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Easter and Passover

March 29, 2018

Good Friday is tomorrow and Passover starts tomorrow night. I wrote about this coincidence on April 5, 2012 and want to do so again, but differently. Why does Easter and Passover always come out around the same time? It is not by chance.

Jesus’ last supper was a Passover Seder. Through Jewish tradition as dictated in the Torah, the Festival of Passover is to occur during the beginning of Spring. The ancient Israelis were an agricultural based society and the three Jewish Festivals – Passover, Shavuot and Sukkot were positioned based on the harvests. Passover is connected to the “first fruits of the barley” which was the first grain to ripen in the Land of Israel. Shavuot is at the first grain harvest and Sukkot at the end of the harvest period. While there is religious significance to these festivals, their appearance is connected to the harvests.

In order to have Passover, and the succeeding holidays, come out at the right time the Jewish calendar makes adjustments since the moon cycle is 29 1/2 days. Some months are 29 days and some 30 days creating a 354 day year. Originally done by observation sometime in the fourth century CE the start of a month has been mathematically calculated and a perpetual calendar established with a year being either 12 or 13 months. To make this happen an extra month is added 7 times in every 19 year period. This positions Passover usually between the last week of March and the beginning of the last week of April. While the Jewish calendar is used for religious purposes, the Gregorian calendar is used for everything else.

Similarly, a Christian calendar determines when Easter falls while the Gregorian Calendar rules all secular and civic occurrences. This is done so that Easter would always appear on the same Sunday throughout the world and will be at the appropriate time in the early Spring. To accomplish this, Roman Emperor Constantine convened the First Council of Nicaea in 325 CE. Tables were constructed and eventually finalized in 532 by Dionysius Exiguus, an Abbot of Scythia. BTW, Dionysius also started the counting of the years based on the birth of Christ which is still maintained today. A new Easter table was produced in 1582 following the adoption of Pope Gregory XIII’s Gregorian Calendar. The tables dictate that Easter will be on the first Sunday after the full moon that occurs after the vernal equinox but uses an ecclesiastical rule for doing do, not the actual moon position. The way it works Easter can never be before March 22 or later than April 25.

Even though there are different methods a coinciding of these Holy Days occurs quite often. Both use the same historical event even though different religious reasons are ascribed to it. And it seems to work quite well.

Happy Easter and Happy Passover.
Ed Mendlowitz

Business performance measurement

March 27, 2018

A while ago I gave a speech on business performance measurement and, to prepare, I searched on line and found many books on performance measurement, but they were for personnel performance, not for businesses where there were a dismal few. However, that’s what I have been doing my entire career, so was able to put together an enlightening presentation. That also got me thinking about the areas business owners and managers should concentrate on to improve their business’ performance.

For starters, here are some basic premises:

  • The purpose of a business is to make a profit, provide customers with value based products or services, support personnel with adequate compensation and a safe work environment, pay suppliers on time, and to be a good citizen of the area where the business is situated and for the overall environment.
  • To do this, products and services need to be priced properly and delivered in a timely manner, personnel need to be empowered to assume responsibility and to develop further, amounts due and payable have to be collected and paid timely and there has to be a plan for growth and business continuance.
  • The owners and managers need to exercise due diligence to accomplish its goals; and that includes engaging appropriate personnel and consultants and proper training for their staff. There also needs to be a recognition that not everything that ought to be done, can be done, and that priorities need to be assigned. When assigning priorities it is suggested that the most critical areas be dealt with first, not the easiest to resolve if they are low payback areas.

That being said, here is a listing of the areas where performance could be evaluated:

  • Sales including pricing
  • Production, product cost and margins, and quality
  • Distribution
  • Human resources including training, growth and development
  • Overhead and expenses
  • Finances and capital structure
  • Cash flow
  • Management
  • Leadership
  • New product development and product enhancement
  • Marketing
  • Risk management

Books can be written about each topic. My suggestion to business owners and managers is to be aware of your business’ performance in each area, question variations, look for changes, any changes, and changes in trends, look, really look, at your personnel’s activities and see if there are changes there, be in constant contact with your customers and the value you provide, and work at being a manager of your business. Whether you are starting up or a seasoned entrepreneur, the details need to be watched including being sensitive to what is happening in every part of the business and making sure the business is aligned with your goals and raison d’être.

