Martin D'Amico
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.
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.
Chapter One
100% of What?
| Seeking
Common Ground For and With Management |
Operating Earnings is analogous to the final score of any
professional sport's contest. But with sports, the story why one
team won and another lost is in the next day's box score (or
other form of statistics) of the game. When the box score is read
there will be certain statistics indicative of the winner. Sure,
there will be fluke wins that belie the stats. But good
performance reflected with convincing statistics will still reveal
that a team is ready and able for the next game or next month.
Sporting Publications as well as fans know that weekly-
summarized statistics will bring to bare why some teams are
ahead of others in the standings. See page 5 for statistics at work.
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.
