viewers page to see what else they're working on. At the time of this writing, the SEC has:
- Interactive Financial Reports,
- Executive Compensation comparisons,
- Financial Explorer to view and visualize company financial data in various ways, and
- Mutual Fund Reader to compare fund investment objectives, strategies, risks, costs, and performance.
Learn More About XBRL
You can learn more about XBRL by visiting the SEC's website (using the links I provided above) or by visiting XBRL.us. As I learn more, I'll let you know.
And a special thanks to George over at Fat Pitch Financials for getting me invited to the conference call.
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The only draw back is very limited company in the the tool. but it is a good start.
by sami on May 16, 2008 at 10:18 AM