2
Spotting Assumptions, Estimates, and Biases
So let’s plunge a little deeper into this element of financial intelligence—understanding the “artistic” aspects of finance. Even though you’re just at the beginning of the book, this will give you a valuable perspective on the concepts and practices that you’ll learn later on. 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, depreciation, and valuation. If these words sound like part of that strange language the financial folks speak, don’t worry. You’ll be surprised ...
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