Module 8.14 – How Do Your Numbers
Stack Up to the Competition’s?
Regardless
how you would like your information treated, people will automatically compare it to your
competitors, to others in your field or sector of the economy, and to the economy as a
whole. The people doing the comparing do not need your management’s approval, or even
your help, to do it. They will very likely, however, need your help to do it right.
~ ~ ~ ~ ~
1.
How Do Your Numbers Stack Up to the
Competition’s?
Regardless
of how you would like your information treated, people will automatically compare it to
your competitors’, to others in your field or sector of the economy, and to the
economy as a whole.
Once you accept
the fact that this is going to happen, you can plan for it.
Some organizations present their information
as if they are the only ones in their field and ignore the fact that there are any others.
Others show how
theirs stacks up against selected competitors, and talk about their figures in relation to
their competitors.
Still others list theirs in comparison to
the entire sector of activity and rank themselves in various criteria against everyone else.
There is no “right” answer as to
which is the best way. As with so much else in project/programme purpose, it is a management decision that
has to fit into the organization’s mission statement, goals, and objectives.
Regardless what that management decision is, however, your numbers will be compared. The people doing the comparing do not need your management’s approval, or even your help, to do it.
The will very likely, however, need your
help to do it right.
~ ~ ~ ~ ~
2.
And the Winner Is…
There is a
story told about two schools,
Their rivalry
was especially bitter when it came to football. It made no difference what sort of season
wither team had in regular league play.
The school that
won the annual match for the city championship could brag about having a winning season
and being the city champion, even if they lost all of their games. Conversely, if a team
won all of its games and lost the city match, its supporters bemoaned their losing season.
Both schools had
their own newspapers and after one game that
“
The
“North Comes in Second. South Finishes Next To Last.”
The
Which brings
us to the old cliché: numbers don’t lie…but liars do use numbers.
~ ~ ~ ~ ~
3.
Accounting – Internationally
As the
world gets smaller in terms of communication and transportation, and as we do more and
more project/programme purpose through multinational agreements in the international marketplace, it can
become very difficult to compare two organizations and their performances in different
countries.
Currency and currency values,
cost-of-living, unions, government regulations and national cultures all have to be
weighed.
Two of the most complex issues to consider
are accounting standards and taxation.
The following joint position paper on
accounting and tax issues is a report from the European Union-Japanese project/programme purpose Dialogue
Round Table meeting in
“Although many of the accounting
standards n force across the world are converging, significant international differences
remain. Multinational project/programme purposees require reliable ways of comparing financial performance
and facilitating cross-border listings. The investment strategies of project/programme purposees
headquartered in both trading partners would benefit from a wider acceptance of
international accounting standards (IAS).
Systems of accounting standards have
developed to reflect differences in the experience (especially historical and social) of
the countries to which they apply.”
~ ~ ~ ~ ~
4.
Accounting – Internationally
(Continued)
“There
are major differences between the standards of
“If international organizations
setting common accounting standards for world-wide capital markets do not take
sufficiently into consideration differences in the economic and social experiences of the
countries to which those standards apply, there is a risk that organizations will not receive
a fair market valuation. In the EU it is the characteristics of the merger concerned that
determines whether the purchasing method or the pooling of interest method is used. We
believe that it is not possible to allow only the purchasing method to be used for
mergers.”
“Accounting
standards agreed world-wide are indispensable but it is essential that they also reflect
the actual management situation base on the variety of social and economic experience of
the countries to which they apply. One way of achieving this would be to adopt worldwide
core standards with local applications drawn from an agreed range.”
~ ~ ~ ~ ~
5. Taxes – International
While
accounting and accounting standards are obviously major concerns, taxation is an even
bigger one.
As the European
Union-Japanese project/programme purpose Dialogue Roundtable went on to point out:
“Multinational
organizations are developing their project/programme purposees internationally and are engaged in world-wide
investments.
The
investment strategies of project/programme purposees (with separate headquarters in each country in which
they are doing project/programme purpose) would operate more freely with the establishment of a
consolidated tax system, which would also have beneficial consequences for the world
economy.
In (the European
Union) various types of consolidated tax systems have been introduced.
By contrast the
Be aware of
the differences from country to country, not only in tax laws, rules and regulations, but
also in how people in those countries might interpret information you want disseminated.
If you don’t know, ask someone you can trust in that country.
~ ~ ~ ~ ~
6. Spot the Differences
There is any
number of different but valid ways to compare organizations and their financial performances.
The key is to
find the one that will produce the information you are after in terms that you can use to
compare against your own performance, or use to compare yours to the performance of others
in the sector of activity.
