Week 4

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Week 4 – Assignment: Diagram Common Financial Statements

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Research the topic of common size financial statements. Present, describe and illustrate the use of vertical analyses. Form numerical examples to clarify your points.
Address the following:

1. Present, describe and illustrate the use of horizontal analyses. Form numerical examples to clarify your points. Form clear conclusions on the value gained from the analysis.

2.

Present, describe and illustrate the use of vertical analyses. Form numerical examples using two comparative companies. Form clear conclusion on the value gained from the analysis.

3. Review the referenced paper by Melse (2008). Describe the research question being addressed. Discuss the methods used and the conclusions reached by the study.

Support your paper with a minimum of five (5) external resources In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.
Length: 5-7 pages not including title and reference pages
Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards.

Accounting in three dimensions:
a case for momentum

revisited

Eric Melse
Strategy Center, Nyenrode Business Universiteit, Breukelen, The Netherlands

Abstrac

t

Purpose – This paper aims to extend an earlier analysis of the profitability of an individual firm
operating in the professional services industry from the perspective of the triple-entry framework of
the momentum accounting theory of Yuji Ijiri.

Design/methodology/approach – The paper presents a “common-size-format” model of
balance-sheet momentum, an approach typical of financial statements’ mathematical analysis.

Findings – Common-size-format momentum ratios offer an alternative measurement of (the change
of) business performance. They model stabilizing phenomena that might develop very differently from
ratios like return on total assets or return on equity and thus provide important informational signals
to the analyst of financial statements. The common-size-format ratio of net wealth momentum herein
discussed is proposed as a supplemental measurement for business performance analysis.

Originality/value – The paper discusses a new method for performance measurement and risk
analysis.

Keywords Accounting, Accounting theory, Performance measures, Risk analysis

Paper type Research paper

Introduction
Melse (2004a) explored what meaningful new information the momentum accounting
theory of Yuji Ijiri can disclose in addition to the regularly used performance measures:
profit before income tax (PBIT), profit after tax (PAT), return on equity (ROE) and
return on total assets (ROTA). His conclusion was that financial accounting ratios
should not be calculated from data that are temporally different. Preferably, ratios
should either be calculated from data pertaining to a given time-period, say a year,
quarter or month, or from data measured at a particular time point. The triple-entry
framework of the momentum accounting theory of Yuji Ijiri extends the two dimensions
of the financial accounting system with a third dimension to account for the forces that
drive the momentum, or rate of change, of the creation of new wealth. Accounts can be
identified in this framework by their temporal property which makes it rather easy to
calculate unitless and timeless ratios. This paper discusses the same example firm as
presented by Melse (2004a) but with the time series extended by four more years. The
stability of the profitability of this individual firm is investigated further and how it
recovers after a brief period of serious decline in performance during 2002-2003. A new
accounting measure for financial statement analysis is proposed: the common-size
format of momentum and force ratios. In particular, net wealth momentum is here
investigated as a supplemental method for performance measurement and risk analysis.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1526-5943.htm

The author is grateful for the constructive comments of the anonymous reviewer. Participants of
the European Accounting Association’s 2008 Conference are also gratefully acknowledged for
their comments on an earlier version of the paper. Financial assistance was provided by the
Nyenrode Research Group (NRG).

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The Journal of Risk Finance
Vol. 9 No. 4, 200

8

pp. 334-35

0

q Emerald Group Publishing Limited
1526-5943
DOI 10.1108/15265940810895007

Accounting for disclosure, risk analysis or decision making?
Financial statements supposedly depict the current condition of a company completely
and accurately (McEnroe and Martens, 2004; Haskins and Sack, 2006). Aside
unwittingly made mistakes, technical flaws or fraud, accounting information is by
definition “historic” and therefore “reliable” because financial statements are compiled
from facts, past facts (ex post facto)[1]. At times we may find in the notes to the financial
statements information about the expectations management has for the future (Hutton
et al., 2003). Obviously past results cannot offer any guarantee for results in the future,
such notes are indications only for better or worse. The framework of triple-entry
momentum accounting, or TEMA in short, is seen here as an initiative to innovate
financial accounting so that management or the auditor are better facilitated to disclose
trends that have future bearings. The objective of the TEMA framework is to add a
dynamic perspective to the financial accounting system for the purpose of additional
disclosure, analysis and decision making. The TEMA framework explicitly requires
attention for the causal links in the business model and administers business economic
facts outside the scope of traditional bookkeeping, for example with revenue accounting
(Glover and Ijiri, 2002). This is an ambitious effort that, certainly in the eyes of the critics
of triple-entry accounting strains the boundary between financial and management
accounting (Fraser, 1994; Salvary, 1985; Vaassen, 2002, p. 33; Wagensveld, 1995).

Management by momentum – fasten your seatbelt!
Yuji Ijiri proposes a so-called triple-entry framework with three dimensions to account
for the income capacity of a firm (Ijiri, 1982, 1984, 1986, 1987, 1988, 1989, 1993). The
essential idea is to account for the income capacity of a firm in terms of levels instead of
differences. Ijiri seeks to account for the level of growth instead of net wealth as such at
any particular point in time. He calls this the momentum at which rate net wealth is
accrued. By comparison with car driving, he wants to measure the speed at which the
car travels instead of only measuring the distance traveled so far (Ijiri, 1988, p. 160). His
car driving metaphor can be extended and deepened to further explain the
measurements of the triple-entry framework as well as its managerial use. The two
principal meters in any dashboard are the odometer that measures the mileage driven
during the cars’ life time and the speedometer. Most if not all dashboards also have an
odometer that counts the mileage driven per day and cycles its measurement from 0 to
999 miles or kilometers. While the odometers count the state of the cars mileage, the
speedometer reports the rate of change of the car – its speed. The importance of the
difference between these two meters becomes very clear when we match them against
the balance sheet and the income statement for their explanation of wealth magnitude,
composition and its change:

. Odometer continuous – balance sheet, wealth magnitude and composition as of
“now.”

