When publicly listed companies issue their annual financial reports, they can be complicated for investors and even regulators to understand.
But a team of academics at the Lancaster University in the UK believe they have the answer; an app that can cut through the jargon and give clarity to company performance.
"Annual reports are highly unstructured, and different companies report in different ways, which makes extracting content and comparing reports very difficult. Almost every document is different,” said Professor Steve Young, Head of Accounting in Lancaster University Management School.
He added that investors and other non-specialists often struggle to read these reports but the app that the team has developed extracts commentary from the reports and normalizes it across firms.
The Corporate Financial Information Environment - Final Report Structure Extractor (CFIE-FRSE) app helps investors to identify unusual patterns in reports which could them distinguish between long-term financial strength and inflated short-term profits.
The app can also help regulators spot where companies may be trying to conceal information.
Regulators, and investment and hedge-fund managers, have expressed interest in the app.
The Lancaster University team’s analysis of company financial reports has found that the length of annual reports has more than doubled over the past decade.
They also found that the readability of reports, based on use of long sentences and complicated words, remains poor. Language used in sections relating to regulation and compliance was found to be generally neutral while language is more upbeat and positive in those sections where executives have more discretion and are performance focused.
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