XBRL proponents see big potential for financial analytics

Submissions to a contest by the XBRL US consortium show how SEC financial statements can be tapped for financial metrics.

Proponents of the eXtensible Business Reporting Language (XBRL), an XML-based language for transmitting business and financial data over the Internet, are eyeing it as a treasure trove for financial analytics. One prominent advocate, XBRL US, a consortium for XML financial reporting standards, just announced the winner of a contest meant to encourage development of open source business analysis software that taps the quarterly financial...

statements companies submit to the U.S. Securities and Exchange Commission (SEC).

Consortium officials cited the winner, Calcbench , as a good example of the financial analytics they have in mind. Users enter a company’s stock symbol to receive the last five quarters of financial data, perform calculations on it and share the results. The tool reports a handful of preset financial metrics, including percentage change, gross margin and quick ratio, according to Alex Rapp, a Calcbench co-developer. “These are simple things that an investor would be doing on their own, but spending a lot of time to do it,” Rapp said.

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Calbench displays the financial statements from the approximately 8,000 companies that fall under an SEC mandate to use XBRL. Links to the company’s balance sheets, statements of operations and statements of cash flows appear on screen alongside a near-real-time trading summary containing such financial data as stock price, market capitalization and earnings per share. Clicking on any number in a statement copies it into a calculator, where users can perform simple calculations like addition and division.

Pranav Ghai, the other Calcbench co-developer and, like Rapp, a former investment analyst in the financial services industry, said Calcbench also shows companies’ disclosures of their accounting policies, commitments and contingencies, which allows investors to see how they might have changed over time. Such transparency could help put companies on notice that their accounting policies will receive scrutiny, he said. Apple Inc., for example, has changed its policies in potentially important ways. “They were much more forthcoming nine months ago than they are today,” Ghai said.

Forecasting the future of financial analytics
Finance experts at a press conference announcing the award said XBRL and Calcbench have strong potential for financial reporting and analysis. Most of the 14 other contest submissions facilitate XBRL analytics, sometimes through importing into Microsoft Excel or with built-in tools for financial modeling.

“We see it [XBRL] as a viable tool to gather and retrieve information,” said Glenn Doggett, director of standards of practice at the CFA Institute. The first of the consumption tools were modified PDF readers. What we’re seeing now is the transition into trend analysis: how has this company performed over time.”

The XBRL taxonomy will make it easier for researchers to manipulate quantitative data in footnotes and other parts of financial statements, according to contest judge Paul Ratnaraj, director of Wharton Research Data Services, a data research service from the Wharton School at the University of Pennsylvania and contest co-sponsor.

“Prior to XBRL it was not easy to get this information.” Since SEC filings are almost instantly available, Ratnaraj said, people will be able to do more real-time financial analysis on data that is more standardized than before, thanks to the XBRL taxonomy. “We like that the SEC has mandated that the data become more transparent,” he said.

As for Calcbench, Rapp said the next major financial analytics feature under development is the ability to roll up industry and sector data in real time. He said he hopes people will use Calcbench’s collaboration features to build new communities that spread financial analysis to a whole new group of investors. “We built Calcbench with the idea that there would be collaboration,” he said.

Rapp called Calcbench a free alternative to pricey subscription services from Thomson Reuters, Bloomberg and FactSet, but said those services provide more data.

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