. Odometer period – income statement, wealth change explained by its “how.”

. Speedometer – the change of wealth change explained by its “why.”

The fundamental notion we have to grasp is that it is impossible to read from any
financial statement the rate of change by which new wealth is created, or the change of
any financial variable for that matter[2]. We should compare the user of financial
statements with a driver in a car with his or her attention focused solely on the

A case for
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revolving number wheels of the odometers. Indeed, it is possible to see wealth increase
and conclude that the company is in business, but without any other reference against
which we can perceive speed, it is impossible to tell by which speed wealth is
increasing[3]. In other words, the financial accounting dashboard is lacking
speedometers: a pretty uncomfortable position to be in[4].

However, we cannot stretch the metaphor too far. Neither financial analysts nor
investors are the “drivers” of the company, therefore, should we be bothered with the
missing speedometer on the financial dashboard? Ijiri feels that we should expect from
management that they are able to “see” at which speed their business is “moving.” How
else can they intervene when momentum is dissipating? The foundational notion
Ijiri puts forward is that the double-entry accounting framework does not exclude the
possibility to include “speed” measurements. He thinks it is feasible to extend the
double-entry bookkeeping framework with a third dimension so that we can account for
the “rate of change” of a firm’s business. He wants to apply the same methodological and
procedural rigor to the administration of facts pertaining to the future as is expected
from the administration of transactions past (Blommaert, 1994).

Dimensions of the accounting measurement
The accounting dimensions are temporally determined sources of information and
concern the substance of information and not its form (Wagensveld, 1995, p. 3; Melse,
2004c). Figure 1 shows the purpose of each dimension as wealth measurements in time.
Through the accounts it should be possible at any point in time to explain the
composition of wealth (1D), i.e. how it was acquired (liabilities and equity) and used
(assets). Next, it should be possible to determine for a given period between points if an
increase of wealth was realized (2D). To this 2D system of accounts, Ijiri adds the
ability to account for the capacity to acquire new wealth in the future (3D) by means of

Figure 1.
The arrow of time in the
framework of triple-entry
and momentum
accounting

Change 2D

PERIOD 2D

Net Wealth Increases

Past

Net Wealth
Unchanged

Capacity 3D

CHANGE RATE 3D

Future

Net Wealth
Decrease

Expensing Forces

Net Wealth
Increase

Earning Forces

C
om

position 1D
P

O
IN

T
IN

T
IM

E
1D

t

Present

Realisation
t−1

Net Wealth Decreases

Estimation
t+1

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administration of cost and income forces. A framework of three dimensions is proposed
by Ijiri (1986):

(1) Wealth – the first dimension for the administration of the magnitude of wealth
and wealth composition, with accounting variables that are set apart as net
wealth (equity) and liabilities (sources of capital), or as assets (uses of capital).
Accounts of this dimension are on the balance sheet.

(2) Momentum – the second dimension for the administration of the change in
magnitude of wealth (the first dimension), with accounting variables that are set
apart as cost (outflows) and income (inflows). Accounts of this dimension are on
momentum statements that includes the income statement.

(3) Force – the third dimension for the administration of the change of capacity to
acquire new wealth (the second dimension), with accounting variables that are
set apart to administer internal and external forces. Accounts of this dimension
are on force statements that also include impulse and action.

Melse (2004a) discusses these dimensions of momentum accounting theory with more
detail. Figure 2 shows the relations between the three accounting dimensions in Ijiri’s
framework for triple-entry and momentum accounting, TEMA in short. Ijiri introduces
a new set of financial variables he calls momentum accounts that are in the same
vertical column of the framework as income. Although they are also period related,
they have a different temporal position because they explain the rate of (new) income
and their values aggregate dynamically into income in the same manner as income
aggregates into wealth. Suppose a firm realizes net income at a rate of $12 per month,
its “level” of income momentum. Assuming nothing else changes, income realized after
one year should be: $144 (Ijiri, 1987, p. 27). At that time, income is reported as $144
while income momentum is reported as $12/month. The information added to the

Figure 2.
A framework for

triple-entry and
momentum accounting

IMPULSE

FORCE

ACTION

MOMENTUM

INCOMEWEALTH

Momentum
Statement

Wealth
Statement

Force
Statement

CreditDebit Trebit

Force Accounting
Single-Entry
Bookkeeping
in Dollars/Month

2

Momentum Accounting
Double-Entry
Bookkeeping
in Dollars/Month

Wealth Accounting
Triple-Entry
Bookkeeping
in Dollars

A Derivative Relationship An Integral Relationship

Source: Ijiri (1986)

A Difference Relationship

Σ

Σ

ΣΣ




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income statement is that we now know the rate by which new income is expected to be
created, namely $12 per month. Assuming that this is the firm’s first year of business,
recalling the car driving metaphor discussed before, the odometer is now at $144 and
the speedometer is at $12.

Financial-ratio analysis
Robert Half International Inc., a US based firm, pioneered specialized staffing services
in 1948 and today is recognized as an industry leader. There is no reason to use this
company’s financial statement data other than for the purpose of illustrating how
ratios disclose information for analysis outside and within the TEMA framework of
Yuji Ijiri as an extension of Melse (2004a). No proprietary financial statements data is
used.

