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You are Here: QCF » Cookbook » Quantitative Analysis » Corporate Finance Analysis: 10 Deadly Sins

Corporate Finance Analysis: 10 Deadly Sins

May 24, 2014 by Hans Tallis Leave a Comment

We’re all guilty of these, at different times and in different ways.  The cause is usually laziness rather than malice; either way, eternal vigilance is the best antidote.

Hubris

All models are wrong; but some are useful

Insensitivity

We’re consultants, not executors:  respect the decision process of the client

Shaky Foundations

Something’s always wrong with the input data — whether outright data-entry errors or our misinterpretation of it

Opacity

Poor visualization practices hinder understanding; the most insightful analysis is easily obscured by the wrong form of display

Misdirection

Comparing the wrong variables; answering the wrong question

Pointlessness

Findings without a recommendation

Decoration

“Chart clutter” results from not understanding data visualization fundamentals

Inconsistency

Numbers don’t “tie” across pages

Uneconomic Measures

For example, optimizing accounting ratios instead of wealth measures

Misplaced Faith in Numbers

Numerical analysis drives the minority of decisions

 

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Filed Under: Quantitative Analysis

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