Performance Cash
by
Book Cover & Preview Text
Chapter One
100% of What?
| Seeking Common Ground For and With Management |
As opposed to professional sports a 50% winning average is good in the business world. It will be like being in first place, because a winner will be exceeding a previous month's performance or plan, more often than not. The key to the sports analogy—four benchmarks report sales efficiency the day after—a day's—a week's—or a month's event. Management has more need than a sports fan for current sales data—his or her lively hood or investment is a stake.
In addition to playing on the same field as management, Accounting desperately needs help in support of Earnings per Share (the all time benchmark). My collection of headlines and articles are below. I am not trying to replace EPS but to supplement it.
Why Controllers aren't making an Impact?—Strategic Finance April 1999
Why CFO's Get Fired—CFO Magazine April 2000
Why CEO's Fail—Fortune June 21 1999
Will Accounting Education Survive in the Future?— Management Accounting Quarterly Fall 2000. This was authored by a task force composed of three Accounting Associations and representatives from the Big Five Firms.
Wanted: Accounting model fit for the "new economy"— Accounting Today August 21 2000
The Fortune 500 Issue, July 2001 by Baruch Lev and Thomas A. Stewart "accounting gives rotten information about the value and performance of modern, knowledge-intensive companies"
My reply to all of the above, "Accountants are taught how to deal with the presentation of business numbers, as opposed to certain numbers being the means to gain knowledge of any particular business". There is no common ground for an accounting student or a professional to gain knowledge of how a business survives and grows—by selling each product of a business at the right price for the manpower employed.
Special Report Strategies for the Accounting Professional— Practical Accounting July 2001. "There are 45,000 CPA Firms in this country of which 90 percent of the fees were from essentially doing the same thing" "The Firm of the future will free accountants to devote more time to strategic tasks like financial analysis and business consulting— for higher revenue services. The article spoke of "on line" and other "live service", deliverable instantly. My reply—not if it is rehashing the same stale data that is available today.
Newsday July 1, 2001-- What's Cooking, Susan Harrigan "restatements because of irregularities or errors averaged 155 per year 1998 to 2000 vs. an average of 49 from 1990 to 1997" She went on to describe the tricks to the manipulation of numbers. A Congressman's answer is to double or triple the SEC enforcement staff. Sounds like more aggravation for Industry.
I believe established Corporations would welcome the Truth of my objective benchmarks, removing the pressure of EPS growth when the company is truly growing in other respects. Likewise accountants would have an audit step geared to operations. It is ironic that auditors concentrate on the Balance Sheet and devote little relative time to the principal interest of Equity Shareholders, Operating Earnings. —That alone must change if EPS is going to be the driving force behind everyday shareholder value.
Operating Earnings per Share gets all of the Shareholder's attention, was it always meant for such glory? A few pennies here or there impact Corporate Value in the millions. It is only one line of a Consolidated Statement of Income from a Company's many different entities throughout the world. That one amount from the last line categorizes and puts in order, from a myriad of sources, billions of transactions for the financial world to observe performance. Even when the rules are understood, those same financial people have a difficult time agreeing and expressing why reported earnings couldn't be matched with any prior actual or anticipated results. Most variations to a principle have valid explanations. Earnings per Share can not be the principal benchmark for operating performance unless it gets some desperately needed help in explaining deviations.
Accountants realize the shortcomings, but they have not adequately admitted that fact to the Public Investor. The 2000 Florida election for the presidency is a case in point. Voting has always appeared to the public as a clean process where numbers are objective and the results conclusive. The EPS process is tainted with certain weaknesses for a use and time not originally designed. My opinion--"Public and Private Accountants are not working together to enhance EPS and are almost going in opposite direction in their quest to find other supporting numbers for the most sensitive principle to Equity Value".
Accountants must seize the common ground when discussing a business with Management before and after Financial Statements are prepared. It is only a question of setting up a simple spreadsheet that sets in motion the proper framework of the past to impact the future. Just like different general ledger software is the basis for Different Presentations of Financial Statements, the Intrinsic Product Diskette is the tool for the Truth within a Financial Statement and the basis on which the future should be planned.
Formats
Book Details
About the Book
Who said that a major house must publish a book
& be 200 pages to Introduce Performance Cash?