Figure 3 shows both ROTA and ROE time series of Table I, like in Melse (2004a),
but now extended with four more years[5]. We derive the ratio ROTA from the division
of the return of PBIT by total assets. Likewise, we get ROE by division of PAT by
shareholder equity. During the period from 1989 to 1992, each ratio shows a sharp
decline reaching a low point in 1991 and 1992, but gradually increases again to reach
high points in 1998 and – after a small drop in 1999 – in 2000. The next two years
again show a dramatic decrease to arrive at almost reaching 0 percent in 2002 and
2003. The last three years show a just as dramatic increase to reach in 2006, about the
same level as in the period 1997-2000. Comparing Figure 3 with Figure 4, which shows
the sales margin during these years, it is obvious that the sales margin displays a trend
similar to both ratios, notably ROE. Indeed, as reported in Table II, the Pearson
correlation coefficient indicates a positive and rather strong association between these
three accounting ratios. As Melse (2004a) showed, the point of interest here is the
observation that ROTA, ROE, and sales margin are exchangeable ratios as far as
the trend in time is concerned also during the last four years (2003-2006). They tell us
the same “business story,” we see similar “ups and downs.”

Walsh (1996, p. 72) sees ROTA as the most important benchmark against which the
performance of business operations can be measured. But, like any other ratio, as a
single figure it is not much more then a target to aim for. It is of more interest to explain

Figure 3.
Robert Half, ROTA
and ROE 0

5

10

15

20

25

30

35

40

P
er

ce
nt

0605040302010099989796959493929190898887

ROTA
ROE

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why such a ratio moves up or down when it does. However, using the ratios discussed
above has a disadvantage. Westwick (1981) points at the need to investigate the cause
of the “ups and downs” of a ratio and for this purpose wants to be able to disaggregate
from the “total” to the “parts.” For example, we can calculate the return not only on
total assets but also on the disaggregated current and fixed assets. A brief digression
on the calculation of ROTA as operating performance ratio to support our explanation:

Year

Wealth
(point)

Net wealth
(point)

Sales

(period)

PBIT
(period)

PAT
(period)

ROTA

(ratio)

(percent)

ROE
(ratio)

(percent)

Sales margin
(ratio)

(percent)

1987 155.69 48.13 105.69 13.54 7.25 10.51 14.91 12.81
1988 194.87 61.70 182.05 20.11 12.03 12.91 24.99 11.04
1989 184.41 68.68 234.50 23.62 13.47 12.12 21.83 10.07
1990 188.37 77.29 248.56 14.93 8.87 8.10 12.91 6.01
1991 178.95 84.42 209.46 8.02 4.06 4.26 5.25 3.83
1992 181.76 90.97 220.18 7.91 4.38 4.42 5.19 3.59
1993 204.60 133.60 306.17 21.56 11.72 11.86 12.89 7.04
1994 227.76 177.00 446.33 45.21 26.12 22.10 19.55 10.13
1995 301.14 227.93 628.53 69.09 40.30 30.33 22.77 10.99
1996 416.01 308.45 898.64 103.65 61.10 34.42 26.81 11.53
1997 561.37 418.80 1,302.88 158.83 93.70 38.18 30.38 12.19
1998 703.72 522.47 1,793.04 221.18 131.58 39.40 31.42 12.34
1999 777.19 576.10 2,081.32 234.70 141.44 33.35 27.07 11.28
2000 971.03 718.54 2,699.32 301.63 186.10 38.81 32.30 11.17
2001 994.16 805.70 2,452.85 196.28 121.11 20.21 16.85 8.00
2002 935.67 744.97 1,904.95 3.50 2.17 0.35 0.27 0.18
2003 979.90 788.66 1,974.99 11.72 6.39 1.25 0.86 0.59
2004 1,198.66 911.87 2,675.70 234.67 140.60 23.95 17.83 8.77
2005 1,318.69 970.87 3,338.44 392.17 237.87 32.72 26.09 11.

75

2006 1,459.02 1,042.67 4,013.55 466.20 283.18 35.35 29.17 11.62

Note: Data scaling factor: millions US$

Source: Compustat/Thomson

Table I.
Robert Half, time series

Figure 4.
Robert Half, sales margin0

2
4

6

8
10

12

14

P
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0605040302010099989796959493929190898887
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We get the following ratios:
. sales margin ¼ PBIT/sales; and
. turn over ¼ sales/total assets.

ROTA can be calculated by the product of sales margin times turn over. Because sales
are the denominator of sales margin as well as the numerator of turn over, it is
cancelled out in the alternatively ROTA calculation of: PBIT/total assets.

Now, following the above method of calculation, Table III gives the return on fixed
assets and on current assets for Robert Half in the first two columns of Panel A.
Figure 5 shows ROTA and the time series of its two disaggregated ratios. Observe how
the ratio return on fixed assets reaches a much higher value in 2006 compared to the
period 1995-2000, or ROTA at that point (1.54). This is somewhat peculiar when we
compare this to the ROTA (0.35). Although these disaggregated ratios are correct, can
we trust them? In the fourth column of Panel A of Table III, with the title check, the
disaggregated return ratios are subtracted from the ROTA. Clearly, in each year, there
is a difference between the sum of the “parts,” the disaggregated return ratios, and

Variables Association

ROTA vs ROE r ¼ 0.918 *

ROTA vs sales margin r ¼ 0.797 *

ROE vs sales margin r ¼ 0.916 *

Note: *Significant at 1 percent level

Table II.
Robert Half, association
between return ratios and
sales margin

A: sales/assets B: assets/sales
Year Fixed Current Total Check Fixed Current Total Check

