Facts Simile of Analysis

When providing clients and decision makers relevant financial analysis from historic data, we have a tendency to highlight and report the aspects of the data that supports the known outcome.

Should this be the case?
What is the true goal of financial analysis?

We all "analyze" things all the time, but how should we as financial managers and decision makers use our everyday analysis to drive our business interests and decisions.

Websters defines analysis in three statements;

• The separation of an intellectual or material whole into its constituent parts for individual study.


• The study of such constituent parts and their interrelationships in making up a whole.


• A spoken or written presentation of such study.

Leave it to Mr. Webster to give us the basics, nonetheless, and as it always seems to be, the basics in this case are where we should focus. This essay will "analyze" (no pun intended) the three statements above and relate them to financial analysis.

Breaking it Down

ESPN SportsCenter has a segment called "Breaking it Down". These are attempts by the sports analysts at explaining why one particular team won over the other. The segment basically takes a series of "freeze frames" of a game and uses a cool looking graphic to single out some particular aspect of the image.

For example, they'll show a simple series in a basketball game where one team brings the ball down the floor and takes a shot. The point ESPN makes is that just before the shot was taken, the defense was in "such 'n such" a position, and the offense was in "this 'n that" position, creating the conditions for the shot.

His analysis will attempt to highlight the positive "trend" of one team's performance over another during that series. The assertion is that sum of these individual "series" created the "whole" of the game. If the winning team's positive series outnumbers the other, then the winner can be supported be those individual performances.

It is always interesting to me how the announcer can confidently make a case in determining "Why" the team won. Upon watching the game, the reality "seems" to be that the game came down to a last second shot to undo a one point difference. If the last second shot is made, Winning Team A is regaled as heroes, while Losing Team B is accused of choking. If the opposite happens, the roles reverse.

Would the analyst have supported the "other" potential outcome if the last second shot result was reversed? Absolutely! Even though all of the events that the announcer may have highlighted on behalf of the winner in scenario A did happen, they DON’T support the result. Therefore, the analyst seeks information to support the outcome. The point here is that the outcome is NOT due to the last second shot, BUT due to the sum of the parts of ALL events, up to and including the last shot.