Saying Thank You

March 22, 2018

Recently a colleague called seeking assistance and I referred him to a partner with that expertise. My partner spent considerable time talking to the caller, and also referred him to an attorney that was engaged.

I saw my partner a few weeks later and he told me what he did and that the caller seemed pleased, and I thanked him for handling the call. He then mentioned that he was glad to help, however he was upset he never received a follow up call with a “thank you” after the consultation with the attorney. Further, I never got a thank you for the referral to my partner.

Actually this happens a lot and I’ve stopped thinking about it…until my partner mentioned it. I then realized that I rarely get a thank you from the many people I mail books or magazine articles to, or afterwards when the matter I was called about that was “so important” was successfully concluded based on the advice or guidance I provided. I don’t mind it, I have come to expect the lack of thanks – I do what I do because I like helping people and my pleasure is in doing what I do.

The same situation applies to texts or emails. A simple reply that acknowledges receipt saying TY, Rec’d or a smiling emoji 😃 lets the sender know you received it. If something needs a reply and you cannot respond quickly, providing a time or date when you will also works. These are simple courtesies.

It would be nice to get a “thank you” once in a while. It would also be even nicer if my partner that did not know the caller and who was doing me a favor received a follow up “thank you” call or email from the person he helped. It is a small gesture and would create a great deal of pleasure. Say “thank you” once in a while.

Thank you for reading my blogs.

Managerial accounting

March 20, 2018

Tonight I start teaching a managerial accounting MBA course at Fairleigh Dickinson University. [You can call me Professor Mendlowitz]. My opening remarks will be to distinguish managerial accounting from financial and cost accounting and I would like to share this with you here.

Financial accounting
Financial accounting goes back to the Sumerians who created the first human writing about 5500 years ago. Their cuneiform inscriptions kept track of farm production for workers probably paid on a piecework basis. Financial accounting precedes poetry and prose and writing for pleasure or communication – it is the first seed of civilization. The first financial records created history; before then everything was considered prehistoric! Financial accounting records what was. Financial accountants produce or audit the financial statements we eagerly read when they arrive; and the statements follow voluminous rules that must be adhered to under the banner of generally accepted accounting principles and auditing standards.

Cost accounting
The purpose of cost accounting is to provide the right method of measurement so that costs are captured, and then reformulated into usable information by many departments within a company. Cost accounting lets you make better decisions and is used by production workers, schedulers, managers, and the purchasing, inventory control, process improvement, accounting, shipping, sales and many other departments as necessary. And each user will look at the information differently. Cost accounting is a backward looking process and while it is used to determine pricing, budgets and projections, these are implemented and measured by historic costs.

Managerial accounting
Managerial accounting uses financial information to interpret trends so that decisions can be made. While much of the information used is backward looking, the purposes are forward looking. Managerial accountants try to synthesize all the inputs into actionable processes to create greater revenues and profits. Managerial accounting includes budgeting, what if scenarios, performance measurement analyses and charting potential results of resulting changes.

Actually, I taught this course almost 40 years ago, also at FDU, and its purpose then was to teach the future managers and leaders how to generate the reports. Today’s course focuses on the users and the decision support information they will need and will use in today’s dynamic fast changing 24/7 global business environment. It is a forward looking program that I am excited about and looking forward to teaching and sharing my experiences collaborating with managers, leaders and directors and helping to guide them in their decision making process.

The Ides of March

March 15, 2018

Julius Caesar was assassinated on March 15, 44 BCE, or famously the Ides of March as the opening words of Shakespeare’s Julius Caesar records. I wonder what day it was when the soothsayer warned Caesar to “beware the Ides of March.” Perhaps it was at the beginning of March but since the assassins needed time to plan the murder they more likely started the planning the previous Summer during the period Caesar was escalating the consolidation of his power. Either way, the date he died will live in history because of Shakespeare.

