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 your research from a different direction, too, to decrease your chances of repeating an error -- if you're adding a list of numbers, for example, you might start from the bottom of the list the second time around.
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. A balance sheet might list numbers in thousands (where 10,000 is shown as "10"), while another data source might offer figures in millions (where 10,000,000 is shown as "10").
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 "Crack the Code: Read Financial Statements Like a Pro" how-to guide (also known as an online seminar). Give any of ourhow-to guides a whirl. More than 90% of those who've taken them have consistently given them high marks -- and besides, we offer a satisfaction guarantee, or you get your money back.
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