1987 0.21 0.21 0.11 20.3153 4.76 4.75 9.51 0.0000
1988 0.20 0.36 0.13 20.4294 4.93 2.81 7.74 0.0000
1989 0.18 0.37 0.12 20.4307 5.57 2.69 8.25 0.0000
1990 0.10 0.36 0.08 20.3795 9.54 2.81 12.35 0.0000
1991 0.05 0.21 0.04 20.2228 18.77 4.71 23.48 0.0000
1992 0.05 0.25 0.04 20.2610 18.66 3.97 22.63 0.0000
1993 0.14 0.67 0.12 20.6924 6.93 1.50 8.43 0.0000
1994 0.29 0.95 0.22 21.0192 3.48 1.05 4.53 0.0000
1995 0.43 1.02 0.30 21.1488 2.32 0.98 3.30 0.0000
1996 0.62 0.78 0.34 21.0501 1.62 1.29 2.91 0.0000
1997 0.80 0.73 0.38 21.1487 1.25 1.37 2.62 0.0000
1998 0.97 0.66 0.39 21.2410 1.03 1.51 2.54 0.0000
1999 0.86 0.55 0.33 21.0705 1.16 1.83 3.00 0.0000
2000 1.05 0.61 0.39 21.2790 0.95 1.63 2.58 0.0000
2001 0.66 0.29 0.20 20.7457 1.53 3.42 4.95 0.0000
2002 0.01 0.01 0.00 20.0129 88.12 196.17 284.29 0.0000
2003 0.04 0.02 0.01 20.0457 24.97 54.90 79.87 0.0000
2004 0.83 0.34 0.24 20.9307 1.20 2.98 4.18 0.0000
2005 1.39 0.43 0.33 21.4898 0.72 2.34 3.06 0.0000
2006 1.54 0.46 0.35 21.6498 0.65 2.18 2.83 0.0000

Table III.
Robert Half.
Panel A: return on assets;
Panel B: inverse
calculation

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their “total,”, i.e. ROTA (Figure 5). In other words, disaggregated return ratios
calculated as “sales over assets” do not add up! As an alternative, Westwick (1981)
recommends to inverse the fraction terms as “assets over sales.” Table III, Panel B,
reports these time series and clearly, for each year, the inversed disaggregated ratios
now do add up to their “total:ROTA”.

However, solving one problem introduces another: the return ratios themselves are
now a bit more difficult to understand intuitively. They also tend to become very large
when PBIT is very small, like in 2002 and 2003, respectively, 284.29 and 79.87.
Therefore, for our analysis, the disaggregated return ratios are first multiplied by

100

and then scaled by their natural logarithm to create Figure 6 with the y-axis inversed
(because now, like in Figure 5, when the line “drops” this is “less good”). The
disaggregated analysis of return on assets by inverse calculation reveals in a more
balanced manner the shift in weight over time from fixed to current assets. Figure 6, for
example, shows, from 1997 onwards to 2006, the increasing contribution of the return
on current assets to ROTA. Owing to a poor PBIT, this is particularly difficult to grasp

Figure 5.
Robert Half, return

on assets

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0605040302010099989796959493929190898887

Fixed Assets
Current Assets
Total Assets

Figure 6.
Robert Half, return on

assets by inverse
calculation (ratios £ 100

and scaled by logN)

10
100

1,000

10,000

1,00,000

0605040302010099989796959493929190898887
Fixed Assets
Current Assets
Total Assets
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for the years 2002 and 2003 using the regular return ratios in Figure 5. Hence, we
propose the inverse calculation of disaggregated ratios and subsequent graphing with
a natural logarithm-based scale like in Figure 6.

Unitless and timeless accounting ratios
Of some concern is that accounting ratios are not necessarily timeless as was
concluded before in Melse (2004a). To get ROTA or ROE, we divide period
measurements, respectively, PBIT and PAT, by point measurements, respectively,
total assets and shareholders’ equity (net wealth)[6]. Or, seen from a temporal
perspective, we divide data related to period (p) measurements by data from point (t)
measurements (p?t). In Ijiri’s TEMA framework, this implies that the accounting ratio
is calculated as a momentum measurement (income) divided by a wealth measurement;
PBIT divided by total assets in the example of ROTA.

Ratios become unitless when they relate quantities of the same dimension. Within
the TEMA framework this is clearly not the case for ROTA or ROE. Although the
accounting data are in some way related to the same medium of exchange in use – , i.e.
monetary values – it is their time property we are uncomfortable with. ROTA and
ROE are ratios that express “return by point,” a state at date, which is something
different then a rate of change or “return by period.” A ratio like the sales margin is
unitless and timeless because it relates two period measurements through the division
of PBIT by sales (p?p). In economic accounting terminology, only when we divide
stock accounts by stock accounts, or flow accounts by flow accounts, will we get
unitless ratios.

To obtain unitless and timeless ratios, in the TEMA framework (Figure 2), we have
to divide accounting variables of the same temporal “dimension” wealth, momentum or
force. In other words, unitless ratios are calculated intra-dimensionally, i.e. between
accounting variables with the same temporal dimension. In this approach, an
accounting ratio is a quantity that denotes the proportional amount or magnitude of
one period accounting variable relative to another period accounting variable (p?p), or
of one point relative to another point (t?t). Following this temporal decision rule, we
can calculate ratios between items, like the current ratio, current assets by current
liabilities (two wealth accounts), but not divide a balance sheet account by sales (i.e.
divide a wealth measurement by a momentum measurement). For example, the well
known working capital to sales ratio that tries to capture a dynamic perspective of
short-term liquidity conflicts with this temporal decision rule (Walsh, 1996, p. 118)[7].
This is not to say that such ratios should not be used. The observation here is that such
ratios are calculated extra-dimensionally, and therefore are not timeless, which
possibly leads to less clear interpretations. This is a motivation to investigate what
intra-dimensional ratios might have to offer over and above extra-dimensional ratios.

