How can you avoid making errors with numbers as you research companies and calculate various measures? One good rule of thumb is to check your work by doing the math a second time. You might approach it from a different direction, too, to decrease your chances of repeating an error. So, if you were adding a list of five numbers, you might start from the bottom of the list the second time around.
When working with formulas and plugging in numbers, it's critical to be consistent with the numbers you're using. If you enter a number in the millions for one part of a formula, make sure that the other numbers you use aren't in billions or thousands. This is important because sometimes the various sources of data you'll use will differ in how they present numbers. A balance sheet might list numbers in thousands (where "10" means 10,000), while another data source might offer figures in millions (where "10" means 10,000,000). See the problem? Since it can be clunky to add, subtract, multiply, and divide really big numbers, they're shortened temporarily for convenience.
If you're not used to working with big numbers, check out the following ways of writing the same number:
- $6,344,175 (in 000s, or thousands)
- $6,344 (in millions)
- $6.344 (in billions)
So, if you read on a financial statement that a certain item is valued at $13,885 and you note (probably near the bottom or top of the statement) that all numbers are "in 000s," that means you just need to tack on three zeroes and the number is really $13,885,000. If the statement says that all numbers are in millions, you'll need to tack on six zeroes, for $13,885,000,000. Also, keep in mind that some numbers from financial statements represent totals while others are given on a per-share basis. Make sure you don't fall into the trap of trying to compare those numbers with each other.
Keep all numbers in the same format, and your spreadsheet formulas should work smoothly.
You can learn more about how to interpret financial statements in our "Crack the Code: Read Financial Statements Like a Pro" How-to Guide. Our other online how-to guides give you valuable information on a variety of different topics of interest. More than 90% of those who've used the guides have consistently given them high marks -- and we offer a satisfaction guarantee or your money back. (Actually, some of the guides are free!)