Gaius Julius Caesar was born on July 13, 100 BCE so he was 55 when he died. He was a Roman politician and general who played a critical role in the demise of the Roman Republic and the rise of the Roman Empire. He is known to have said “I came. I saw. I conquered” after a short war in 47 BCE. One of those succeeding him was Mark Antony also made famous by Shakespeare.

Much of what we know about Caesar is from two books he wrote chronicling the Galic and Civil Wars which are his only work to have survived in their entirety; and then republished as one of the first printed books in the late 15th Century. These were written by Caesar in the third person to give the impression of an objective history rather than the personal memoirs that they were. Other contemporary writers were Cicero and Sallust and later biographers Suetonius and Plutarch. Because of how much we know of him and his accomplishments, he is considered by many historians to be one of the greatest military commanders in history.

In 60 BCE he formed the first triumvirate to govern with Crassus and Pompey. Crassus was killed in battle in 53 BCE and Pompey assassinated in 48 BCE. In 47 BCE Caesar defeated the pharaoh’s forces and installed Cleopatra as ruler. Cleopatra also visited Rome more than once and reportedly Caesar had a son with her.

Caesar’s military exploits pushed the Roman Empire north to the English Channel and the Rhine invading Britain. That concluded the Gallic Wars and the Senate ordered him to resign his military command and return to Rome. His response was to cross the Rubicon [reportedly saying “the die is cast”], leaving his province and illegally entering Roman Italy under arms igniting a civil war which he won.

With complete unmatched power to govern Caesar instituted many social and governmental reforms. One was the creation of the Julian calendar with a 365.25 day year with an added day at the end of February every four years. He also had extra months inserted to align the calendar with the seasons, one of which was eventually named in his honor – July. Among his accomplishments were laws reforming debts, redistributing public lands to the poor, pardoning most of his enemies gaining their loyalty and support, and enacting a new constitution that brought order in the provinces and the Republic. He established a strong central government, reduced corruption by public officials; ordered a census, changed the way jurors were selected, passed laws restricting the purchase of certain luxuries, rewarded families for having many children to speed up the repopulation of Italy, outlawed certain professional guilds, set a term limit for governors, had the Forum of Caesar and many other public works built, distributed land to veterans, established a police force, started rebuilding Carthage and Cornith, and abolished the tax system reverting to an earlier version where cities made their own rules to collect taxes. His assassination also halted his plans to establish a library on the scale of the one in Alexandria. Further, Caesar increased the Senate by appointing hundreds of his loyalists thereby reducing the power and prestige of the sitting Senators. One month before his assassination he had himself appointed dictator for life.

The assassination was by rebellious senators led by Gaius Cassius Longinus and Marcus Junius Brutus. 60 senators participated in the assassination stabbing him 23 times with likely only one lethal blow.

Caesar’s grandnephew Gaius Octavius, later known as Augustus Caesar, was his principal heir. Caesar also bequeathed substantial gifts to the citizens of Rome. Civil War and more intrigue occurred afterwards, and if interested, I suggest you start at Wikipedia https://en.wikipedia.org/wiki/Julius_Caesar where I also got a lot of the information here.

Shakespeare’s play has some memorable quotes which appeared in a blog I posted on August 19, 2014. I also posted a blog with the same title as this on March 13, 2012, but that one wasn’t really about Julius Caesar. I hope you found the above interesting.

P.S. The Julian calendar was in use until 1582 when Pope Gregory XIII refined and replaced it. The actual number of days in a year are 365.2425 and the Gregorian calendar fixed this by adding 13 days since one day was lost every 128 years. The difference now is one day every 3030 years and this was accounted for in the Gregorian calendar that keeps track of it. The British Empire adopted the Gregorian calendar on September 14, 1752 and also made a change moving New Year’s Day from March 25 to January 1 advancing the calendar one year. Thus George Washington’s birthday of February 11, 1731 became February 22, 1732.

Financial statement ratios

March 13, 2018

Ratios are tools used to evaluate a company’s financial statements. Here are some of the more commonly used ratios.