Common-size-format momentum ratios
In Ijiri’s TEMA framework, momentum accounts are rates per period that measure the
change of a wealth account. Once we divide one such momentum account by another
we get a true ratio that can be expressed as a pure number or as a percentage. For
momentum, such a ratio expresses the proportion of change per period relative to
another change per period. Melse (2004a) presented the momentum ratio of net wealth
composition. In the same manner, a momentum ratio of disaggregated balance sheet

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accounts can be calculated. When the momentum of balance sheet accounts is divided
by total wealth momentum we get common size ratios, or percentages, i.e. a change
fraction of the whole change. However, this requires that the sign of raw data negative
momentum is first inversed to be included in the denominator before the fraction is
calculated[8]. Assuming two disaggregated parts, the following equation gives the
required logic:

For A=BjA=ðifðA , 0 then 2 A else AÞ þ ifðB , 0 then 2 B else BÞÞ:

This equation renders unitless and timeless force or momentum ratios that can be
compared with any other such ratio. Table IV gives the common size momentum ratios
for total liabilities and net wealth and Table V for current and fixed assets. Likewise,
for force accounts, such ratios convey the proportion of the rate of change per period
squared relative to the whole change of momentum per period squared. Thus, we can
compare momentum or force between periods of a single firm or between companies
for panel analysis of markets or sectors. A whole new set of ratios is thus available in
the TEMA framework to investigate business dynamics and possible relationships
between the accounting variables from which they are derived.

Ratio analysis should provide an insight into the financial health of a firm by
looking into its liquidity, solvability, profitability, activity, and capital and market
structure. We limit ourselves here to the comparison of the sales margin and net wealth
momentum of Robert Half. One way to look at sales margin is too see it as a momentum
ratio because the accounting data involved is income-related period measurements (p).

A: raw data B: common size

Year

Wealth
momentum

(period)

Net wealth
momentum

(period)

Liabilities
momentum

(period)
Net wealth
momentum
(ratio)
Liabilities
momentum

(ratio)

Check
(sum)

1987 26.89 20.50 27.38 20.02 0.98 1.0000
1988 39.18 13.57 25.61 0.35 0.65 1.0000
1989 210.46 6.97 217.43 0.29 20.71 1.0000
1990 3.95 8.62 24.66 0.65 20.35 1.0000
1991 29.42 7.13 216.55 0.30 20.70 1.0000
1992 2.81 6.55 23.74 0.64 20.36 1.0000
1993 22.84 42.63 219.79 0.68 20.32 1.0000
1994 23.16 43.39 220.23 0.68 20.32 1.0000
1995 73.38 50.94 22.44 0.69 0.31 1.0000
1996 114.87 80.52 34.36 0.70 0.30 1.0000
1997 145.36 110.36 35.00 0.76 0.24 1.0000
1998 142.35 103.67 38.68 0.73 0.27 1.0000
1999 73.47 53.63 19.84 0.73 0.27 1.0000
2000 193.84 142.44 51.41 0.73 0.27 1.0000
2001 23.13 87.16 264.02 0.58 20.42 1.0000
2002 258.49 260.73 2.24 20.96 0.04 1.0000
2003 44.23 43.69 0.54 0.99 0.01 1.0000
2004 218.75 123.21 95.55 0.56 0.44 1.0000
2005 120.03 59.00 61.03 0.49 0.51 1.0000
2006 140.34 71.80 68.54 0.51 0.49 1.0000

Note: Data scaling factor: millions US$

Table IV.
Robert Half. Panel A: net

wealth and liabilities
momentum; Panel B:

common size momentum
ratios

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PBIT divided by sales; the numerator and the denominator have the time dimension
momentum in Ijiri’s TEMA framework. Both are realized during the period in between
the two moments when financial statements are drawn up; in our case a year.
Consequently, it is more fitting to compare PBIT with net wealth momentum because
both are period measurements (p). Additionally, sales margin can be compared with
the net wealth momentum ratio, each being a period ratio (p?p). Before we discuss this
in more detail, we first turn our attention to PBIT and net wealth momentum as
individual momentum variables.

Analysis of net wealth momentum and its common-size-format ratio
The common-size-format ratio of net wealth momentum is a fraction or percentage of
total wealth momentum. It is calculated for each period by the change of net wealth
(total shareholders’ equity) relative to the change of total wealth of which it is a part.
When we compare the graph of net wealth momentum raw data in Figure 7 with its
common-size-format ratio in Figure 8, it is worthy to note that the net wealth
momentum movement raw data and its common-size-format ratio are similar in 2002
and 2003. However, before 2002 and after 2003, the trend of raw data and the
common-size-format ratio is very different. Notably, the common-size-format ratio is
characterized by a steady rate of change during the periods 1992-2001 and 2004-2006.
On average the ratio is, respectively, 0.63 and 0.52. This implies that although net
wealth momentum itself might fluctuate (Figure 7), relative to the fluctuation of all

A: raw data B: common size
Year
Wealth
momentum
(period)

Current
assets

momentum
(period)

Fixed
assets

momentum
(period)
Current
assets

momentum
(ratio)

Fixed
assets
momentum
(ratio)
Check
(sum)

1987 26.89 27.81 34.70 20.18 0.82 1.0000
1988 39.18 6.94 32.24 0.18 0.82 1.0000
1989 210.46 221.44 10.98 20.66 0.34 1.0000
1990 3.95 24.18 8.13 20.34 0.66 1.0000
1991 29.42 26.40 23.02 20.68 20.32 21.0000
1992 2.81 0.91 1.90 0.32 0.68 1.0000
1993 22.84 15.13 7.71 0.66 0.34 1.0000
1994 23.16 20.24 2.93 0.87 0.13 1.0000
1995 73.38 65.95 7.43 0.90 0.10 1.0000
1996 114.87 84.10 30.77 0.73 0.27 1.0000
1997 145.36 116.26 29.10 0.80 0.20 1.0000
1998 142.35 96.40 45.95 0.68 0.32 1.0000
1999 73.47 60.13 13.34 0.82 0.18 1.0000
2000 193.84 181.07 12.77 0.93 0.07 1.0000
2001 23.13 14.40 8.74 0.62 0.38 1.0000
2002 258.49 242.83 215.66 20.73 20.27 21.0000
2003 44.23 55.45 211.21 0.83 20.17 1.0000
2004 218.75 217.70 1.06 1.00 0.00 1.0000
2005 120.03 100.59 19.44 0.84 0.16 1.0000
2006 140.34 95.45 44.89 0.68 0.32 1.0000

