238|CHATGPT – Red Flags in 10-K Analysis Challenge

Challenges
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BYU Student Author: @Abraham_Reyes
Reviewers: @Keanu_Gauthier, @Kiya_Smith.
Estimated Time to Solve: 30 Minutes

We provide the solution to this challenge using:

  • Chat GPT

Need a program? Click here.

Overview
You are a financial analyst at a top investment firm. Your task is to leverage only ChatGPT to quickly identify potential financial red flags using the financial statements of Amazon. The goal is to automate the detection of simple yet critical financial anomalies that may indicate underlying risks, without the need for additional technologies like Python.

Data Provided:

  • Statement of Cash Flows
  • Statement of Operations
  • Statement of Income
  • Balance Sheet
  • Stockholders’ Equity Statement

Instructions

Objective: Using ChatGPT, complete the following clear and simple steps:

  1. Extract and Analyze
    a. Prompt ChatGPT individually with each financial statement.
    b. Clearly instruct ChatGPT to extract key financial figures and compare data across different years provided in each statement.

  2. Detects basic red flags including:
    a. Significant and abrupt revenue changes indicating potential aggressive revenue recognition.
    b. Large, unexplained adjustments in asset valuations.
    c. Sudden and unexplained shifts in accounting methods.
    d. Substantial changes in cash flows from operations, investing, or financing activities.

  3. Provide a simple evaluation metric (risk score) from 1 to 5:

  • Assign 5 for very high-risk anomalies found.
  • Assign 3 for medium-risk anomalies found.
  • Assign 1 for low-risk anomalies found.

  1. Summarize Findings Clearly
    a. Compile your results clearly in a simple summary. Highlight each identified anomaly, its associated risk score, and reference the specific financial statements used.

  2. Example of Detected Red Flag:
    a. Revenue Recognition Anomaly: A sudden 25% increase in revenue without proportional increases in cash flows or operating income, identified in both the Statement of Income and Statement of Cash Flows. (Risk Score: 3 Red Flags)

  3. Instructions for your submission:
    a. Provide examples of the ChatGPT prompts used for each step.
    b. Clearly summarize each anomaly with its assigned risk score.
    c. Briefly explain how your ChatGPT prompts helped differentiate between regular financial fluctuations and genuine red flags.

Data Files

Solution

Challenge238_Solution.docx
Solution Video: Challenge 238 OPENAI – Red Flags in 10-K Analysis Challenge