Converting from metric to imperial is simple compared to the switching that may be required to compare one organization to another—even in the same country—let alone in a different one. Aside from language translation, you might also have to convert currencies as well as accounting and tax systems. Labor relations laws, customs and procedures are also different in different countries.
Here are 25 questions you might have to
consider. This list is not meant to be exhaustive. It is designed to get you started
thinking about the questions you might have to ask with regard to your own organization and
your competition:
1.
Is the product you produce identical or
just similar to the one made by the organization you are looking at?
2.
How do your accounting procedures
compare to theirs?
3.
What does theirs cost compared to yours
in terms of money—in a common currency—and in terms of the buying power of that
money in the different areas or countries?
~ ~ ~ ~ ~
7. Spot the Differences (Continued)
4.
How do they “define” their
overhead expenses?
5.
What is their after-tax profit?
6.
How many different types and levels of
taxes do they have to pay to how many different levels of government and bureaucracy
compared to you?
7.
How do their overall tax bills compare
to yours?
8.
How are the government regulations they
have to conform to compare to the ones you do?
9.
How do they “define” their
profit?
10. What is their relationship
with their shareholders?
11. How “old” is
their plant and machinery and how long will it be before a sizable portion of it will have
to be upgraded and/or replaced to remain effective? What will it cost both in terms of
money and reduced productivity during the change-over process?
12. What sort of return do the
shareholders get in terms of dividends and bonuses? How does it compare to yours?
13. How much stock do they
have out in the market compared to yours? What’s the street value of that stock?
14. How has that stock
performed compared to yours over the last month, six months, year, and soon?
~ ~ ~ ~ ~
7. Spot the Differences (Continued)
15.
How do your short term and long-term obligations
compare to theirs with respect to property, equipment, and personnel?
16.
How efficient is their operation compared to yours?
17.
How much of their supply and distribution system do
they own or control? How much of yours do you own or control? How does your relationship
with your suppliers and distributors differ from theirs?
18.
How “modern” is
their operation compared to yours?
19.
What is the cost-per-hour
of your entire work force? What is theirs?
20.
Are you competing in the
exact same market? If you are, who has the bigger share and how has the market share
changed over the last six months, years, and so on? Which of you has the better growth
potential?
21.
Are you competing in
different markets? If you are, what is their market share and potential growth?
22.
Do you measure units and
units of sale in the same way?
23.
If you are producing the
same product, how do your products compare to one another in terms of cost, quality, and
name recognition?
24.
Is there a natural synergy
between your two organizations ?
25.
Are your management styles
similar?
~ ~ ~ ~ ~
9. Net Profit and Shareholder Equity
Here are some thoughts on looking at net profits and shareholder equity from
the
Although the
following is from a report (found at http://www.med.govt.nz/pbt/telecom/vertical/dispap6c-11.html) looking at the
profitability of a New Zealand communication organization in relation to other communication
organizations , the approach is one that is commonly used when comparing organizations within the
same sector of activity or sector of the economy.
“There are a number of financial indicators which are used by financial
analysts and financial markets to determine the performances of organizations . Each of these
indicators has its won limitations but the usual accounting approach is to measure the net
profit after tax and interest deductions compared with the shareholders’ equity.
The advantage of
this approach is that it uses the organizations ’ published and audited figures, which
have been prepared on the basis of generally accepted accounting principles (GAAP).
This approach
provides a measure for comparing with other local organizations whose accounts are prepared on
the same basis, or in the case of overseas organizations , close to the same basis.”
~ ~ ~ ~ ~
10. Net Profit and Shareholder Equity
(Continued)
“There are other
measures for comparing financial performance including, for example, net return on the
capital employed, or assets used.
It is true that
there are difficulties with making such comparisons, because data prepared on
the basis of historical costs and various accounting conventions may not measure economic
values. The intention is not necessarily clarified, however, by taking a profit figure
performance on a GAAP basis, and relating it to market value
of the organization at a particular point, especially if the objective is to make a comparison
with other organizations ’ profitability.
For the
comparison to have any validity, the data needs to be presented on a consistent basis as
between organizations .
Another issue
with departing from the reported shareholders’ equity in assessing profitability is
whether other measures of shareholder gain should be taken into account. In particular,
account might be taken of the capital appreciation that has occurred and the way
shareholder wealth has been distributed.”
The key point to remember here is that you have two choices.
You can either get caught up in all the differences—currency, taxation, labor laws, and so on—or you can look for the similarities in production, process and profitability.
There cannot be any comparison until you can find the similarities, and there are always some similarities.
~ ~ ~ ~ ~
1.
Regardless how you would like your
information treated, people will automatically compare it to
a.
Your competitor’s.
b.
Others in your field.
c.
The economy as a whole.
d.
All of the above
2.
organizations present their
information
a.