Note: Data scaling factor: millions US$

Table V.
Robert Half. Panel A:
current and fixed assets
momentum; Panel B:
common size momentum
ratios

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344

accounts it can still be stable (Figure 8). It is this steady rate of change, this momentum
that Ijiri considers to be of great importance in the appraisal of corporate performance.
As far as the creation of net wealth is concerned, Robert Half is shown here to be a
reliable performer from 1992 onwards. Only during 2002 and 2003 the stability is lost.
Indeed, in those years the staffing industry experienced a major downturn in the USA
and in Europe (Fleming, 2002), from which it quickly recovered (Krampf, 2004).

The common-size-format ratio of net wealth momentum can also be seen as a
coefficient. The Robert Half time series provides some evidence that there is a relation
between the growth rate of total wealth and net wealth, and that it holds firm at the
same level over several years (Figure 8). In this, we should not only see an accounting
logic – we can expect that net income is accrued into net wealth – but we should also
read this as an economic phenomenon. That the amount of new wealth gained and
added to the balance sheet is about the same for a certain number of years might not be

Figure 7.
Robert Half, net wealth

momentum, raw data–75

50

–25

0
25
50
75
100

125

150

0605040302010099989796959493929190898887

`

Figure 8.
Robert Half, net wealth

momentum, common
size ratio−1.0

− 0.8

− 0.6

− 0.4

− 0.2

0.0
0.2
0.4
0.6
0.8
1.0
0605040302010099989796959493929190898887
A case for
momentum
revisited

345

too big a surprise. But, that this firm, after experiencing large shocks during 2002 and
2003 in its business model, drives back (so quickly) to a stable level of momentum is
striking. However, the difference between the new and the previous level of
momentum, on average 0.11 lower, might be somewhat of a disappointment for
analysts and shareholders alike.

That the business model of Robert Half changed after 2003, compared to the period
1993-2001, can also be seen from the stacked bar graph in Figure 9 of the
common-size-format ratios reported as percentages of net wealth momentum and total
liabilities momentum. In Figure 9, each whole stacked bar represents the momentum of
total wealth (of course that is always 100 percent). The lower half of each bar graphs
total liabilities momentum, except for 2002, while the upper half graphs net wealth
momentum. When a momentum is negative, i.e. when the balance sheet account
decreases, the bar is drawn below the 0 percent line which indicates “no change.”
Thus, from Figure 9 it is clear that during the period 1989-1994 Robert Half
successively reduced its debt whereas net wealth showed considerable growth. From
1995 to 2000, Robert Half kept increasing total assets, financing this with about 25
percent of debt. In 2001, the pattern shifts considerably with a substantial decrease of
debt. Therefore, it is not without good reason that, during the market downturn,
Fleming’s (2002) comment was: “Robert Half does have a firm financial foundation,
with $303 million in cash, no debt and [a] healthy cash flow.” At the time, “Robert Half
announced that it would buy back as many as ten million of its own shares” (Id.), which
we see reflected partly in the negative net wealth momentum of 2002 as well as in the
negative current assets momentum (Table V)[9]. But, the recovery from this downturn
is just as remarkable. In 2003 net wealth momentum is about the same as total wealth
momentum, respectively, $43.69 and 44.23 million (Table IV). These changes on the
balance sheet of Robert Half are a good illustration of the use of the net wealth account
as a buffer of funds at the disposal of management to face bad times.

Discussion and conclusions
A great advantage of the TEMA framework is that it allows for the temporal as well as
the categorical analysis of accounting measurements. To this purpose, in this paper

Figure 9.
Robert Half, net wealth
and total liabilities
momentum, common size
percentages

−100

−75

−50

−25

0
25
50
75
100
P
er
ce
nt
0605040302010099989796959493929190898887

Liabilities Momentum Net Wealth Momentum

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346

ROTA was analyzed both as an aggregated and disaggregated performance
measurement. We proposed to use an inverse method of ratio calculation for
disaggregated ratio analysis. This will allow the comparison of disaggregated
accounting variables relative to their aggregated totals in the TEMA framework.
Preferably, we should not compare time period data with time step data.

Further to Melse (2004a), the extended example of Robert Half demonstrated that
with the TEMA framework new information can be disclosed that is relevant for
performance analysis. It is possibly more meaningful to limit the use of ratios to only
intra-dimensional relations within the TEMA framework for the benefit of temporal
correctness and improved interpretability of the data. Consequently, we should use the
TEMA framework to search for more informative ratios. In our case, we were able to
tell apart years that have a comparable common-size-format ratio of net wealth
momentum but a very different trend of ROTA. This adds new insight to how we
should appreciate the structural aspects of the profitability of a firm. This new method
sheds more light at a desirable stability of the firm’s business model. Vice versa,
observing years that have a comparable ROTA but a different common-size-format
ratio of net wealth momentum might deepen the analysis of balance sheet dynamics,
something of interest to shareholders and analysts alike.

