Even before all public companies are required to report in XBRL and well before investors have begun making meaningful use of it, the critical benefits of adopting XBRL and putting it to work in analyzing corporate data are coming to light.
Although only about 1,500 companies have reported their financial results in XBRL so far, Michelle Savage, vice president at XBRL US, demonstrates how it might have provided useful insight into systemic risk before the economic crisis. She provides some great examples of how XBRL might have been handy in heading off the credit crisis before it became a global economic tailspin.
Strolling through 2010 third-quarter data, for example, Savage discovered that the financial sector, which includes insurance and real estate, holds 65 percent of total assets but only 14 percent of revenues among companies reporting in XBRL. Fannie Mae alone held 9.5 percent of total assets.
Here’s more: In the retail sector, WalMart’s revenue represents 29 percent of the total retail trade reported revenue of $1.4 trillion. Companies in the petroleum refining sector make up less than 1 percent of the companies that have reported through XBRL to date, but their revenue in the third quarter of 2010 was almost 10 percent of total revenue reported.
That’s the kind of information that could be invaluable to investors as they learn to use XBRL to gather and sort information. But even further, that has big implications for regulators looking for stress fractures in the economic system. “With this kind of information available on a real-time basis, identifying investment opportunities and flagging problem companies can be as simple as a few keystrokes,” Savage says. We can expect the new regulatory initiatives taking shape as a result of the Dodd-Frank Act to make significant use of XBRL to look for signs of trouble.
The data will get deeper and more meaningful when thousands more companies begin reporting in XBRL in 2011 as required by the Securities and Exchange Commission. There still are plenty of questions in the marketplace about whether XBRL is really worth the time and expense, but XBRL really is the modern variation of EDGAR. When EDGAR emerged in the late 1980s, folks then had a hard time imagining how the electronic submission and storage of financial data would change the way the market accesses information. “Today, however, could any of the investors, analysts, librarians, academics or reporters who actively use it imagine a world without EDGAR?” Savage wonders.
XBRL US has created a simple application to demonstrate the power of XBRL, allowing users to extract revenue and asset information for all companies currently filing in XBRL. The application demonstrates how XBRL makes information and analysis so fast and accessible. Savage says it not only opens up a wealth of information, but it promises to level the playing field between large and small companies when all companies are reporting under XBRL.