Working capital ratio
Current assets ÷ current liabilities.
Illustration: Current assets of $2,500,000 ÷ current liabilities of $1,250,000 = 2.
This is also called the current ratio. Its purpose is to determine how the business can handle its daily operations. A number greater than one is good, with the greater the number the better. Less than one indicates an “insolvent” company and one that needs to be watched closely. The current assets include assets likely to be converted into cash within the next year while current liabilities are due to be paid within the next year.

Debt to equity
Total debt ÷ stockholders’ equity or capital.
I prefer the long term debt to equity ratio. See next ratio.

Long term debt to equity
Long term debt ÷ stockholders’ equity.
Illustration: LTD of $9,000,000 ÷ S/H equity of $6,000,000 = 1.5.
The purpose is to determine how leveraged the company is. The greater the long term debt in relation to equity, the more leveraged the company is, the more sensitive to interest rate increases it is, and the more sensitive it is to situations that could cause a temporary or permanent inability to make principal payments timely. Long term debt holders usually have covenants that place restrictions on the company causing adherence to certain controls or measures that are triggered when they are violated. Long term debt includes all debt except the current liabilities. If perchance the current liabilities exceed the current assets, this will be evident in the working capital ratio. A similar ratio is total debt to equity which I do not think is as effective of a measure since the total debt includes current liabilities with no offset for current assets and this makes the ratio harder to use as a tool. I previously posted a blog explaining leverage on Nov 11, 2014. [Included below]

Receivables turnover or days to collect
365 ÷ (Net sales revenue ÷ average net receivables).
Illustration: 365 ÷($12,000,000 ÷3,000,000) = 91 days.
Note: To determine average net receivables divide the beginning and ending receivables by 2.
This indicates how many days sales are tied up in receivables giving an indication about how fast sales are converted into cash. The longer the period, the greater the possibility that cash will be tight necessitating a slowdown of vendor payments or the need for additional capital or borrowing.

Return on assets
Net profit ÷ average of total assets.
Illustration: $1,000,000 profit ÷$12,000,000 average total assets = 8.33%.
This indicates how well the company is doing utilizing its assets. I think a better ratio is return on equity. The reason I do not use this is that the company could have recently borrowed $5,000,000 and it could be invested in short term marketable securities until utilized. This would increase its total assets by that $5,000,000 distorting the return on assets percentage.

Return on equity
Net profit ÷ average stockholders’ equity.
Illustration: $1,000,000 profit ÷ $2,500,000 S/H equity = 40%.
This appears to be a better measure of resource utilization. A further ratio could be return on market value or market cap. This is more appropriate for a public company with a readily ascertainable market value. If this is applied to a private company using a market cap formula for its valuation it can provide interesting insights. For instance , a private company earning $1,000,000 applying a 15% market cap percentage or return on investment percentage can indicate a company value of $6,700,000. Another way of looking at this is where there is an industry standard such as a percentage or multiple sales is to use that value as the denominator instead of S/H equity. Still another way would be to adjust S/H by the unstated values of certain assets the company has. Note that for a public company, the return on market cap is 1 ÷ the P/E ratio. For instance if the P/E is 20 the return on market value is 5%. There are other variations on this ratio especially where there is considerable debt and high interest expenses, but that is not for now where the purpose is to provide basic ratios.

Return on sales or net profit margin
Net profit ÷ net sales.
Ill.: $1,000,000 ÷$12,000,000 = 8.33%.
This shows how much ends up on bottom line. A note about using these ratios. When working with public companies they usually work. With private companies additional thought needs to be applied. For instance is the net profit before or after income taxes? If the entity is an S corporation, partnership or LLC it would not pay income taxes but the owners would be paying it personally on their individual tax returns. Also, the controlling owners could be taking higher than normal compensation or excessive fringe benefits making comparisons with other companies not feasible. It could also make comparisons between years of the same company inappropriate since these amounts could vary greatly from one year to the next.

Earnings before interest and taxes or EBIT
Net profit + interest + taxes added back.
This is a method to normalize earnings and make operational comparisons more consistent by adding back interest and taxes. Interest is a function of borrowing which is usually necessitated by a shortage of capital. A fully capitalized company would not have to borrow for capital purpose and make interest payments; or if it did borrow it would be to level out short term cash flow needs, or possibly to fund equipment or real estate. Adding back interest eliminates this bias. As said earlier, some entities do not pay tax and some could pay significantly different state and local taxes depending upon their location. This is another normalization feature.

