User s View OF XBRL September 13, 2006

Transcription

1 User s View OF XBRL September 13, 2006 Mark Schnitzer Executive Director mark.schnitzer@morganstanley.com Morgan Stanley does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 2 Contents XBRL for Financial Analysis Updating Financial Models Comparing Financial Information Simplifying Complex Information Summary and Conclusions

3 3 XBRL for Financial Analysis Can help facilitate the comparability and granularity of financial disclosure Can help make the analysis timely and transparent Can help simplify some aspects of the analysis of complex financial reporting Source: Morgan Stanley Research; company reports

4 4 What Lies Ahead? Analysis Fundamental Analysis and Consistency Company B Analysts Company A XML/XBRL Regulatory Filings XBRL Management Reports XML/XBRL Economic Services 10K Wizard EdgarPro XML/XBRL XML/XBRL Integrated Models Multiperiod estimates Risk profiles Management assessments Supply Chain XBRL Source: Morgan Stanley Research Customers Internet Data Purveyors Investors

5 5 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 Source: Morgan Stanley Research

6 6 Workflow: Updating Financial Models Current Workflow Report published to the web in HTML or PDF format Analyst manually transcribes numbers into spreadsheet model and analyses results quickly in order to get a comment out Process with XBRL Report published in XBRL format Numbers automatically loaded into spreadsheet by an Excel add-in Analyst has more time to analyse results with confidence

7 7 Use Case: Sorting through the Disclosure Example: Obligation Disclosure Recommended by the SEC Payments Due by Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years Long-Term Debt Capital Lease Obligations Operating Leases Unconditional Purchase Obligations Other Long-Term Obligations Total Contractual Cash Obligations Source: Securities and Exchange Commission, Release Nos ; ; FR, "Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations ; Big Forest, Lots of Trees February 12, 2002

8 8 Operating Leases: What is real debt/credit risk? 16,000 14,000 12,000 Millions of $USD 10,000 8,000 6,000 4,000 2,000 - (2,000) Winn Dixie Stores FedEx Corp. UPS Walgreens Deutsche Post World Net Cathay Pacific Airways Sources: Company reports, Morgan Stanley Research Estimated Net Reported Debt Net Debt including Operating Leases Available in ModelWare

9 9 Impact on Earnings From Pensions: GM Reported Cost 4,000 GM US Pension Plans Net Financing Cost 2,000 $USD Millions Operating Cost - (2,000) (4,000) (6,000) (8,000) Reported Cost Operating Cost "Cash " Contribution Benefits Paid to Retirees Net Financing Benefit (Cost) Actual Cash Flow 2002 numbers have been restated to reflect results of Hughes as discontinued operations Source: Morgan Stanley Research estimates; Company reports $(18.6) bn Available in ModelWare

10 10 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 Source: Morgan Stanley Research

11 11 Workflow: Comparing Financial Information Current Workflow Comparable data are sourced from separate financial reports Data must be checked to ensure it is complete and comparable More time is spent on collation and verification than on analysis Process with XBRL Query submitted to XBRL data aggregator Results returned effectively immediately More time to analyse more companies

12 12 Non-Performing Loans: A Comparison of Varying Treatments Definition Hong Kong Japan Korea Singapore 90 days past due. Man-agement discretion permitted. Conservative bias. 90 days past due. Man-agement discretion per-mitted. 90 days past due. Management discretion permitted. 90 days past due. Conservative bias. Basis of Loan Classifications Substandard: 0-3 mo. PD. Doubtful: 3-12 mo. PD. Loss: 12 mo. PD or no recovery expected. Substandard: >= 90 days (including those between 90 and 180 days; Doubtful: 180 days past due Bankrupt / Quasi Bankrupt: no recovery expected. Classifications are based on management discretion. Reflect optimistic bias, individual bank differences. Categories: Precautionary, Substandard, Doubtful, and Loss. Pass/Special Mention, Substandard (secured, not fully secured, loss), Doubtful and Loss. Conservative bias. Provisioning Methodology No formal guideline. Informal guidelines: 3 mo. PD 25% provision; 6 mo. PD 50% provision; 12 mo. PD 100% provision.[are these percentages net of collateral?] Provisioning closely tied to loan classification but no formal guidelines; Normal: 0.5% of loans. Special Mention: 15%-25%. Substandard: 25%-35%. Doubtful: 70%. Loss: 100%. Normal: 0.5% of loans.precautionary: 2%. Substandard: 20%.Doubtful: 50%. Loss: 100%.[Gross or net of collateral?] Pass/Special Mention: 1%. Substandard: secured, 0% of principal, 100% of interest;not fully secured, 10-50% of collateral shortfall; loss, 100% of collateral shortfall. Doubtful: % of loans. Loss: 100%. Conclusion: Treatment varies and complicates comparability Source: Morgan Stanley Research, Company Reports

13 13 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 Breadth Access to analysts and investors for a broader set of companies

14 14 Other points to consider Research model changing Information and Knowledge are two separate things 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

15 15 Conclusions XBRL will improve the relevance and quality of financial analysis Companies should look at XBRL as a way to improve communication with their stakeholders Stocks with higher corporate governance standards have outperformed GMI Top 26 S&P 500 Greater transparency results in a lower cost of capital! Source: Governance Metrics International