How far to drill down

An analyst will drill down into the elements of the data. Then, they decompose each element into its parts and then refine their perspective. As they continue modeling, a comprehensive understanding emerges. They create visual graphics to explain the relationships and test the data. Once they see the impact of each element on the whole, they return to the top two levels to draw conclusions. Financial folks are very good at this. You continuously revisit your assessment, never done! It is hard; I am not a great analyst but I try ...

How many levels of detail?

For example, to judge the stability of the business to business ecommerce sales, one of several top level element would be the number of customer bankruptcies. The likelihood of bankruptcies can be estimated by the average liquidity, historical Return On Assets, profitability and turnover. Here, two levels in, you have forecast you can explain.

Add another level to confirm your logic or do the math. The problem is that you will have several elements each for liquidity, ROA, profitability and solvency, and as it gets more complex, you will have a very difficult time explaining the forecast.

What people expect

You have to simplify your explanation by moving back up to the top two levels. Most people expect you to do you homework and not to overwhelm them with the methodology. They expect you to inform them if something key changes.

The Long View Approach - Understand the Time Late

In my USA Economy observations, I use for the most part comparisons to the same quarter last year so the data is at least one month after the fact from the end of the last quarter (one month to survey and publish the data). If by months is available, I often use a three month moving average to see the trend direction and magnitude. My calls of a trend change are time late.

Let the team know how old the data is!

Comparisons

Absolute Comparisons