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.
One simple way to do this is by approaching your research from a different direction. If you're adding a list of numbers, for example, you might start from the bottom of the list the second time around. This will decrease your chances of repeating an error.
When working with formulas and plugging in numbers, you have 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. One 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 get 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 too often, check out how many ways there are to write the same thing:
- $6,344,175,000
- $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.
Keep all numbers in the same format, and formulas should work smoothly.
To learn more about how to make sense of financial statements, check out our online series on how to read financial statements.
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