Improving the ability to analyze trends within financial data can benefit all users of
financial statements. It will be worthwhile to broaden this research to larger population
now that it has been shown that common-size-format momentum ratios offer
meaningful insight in the example of Robert Half Inc. By way of additional case
examinations we expect to be able to confirm the findings of this paper. An extension is
to further research the possible association between TEMA variables of a firm and the
market performance of its stock as an alternative to models with balance sheet or
income variables or their ratios (Barniv and Myring, 2006; Biddle et al., 1997; Bird et al.,
2001; Collins et al., 1997; Damant, 2001). A second line of investigation would be to
compare the forecast success rate of TEMA models with that of alternative valuation
models or analysts’ earnings forecasts (Richardson and Tinaikar, 2004). A third line of
investigation could be to investigate if Spectramap factor decomposition of TEMA
variables can be employed in econometric models for investment portfolio
management (Melse, 2004b). Beside the identification of firms that exhibit mean-like
behavior, locating companies that occupy contrasting positions in the decomposed
data space of TEMA variables might be useful to balance investment portfolios
(Haensley, 2003).

We conclude with the contention that implementing momentum accounting might
be beneficial for strategic accounting purposes as well as for the ex post analysis of
financial statements (Bell et al., 1997; Barniv and Myring, 2006; Haskins and Sack,
2006). Possibly, this will prompt a renewed interest in the practical use of the TEMA
framework and Ijiri’s momentum accounting theory as a means to improve
performance measurement and risk analysis.

Notes

1. Misrepresentation of facts in financial statements is a subject that in this study is not
discussed further but nonetheless it is an important and problematic issue. However, we
think that momentum accounting increases transparancy and, as a result, is expected to
reduce the risk of misrepresentation of facts (Blommaert, 1994, p. 230).

A case for
momentum
revisited

347

2. That is, the rate of change per time unit smaller than the time period in between two financial
statements. As will become clear when the research methodology is discussed in the next
paper, we can count the rate of change per year or quarter with the currently available
financial statements of firms.

3. Or decreasing; whereas the mileage of a car cannot be reduced (something which is illegal to
do) wealth can decrease during the lifetime of the firm when capital is retired or dividend is
paid out. See Melse (2004b) for another example of TEMA balance sheet analysis.

4. To be honest, the items on the cash flow statement can be viewed as “speedometers” when
we set the rate of change equal to one year or one quarter. However, Ijiri’s vision is to provide
much more detailed information with a much shorter time rate of change.

5. Source of non-proprietary data used: Compustat provided by Thomson One Banker
Analytics.

6. It is a matter of taste to choose the point of measurement. One can opt for the period’s closing
balance sheet or the opening balance sheet (that is done in this study). A third alternative is
to average the opening and closing balance sheet to get, in a manner of speaking, a point in
the middle of the period. However, none of this method mitigates the problem of temporal
inconsistency of the ratio.

7. A shortcoming of the current ratio is that point measurements are static data. It is possible to
“window dress” the accounts so that the ratio “looks good” on that day. Possibly, period
measurements and their derived common-size-format momentum ratios make this more
difficult to do.

8. Consequently, the denominator of this division can be larger then the aggregate of the
disaggregated momentum or force accounts.

9. Common shares outstanding were reduced from 174.929 in 2001 to 170.909 in 2002.

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A case for
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349

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Long Range Planning, Vol. 32 No. 3, pp. 311-22.

Corresponding author
Eric Melse can be contacted at: e.melse@nyenrode.nl

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Chapter 5
Basics of Analysis

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2

Liquidity ratios
Measures a firm’s ability to meet its current obligations
Borrowing capacity (leverage) ratios
Measures the degree of protection for long-term creditors
Profitability ratios
Measures the earning ability of a firm
Cash flow ratios
Ratio Analysis

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3

Interpreted in comparison with
Prior ratios
Competitor’s ratios
Industry ratios
Predetermined standards
Trend and variability of a ratio are important considerations
Ratio Analysis—Continued

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4

Use of average data from balance sheet
Necessary when comparing with income statement data
Does not
Eliminate seasonal or cyclical variations
Reflect changes that occur unevenly throughout the year
Analysis must be performed and understood within the context of
Native accounting principles
Native business practices and culture
Complexities and Context

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5

The use of percentages is usually preferable to the use of absolute amounts
Vertical analysis
All amounts of a year expressed as a percentage of a base amount of the same year (e.g., net sales revenue, total assets)
Horizontal analysis
Amounts for comparative years are expressed as a percentage of the base year amount
Common-Size Analysis

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6

Exhibit 5-1: Melcher Company—Vertical Common Size
Each financial statement element is presented as a percentage of a designated base which is sales revenue on the income statement

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Exhibit 5-1: Melcher Company—Horizontal Common Size
Each financial statement element is presented as a percentage of a base amount from a selected year

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Use both absolute and percentages
Guidelines
When an item has value in the base year and none in the next period, the decrease is 100%
A meaningful percent change cannot be computed when one number is positive and the other number is negative
No percent change is computable when there is no figure for the base year
Year-to-Year Change Analysis

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9

Financial components vary by type of industry
Merchandising
Inventory is a principal asset
Sales may be primarily for cash or on credit
Service
Inventory is low or nonexistent
Manufacturing
Large inventory holdings
Substantial investment in plant assets
Cost of sales often represents the major expense
Industry Variations

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10

Narrative data
Annual report
Trade periodicals
Industry reviews
Further explains the financial position of a firm
Management Discussion and Analysis (MD&A) provides an overview of the previous year and of future goals and new projects
Descriptive Information

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11

Provides context for analysis of ratios and financial data
Common types
Trend analysis
Standard Industrial Classification (SIC) Manual
The U.S. Department of Labor provides Web site that details the SIC manual
North American Industry Classification System (NAICS)
Industry Averages and Comparison with Competitors
Comparisons

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12

A study of the financial history of a firm
It reveals whether the ratio is
Falling
Rising
Relatively constant
Highlight
Effective management
Evidence of problems
Comparisons: Trend Analysis

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13

Classifies business by industry
Defines industries in accordance with the composition and structure of the economy
Coding structure
Two-digit major group number
Three-digit industry group number
Four-digit industry number
Comparisons: SIC