If Martin D'Amico,
the author of How to Predict Year-End Cash
Can Predict Performance Cash Weekly
Why Not Abandon Monthly Closings?
Especially when he can rescue the accounting profession from
the derogatory remarks made by Fortune Magazine April 16, 2001.
"--accounting gives rotten information about the value &
performance of modern, knowledge-intensive companies."
Wanted: Accounting model fit for the "new economy"
Accounting Today August 21, 2000.
The Profession's ties to tradition with provincial reporting concepts and mechanics have caused Financial Analysts and Software Houses to usurp the Power of Business Numbers from Accountants.
First, what is so magical about a month? Each month has a different number of active days because of weekends, holidays and seasons. A week of cash flow data is much more consistent in every respect and a lot more current.
Second, there need not be any SEC, IRS or FASB rules how any Corporation reports its weekly cash flow from operations. If done in the interest of Management and Shareholders it can be as objective and as clear as four benchmarks. All concerned would understand a weekly plus or minus and the year to date implications to Performance Cash. Management can spend Performance Cash and a Shareholder knows there is little that can be wrong when better than anticipated.
All the monthly time, energy, and effort that Accountants now spend preparing and analyzing, lengthy financial statements could best use four benchmarks to isolate the Performance Cash of customer demand—the third step for Accountants to firm their grip on the numbers of a business.
About the Author
As Corporate Controller, he vividly remembers Amerace Corporation and its 13% interest costs that had to be satisfied by a steady stream of cash flow. Avoiding weekly customer demand as reflected by each week's cash flow in favor of reporting monthly Operating Earnings with all its accounting adjustments is depriving a business man of the most consistent and unmitigated truth of a business.
It is a rare General Manager or CEOs that understands the relationship of cash flow to operating earnings; it is not easy, nor necessary. Concentrate on cash as reflected by sales and a check book, when flow remains positive and a Manager knows the ultimate sources; Operating Earnings will fall into place.
As a Manager you are well aware of what depletes cash, it is time to learn more about its most significant and volatile sources 1) how many units a business sells 2) the price of each different major product. D'Amico first brought unit knowledge to the business world as a Manufacturing Controller back in the 80's when he converted unit production reporting for a multi product plant to hours. How many different units were produced or sold was never an Amerace problem again.
In January 1999 Management Accounting Magazine published and validated D'Amico's unit selling price relationship to "hours paid" for its entire Accounting Membership. In November of the same year Public Accounting Magazine addressed their Professional readers with similar legitimization. In both articles selling prices were linked to hours and cash flow for the benefit of the Entrepreneur. Although cash flow verse earnings remained reconcilable, Accountants as a group of financial advisors, felt no need to pass hour "know how" on to internal management or their clients.
The deliberation by Accounting Organizations over the hour/cash flow concept allowed him to perfect an idea instigated in the Public Accounting review of his first book —a series of different "hands–on and real–time" excel sheets itemized in the Table of Contents. An accountant's endorsement as to how it is done is no longer necessary, only a General Manager's desire to have it done. There is an Excel Worksheet in the Appendix that includes cash flow in the traditional sense. All Excel Sheets are applicable to Opearting Earnings as well.
Even when sales dollars are equal to or surpass those planned, variations to earnings are burdensome to account for, not timely, and in a great many cases related to Accounting journal entries. "Weekly Performance Cash cuts out the journal entries so that Management can influence the future with simple reasoning." If the principal product, a hamburger or a widget has been selling for $4.00 over a 7 month period it is not difficult to predict cash flow based on that assumption for the remainder of the year.
Dedication
I always considered Accounting as numbers speaking out about Performance with no one significant amount standing alone, but each in relation to another number. I am horrified by the present day deception in Financial Reporting; with greed taking the place of creativity. I do thank all facets of the Accounting Profession for their lack of curiosity as exhibited by constant resistance to my creative change. The result was a more comprehensive expression of Performance Cash as a Product for all Businesses.
Preview
Accounting sees a Business in conformity to standards; Martin D'Amico sees the truth of a business as a reflection of: Product, People, & Performance Cash. The effectiveness of Financial Reporting is how Sales, Hours & Cash Flow are exposed from all transactions of Business.