Trends: Why important?
October 7th, 2010
Copyright © 2010 Integrated Profitability TM
(This article is published concurrently at the “Integrated Profitability” blog. Please visit for the full series of articles.)
Trend reporting is important because it provides a dynamic component to the static “point in time” reports of the Balance Sheet (e.g., end-of-month/quarter/year) and “period in time” reports of the Income Statement (e.g., the month of July; the 3 Qtr; full year). Trends indicate how the financial numbers are moving over time.
Assuming comparable data, the longer the time period, the more insight that can be garnered.
In a very simple example, let’s say you have $10,000 to invest in the stock market. Which is more revealing:
● A single intra-day stock quote
● Three months’ worth of daily end-of-day closing prices
● Five years’ worth of daily end-of-day closing prices
● Five years’ worth of daily opening, intra-day, closing prices
These include peaks and troughs during each day
● Five years’ worth of daily opening, intra-day, closing prices; adjusted for actions affecting the stock such as splits
The more trend data you have, the more you will know about how the stock price behaves, when it goes up/down, and by how much. A graph of the data will indicate certain cycles, and will give hints as to which way the price may be heading. Of course, anyone in the market knows that:
1. “past performance is no guarantee” of future performance and
2. it is incredibly difficult to forecast tomorrow’s price
The point is that with a sufficient amount of history and comparability, you are in a much better position to have an informed opinion about where the price may be heading. Without the information, it’s like flying a plane from a cockpit that has no windows and no instruments. You can do it for a while but the likelihood of a crash goes up astronomically.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 83
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
Got Numbers People?
August 27th, 2009
Copyright © 2009 Integrated Profitability TM
If your business is squarely on the road to riches and you “don’t need no stinkin’ Numbers People,” then STOP READING! Go straight to your favorite entertainment place and reward yourself with whatever you enjoy the most.
On the other hand, if your numbers are not everything you would like them to be, then feel free to read on. If your numbers don’t exist, are unknowably mysterious or are plummeting out of control, then definitely continue reading.
You’re in good shape when you have:
● a business model that is clear, easy to understand and comprehensive
● accounting books that are accurate and timely
● financial reporting that is timely, insightful and which acts as an actionable bridge between the accounting numbers and your business processes
● planning that links the financial numbers to the future of the business and incorporates the experience and knowledge of key stakeholders
You’re not in good shape if none of the above exists.
You’re in poor shape if:
● your business model isn’t written down. Or your written business model doesn’t show, precisely, how you make money and where you might lose money.
● your “accounting” is a shoebox full of paper that you (or somebody else) go through once a year…to keep the Tax People happy and off your back
● financial numbers are only pulled together when taxes are due, a government filing is needed, or a potential lender/investor needs background information
● planning is done over coffee and a donut each morning…if ever
You’re in really bad shape if all the conditions of “in poor shape” exist AND you’re losing money hand-over-fist.
Numbers People in Action: Basic Finance
August 13th, 2009
Copyright © 2009 Integrated Profitability TM
Another continuation of the suggestion that came in to “…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…” The first article set up the simple scenario, the second dealt with Accountants & Bookkeepers. Now, it’s time for Finance.
Once the close is completed, the Finance Folks grab the numbers-baton and start running. The first step for Finance is to review the numbers from the general ledger close. The purpose of the review is to do a high level check as to whether the numbers “make sense,” whether they past the tummy-test. If something looks out of the ordinary, or outside expectations, Finance will immediately go back to the Accountants and ask for confirmation that the abnormality is accurate: that is, the numbers are an exact reflection of a business transaction.
For example, let’s say sales have been running at $XXX a month for the last six months but this month, they are only 50% of that number (or, better, 150%!). Before involving the Accountants, Finance will first check comparable periods in prior years. If there IS an annual dip (or bump) in sales in this particular month, then there is no question. It is a normal part of the business. If not, the details need to be obtained from the Accountants (who certified the close).
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