2. The Information Age

The logical instrument which Aristotle used for the analysis of actual fact into more abstract elements was that of classification into species and genera.
Alfred North Whitehead

Financial analysis is an information-based undertaking. It determines the value of a company by the data that measures the company’s assets, income, and cash flow. The quality of the financial analysis is a product of the quantity, quality, and timeliness of the information that is used in making the analysis. Better and more current information makes better financial analysis possible and leads to better investment decisions.

In the age of computers, the volume of data and the tools used to analyze data have grown enormously. Companies, both large and small, are now capable of generating huge amounts of data from automated cash registers and scanning devices and inexpensive databases are available that allow that data to be searched, selected, and summed into digestible morsels of wisdom. The future of financial analysis lies in the ability to analyze the large volumes of data that are now being produced by the ubiquitous personal computer. See The Tao of Financial Information.

1. Information and Decisions

Knowledge is never perfect, and the longer the time between a decision and its consequences, the wider the gray area of uncertainty.
Thomas Sowell

The trading advantage that comes from information is a result of the information’s timeliness as well as its volume. If a party to a trade has as much information as the other trading partners, but his information came after the terms of the trade had been agreed upon, he bargained with a substantial disadvantage and most likely did not get as much profit from the trade as he should have. If an investor has several investment opportunities that are alternatives to each other, he needs to have information prior to making his investment. To have value as intellectual capital, information must not only be relevant and reliable – it must also be timely. See Banking the Past.