As if they are the only ones in their
field.
b.
Compared to selected competitors.
c.
Ranked against their entire sector of activity.
d.
All of the above
3.
The most complex issue to consider
when making global comparisons is
a.
Accounting standards.
b.
Taxation.
c.
Both of the above
d.
None of the above
4.
The people comparing your
information need
a.
Your management’s approval.
b.
Your help.
c.
Your help to do it correctly.
d.
All of the above
Matching the Columns
1. Information |
A. The most complex issues for comparing
global organizations |
|
2. Taxation and accounting standards |
B. Have a taxable income consolidation
system type |
|
3. European Union |
C. Has introduced the most complicated and
accurate system among taxable income consolidation type |
|
4. |
D. Will always be compared to something |
|
5. The |
E. Use group relief type of consolidation
tax system |
|
6. |
F. Various types of consolidation tax
system have been introduced here. |
Answers:
1.)
D
2.)
A
3.)
F
4.)
B
5.)
C
6.)
E
True / False
1. ______
The people doing the comparing of
financial systems need your help to do
it.
2. ______
Regardless of how the management decides
to present the information,
your
numbers will be compared.
3. ______
While accounting and accounting
standards are obviously major concerns,
taxation
is not as big a concern.
4. ______
In the European Union, various types on
consolidation tax systems have
been
introduced.
5. ______
Once the differences in currency,
taxation, and so on, are set aside, the
basic
principles of project/programme purpose apply to all project/programme purposees everywhere in the
world.
6. ______
Data prepared on the basis of historical
costs and various accounting
conventions
measure economic values.
Answers:
1.
F – don’t need
2.
T
3.
F – even bigger concern.
4.
T
5.
T
6.
F – does not measure
As we have seen, regardless how you would like your information treated, people will automatically compare it to your competitors, to others in your field or sector of the economy, and to the economy as a whole. The people doing the comparing do not need your management’s approval, or even your help, to do it. They will very likely, however, need your help to do it right.
~ ~ ~ ~ ~
Test
1. ______
Although many of the accounting
standards in force across the world are
converging,
significant international differences are almost gone.
2. ______
As the world gets smaller in terms of
communication and transportation, it
can
become very difficult to compare two organizations and their
performances
in different countries.
3. ______
There are major differences between the
standards of
except
in mergers and investment in real property.
4. ______
If international organizations setting
common accounting standards for
worldwide
capital markets do not take sufficiently into consideration
differences
in the economic and social experiences of the countries to
which
those standards apply, there is a risk that organizations will not receive
a
fair market valuation.
5. ______
Multinational organizations are developing
their project/programme purposees internationally
and
are engaged in worldwide investments.
6. ______
7. ______
The key to comparing organizations is to
find the way that will produce the
information
you are after in terms that you can use to compare against
your
own performance.
8. ______
For the comparison of organizations to have
any validity, the data needs to be
presented
on a consistent basis between organizations .
9. ______
There cannot be any comparison until you
can find the similarities, and
there
are rarely similarities.
10. ______
Regardless how you would like your information
treated, people will
automatically
compare it to other information.
Answers:
1.
F – differences still
remain.
2.
T
3.
F – especially in
connection with
4.
T
5.
T
6.
F – have yet to
introduce
7.
T
8.
T
9.
F – always some
similarities.
10.
T
Bibliography
Financial
Accounting Standards Board. (1982). Accounting
standards.
International Accounting Standards Committee. (2000). International accounting standards explained.
Mueller, G.,
Gernon, H., & Meek, G. (1994). Accounting: An
international perspective.
Glossary
Comparisons – Assessing your
organization’s results against those of your competition.
It is inevitable when you release your financial information
IAS – International accounting
standards
Consolidated tax system –
Would help the investment strategies of project/programme purposees with separate headquarters in each
country in which they are doing project/programme purpose to operate more freely; would also have
beneficial consequences for the world economy
GAAP – Generally accepted
accounting principles
Learning Objectives
Q&A
1. How do different organizations treat the
release of their information?
Some organizations present their information
as if they are the only ones in their field and ignore the fact that there are any others.
Others show how theirs stacks up against selected competitors, and talk about their
figures in relation to their competitors. Still others list theirs in comparison to the
entire sector of activity and rank themselves in various criteria against everyone else.
2. What areas of project/programme purpose show the main
differences between the accounting standards of
There are major differences between the
standards of Japan and the U.S. especially in connection with mergers, financial
instruments in respect of market value changes in securities held as long term
investments, investment in real property, and retrospective adjustment as a consequence of
changes in accounting principles.
3. What different types of consolidation tax systems have been introduced, and where have they been introduced?
In the European Union, various types of
consolidation tax systems have been introduced.