EBITDA (Earnings before interest, taxes, depreciation and amortization)
Net profit + interest + taxes + depreciation + amortization.
This is a variation on EBIT that I do not use and feel is greatly misused because while it adds back the depreciation and amortization that was deducted to arrive at net income, it takes no account of normal recurring fixed asset additions which are usual for companies with equipment. This is an example of something that is used that is not understood but where the user feels it makes them a “player” or places them in a “knowledgeable” position. Bull duty! I posted a blog on this on Nov 13, 2014. [Included below]

Gross profit margin
1 – (Cost of sales ÷ net sales).
Illustration: 1- ($8,000,000 cost of sales ÷ $12,000,000 sales) = 33.3%.
This indicates the percentage of each sale that is left over after subtracting the direct costs of what was sold. The greater the margin the better. Companies with high margins have greater dollars available from sales to be used for overhead and fixed and operating expenses and available profits.

Inventory turnover
365 ÷ (Cost of sales ÷ average inventory).
Illustration: 365 ÷($8,000,000 ÷1,600,000) = 73 days.
This shows that the average inventory is 73 days of sales. A higher number indicates inventory being held for longer periods while a lower number shows a faster turnover. The longer the inventory is held, the greater the risk of not selling it and of inventory becoming stale, obsolete or damaged.

There are myriad others, but these are some of the more popular ratios. Ratios can be categorized into types such as for liquidity, performance, and capital structure, but there are not that many shown here and I did not think it mattered here to categorize them. The purpose of ratios is to provide a quick look at certain big picture or essential items. All ratios are better used when they can be compared with previous periods to determine trends. The more periods the better able to detect developing trends. For more serious analysis I prefer to have as many as five periods for comparison. In many cases it is not as much the ratio that matters as the change and trend.

Letting go

March 8, 2018

A problem I see with many entrepreneurs is that they are control freaks and do not want to let go. They are all brilliant and creative and some have an obsessive drive to succeed; yet many are just not good as managers and the lucky ones realize this before it is too late.

Even if they were great managers, I believe their talents would be better served by hiring people to do what can be delegated. I also know that a business centered primarily on one key person has less value than one with a cadre of managers in strategic positions. Also, being “too busy” is worn by many as a badge of pride when it really is a mechanism that dissipates energies and causes an early burnout for him or herself and the business.

A business becomes a body separate from its founders and owners. Businesses have a responsibility to all of its stakeholders and there is no room at the top for people that serve to retard its development and growth. Nevertheless, I want to discuss why it is in the owner’s interest to let go.

Being driven is not bad, but driving yourself to the exclusion of everything else, is. You cannot and should not disregard your spouse and children, a partner or close friends, a pet, an apartment or house that needs to be taken care of, a long ago favored hobby or sports activity, entertainment at a sporting event, show or movie, an occasional day goofing off, or even a real vacation without the smartphone. Your body needs this and so does your mind. Hopefully the gym or workout has not been abandoned.

One way to manage yourself is to manage your time better. For starters, treat your time like a valuable commodity and look at your ROI – the return or value you get for your input on what you spend time on. We would all agree that investing your money for a 1% return is not the way to go. Well, spending your time on a function that provides minuscule benefit, or a benefit substantially less than you could otherwise get doesn’t make sense either. You should pass on it. How about setting up your day with high payback functions leaving the lesser yielding or dividend paying tasks to others. Even if they totally screwed it up, it probably would not make a difference in the big picture. In doing this, you need to draw a line marking a division between the higher and lower payback tasks and not go below that line. And if perchance nothing below the line got done, what difference would it make in your life and for the business?

We always have time for funerals or to get really sick. Why not take time to better spend your time so you could enjoy your life and manage and grow your business better and extend your warranty period? It is a good investment.

I posted a previous blogs on this topic. They can be accessed in the archives. The dates are April 28, 2015, October 30, 2014, October 17, 2013, October 15, 2013, February 21, 2013 and April 2, 2015.