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14

Jointly created by the U.S., Canada, and Mexico
Industry is defined by similar production processes
U.S. Census Bureau provides a Web site (www.census.gov) that that details the NAICS manual. Go on this site and under “business and industry” click on NAICS
Comparisons: NAICS

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15

Industry comparison complicated by highly diversified companies
Financial services
Base their analysis on industry placement
Provide composite industry data
Comparisons: Industry Averages

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16

Publication Publisher(s) Coverage Data Classification
The Department of Commerce Financial Report Economic Surveys Division, Bureau of the Census Manufacturing, mining, and trade corporations Income statement and balance sheet data and ratios NAICS
Annual Statement Studies Risk Management Association Manufacturing, wholesaling, retailing, service, agriculture, and construction Common-size financial statements and 16 selected ratios NAICS or SIC
Standard & Poor’s Industry Surveys Standard & Poor’s North American and global industries Industry write-ups and statistics NAICS

Financial Services’ Publications

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17

Publication Publisher(s) Coverage Data Classification
Almanac of Business and Industrial Financial Ratios CCH, Inc. 200 industries Corporate tax return data NAICS
Industry Norms and Key Business Ratios Dun & Bradstreet 800 business lines Condensed financial statements; ratios SIC
Value Line Investment Survey The Standard Edition and the Small &
Mid-Cap Edition 1 to 97 industries;
1 to 84 industries Longitudinal financial information

Financial Services’ Publications—Continued

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18

Ratios are subject to variance from
Differing data
Inconsistent formula construction
Optional (elective) accounting treatment
Different fiscal year-ends
Varying financial policies
Inconsistent basis (before or after tax)
Comparisons: Caution in Using Industry Averages

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
19

Comparison of disparate size firms
Capital market access
Economy of scale (purchasing)
Wider customer base
Information
Absolute numbers amplifies comparison difficulty
Common-size analysis help to eliminate some of the difficulty
Percent of market helps to define relative size
Relative Size of Firm

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
20

Covers domestic private and public companies
Up to 20 items of information are provided for each company listed
Went digital in 2007 under Gale Directory Library
Ward’s Business Directory

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
21

Companies listed on various stock exchanges
New York Stock Exchange
American Stock Exchange
NASDAQ stock market
Regional exchanges
Arranged Alphabetically by stock exchanges
Contains brief analysis of companies regularly traded
Standard & Poor’s Stock Reports

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
22

Contains 2-volumes
Volume 1
Alphabetical list of approximately 75,000 corporations
Volume 2,
Section 1 contains an alphabetical list of over 70,000 individuals serving as officers, directors, trustees, partners, and so on
Section 2 is divided into seven subsections providing additional details
Standard & Poor’s Register Of Corp., Directors, And Executives

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
23

Selected income statement and balance sheet items
Related ratios
Applicable to Standard & Poor’s industry group stock price indexes
Brief monthly updates for selected industries supplement the annual editions of the handbook
Standard & Poor’s Analyst’s Handbook

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
24

U.S. corporations
Background information
Detailed financial statistics
The contents and the index are updated throughout the year
Standard & Poor’s Standard Corporation Descriptions

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
25

Covers 5,300 common and preferred stocks
It contains trading activity, price range, dividends, and so on, for companies traded on
New York Stock Exchange
American Stock Exchange
Over the Counter
Regional Exchanges
Standard & Poor’s Security Owner’s Stock Guide

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
26

Industry statistics on industries such as
Agriculture
Metals
Building
Transportation
Additional statistics are included such as price indexes and daily highs, lows, and closes for stock
Standard & Poor’s Statistical Service

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
27

Available at many academic, public, and corporate libraries, and information centers
Other publication available with Net Advantage
Standard & Poor’s Stock Reports
Standard & Poor’s Register of Corporations, Directors and Executives
Stand and Poor’s Standard Corporation Descriptions
Standard & Poor’s Net Advantage

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
28

Provide a dividend record of payments on virtually all publicly owned American and some foreign companies
Mergent and Standard & Poor’s Dividend Record

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Companies must meet at least one of two inclusion requirements
$9 million or more in sales volume
180 or more employees if company is a headquarters single location, 900 or more if employees if company is a branch
Company listings in Volumes
Alphabetical
Geographically
SIC
D&B® Million Dollar Directory®

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
30

Gives an in-depth view of companies and their divisions, subsidiaries, and affiliates
Contains an alphabetical index, geographical index, and SIC classifications
The parent company listing consists of address, telephone number, stock ticker symbol, stock exchange(s), approximate sales, number of employees, type of business, and top corporate officers
Directory Of Corporate Affiliates™

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
31

Comprehensive reference
Products and services
Company profiles
Catalog file
Thomas Register Of American Manufacturers

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
32

Published in two volumes
Covers 2000 industrial corporations listed
On New York and American Stock Exchanges and other selected exchanges
Provides information such as history, business, properties, subsidiaries, financial statements, and SIC codes
Mergent Industrial Manual and News Reports

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
33

Contains profile information on over 200,000 principal corporate officers in over 12,000 companies
This information includes
Year of birth
Education
Military service
Present business position
Previous positions
D&B Reference Book of Corporate Managements

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
34

Database of textual and financial information on about 12,000 public companies
Taken from reports filed with the SEC
Contents
Major financial statements
Financial ratios
Institutional holdings
Insider ownership
President’s letter
Financial notes
Compact Disclosure

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
35

Provides accounting, legal, newspaper, and periodical information
Includes financial statements from annual reports for thousands of publicly traded companies
Lexis-Nexis

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
36

Management
Analyze information from the perspective of both investors and creditors
Investors
Analysis of past and present information to project the future prospects of the entity
Creditors
Short-term creditor focus on current resources
Long-term creditors consider the future prospects of the firm
The Users of Financial Statements

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
37

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