2
Spotting Assumptions, Estimates, and Biases
So let’s plunge a little deeper into the “artistic” aspects of finance. We’ll look at three examples and ask some simple but critical questions:
- What were the assumptions in this number?
- Are there any estimates in the numbers?
- What is the bias those assumptions and estimates lead to?
- What are the implications?
The examples we’ll look at are accruals and allocations, depreciation, and valuation. If these words sound like part of that strange language the financial folks speak, don’t worry. You’ll be surprised how quickly you can pick up enough to get around.
ACCRUALS AND ALLOCATIONS: LOTS OF ASSUMPTIONS AND ESTIMATES
At a certain time every month, you know that your company’s controller is busy ...
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