This tool is designed to provide a simple visual overview of the health and direction of any organization that has financial statements. i.e. balance sheets, income statements ( also known as profit and loss, or operating statement) and cash flow statements. All the financial terms used in the Financial Dashboard and these instructions are in the glossary at the end, following the ‘What the pictures mean section’.
The Financial Dashboard is based on Three Bottom Theory as developed by Chuck Kremer, CPA from working with Louis R. Mobley (Lou) before his passing in the late 1980’s.
Three-bottom-line Theory states that Operating Cash Flow, Net Profit and Return on Assets are the minimum number of bottom lines needed to be able to track every account on each financial statement - the cash-flow statement, income statement and balance sheet.
Silicon Graphics 1994 – 2001
Enron Q4 1999 – Q3 2001
Three-bottom-line Theory (3BL) and sales, expense, asset logic (SEA Logic) further states that the relationship of the three bottom lines as they change over multiple periods is the effect of other financial measures (cause) called the key drivers, as implemented in the Financial Scoreboard (www.financialscoreboard.com). The prime correlate to 3BL is that only the Direct Method Cash Flow Statement, showing actual inflows and outflows to the bank account per operating balance sheet operating account, coupled with the Indirect Method Statement can provide the necessary information required to successfully manage and anticipate cash in relation to the other two bottom lines. This is what is needed to really ‘connect the dots’ ( see * below for more 3BL background details). For further information see Managing by the Numbers, and The Use and Abuse of Financial - Statement Information in Today’s Bizarre Business World.
Data can be entered for any number and kind of period. Periods are generally annual (12 months), quarterly (3 months) or monthly, although there are other periods sometimes used such as Lunar (13 months).
Each period must be labeled with the year, month and year, or quarter and year. Quarters can be labeled as Q1 (Jan, Feb, March), Q2 (April, May, June), etc., followed by the year.
The data points from the statements Operating Cash Flow (OCF) or Cash Flow from Operations, Net Profit, Gross Revenues, and Ending Assets. This data creates ‘speedometer’, ‘tachometer’ and ‘fuel gauge’ views that give instant visual meaning to the numbers. This picture, coupled with the values index of the people, shown in the ‘odometer’ position gives access to the overall status of financial health and workplace wellness.
This information must be typed in to the appropriate box on the input screen for each period that you want to include in you overall picture.
Gross Revenues and Net Profit are found on the income statement (also known as profit and loss, or operating statement).
Ending Assets is found on the Balance Sheet under Total Assets.
Cash Flow from Operations, or Operating Cash Flow (OCF) is found on the Cash Flow Statement (Both Direct and Indirect).
As the Operating Cash Flow, Gross Revenues, Net Profit, and Ending Assets data is entered in the respective boxes for that period, the corresponding points will appear in each image on the dashboard.
Mobley Return-on-Assets Chart shows the degree to which short-term cost control (expense and profit margin management), as reflected by Return on Sales (Net/Sales), is balanced with long-term, marketing leverage (market development), as reflected by Asset Turnover (Sales/Assets).
The Chart presents the standard DuPont formula for calculating return-on-assets as a graph showing Return on Assets (Net/Assets), or the big-picture of how well a business is being managed. It shows the relationship of the three measures. Putting cost control on the y axis and marketing leverage on the x axis to show the ROA as a curve which companies fall on depending on how well they balance.
Return-on-Assets Chart Summary:
Net/Sales (N/S) - answers the question “How many dollars of profit for every dollar of sales?”
Multiply N/S times (x)
Sales/Assets (S/A) - answers the question “How many dollars of sales for every dollar of assets?”
Which equals (=)
Net/Assets (N/A) - answers the question “How many dollars of profit for every dollar of assets?” The bottom line (third) bottom line.
Each point on the chart tells you all three values for that period, and each period change tells how efficiently the company used its assets during that period. The shorter the distance between two points, the more efficient the use the use of resources (assets).
Kremer Dollar Trend Chart shows the relationship between the first two bottom lines, operating cash flow (OCF) and net profit (NP), and their relationship to gross revenues, or sales.
OCF and NP should be increasing as fast as sales increases for most periods. If they are not, adjustments to overall financial strategy should be made. World class companies have OCF growing more than NP as an overall trend.
Sales – Orange
OCF / Operating Cash Flow – Green
Net / Net Profit / Net Income – Black or Red
OCF/Sales Bar Chart shows the answer to the question “How many dollars of cash are required for every dollar of sales?’
The line in the middle is the zero line. If the bar is above the line, every sale is putting cash in the bank account. If the bar is below the line, every sale is taking cash out of the bank account.
As sales increase, this trend should stay flat. If it does not, questions should be asked as to how to accomplish that.
KPI – Key Performance Indicators
Non-financial measures that can be linked directly to financial results. KPI’s provide the feedback on the actions people and teams impact the financial statement results. Effective KPIs provide positive incentives for the individual, the team and the whole. It is crucial to test KPI’s over time to assess and assure their positive impact on all three dimensions above.
CVI – Cultural Values Indices
Financial performance of any organization cannot be predicted solely from its financial statements. Future financial performance and the accuracy of financial data depend on the quality of trust, communication, and co-creativity in the organization. These indices provide a direct measure of those qualities, and therefore are predictors of the likelihood of achieving financial performance goals and the accuracy of the financial data.
*The 3 B-L theory was first publicly presented by Chuck Kremer, CPA, Karen Kalkbrenner and Dennis Smith, CPA in the July 1989 issue of Strategic Finance under the title, “Why Managers Need Three Bottom Lines”, which was later reprinted in 1992. The following excerpt from the conclusion gives a succinct picture.
“All three are critical. To deliver these three bottom lines requires simultaneous management of sales, expenses and assets . . . A financial statement system that includes cash flow, net profit and return on total assets as bottom lines gives management the tools for managing the business.”
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Assets: representing the value of all the things a business possesses in terms of the money spent for them. Things of value used by the business in monetary terms.
Average Assets: the number derived by adding the total assets figures on both the starting and ending Balance Sheets, divided by two. The most accurate figure for use in the ROA graph for any given period ( can be used as a substitute for ending assets if desired.
Balance Sheets: the statements on the left and right sides of the matrix, typically shown next to each other on one page of the financial statements. A Balance sheet shows the total property at a specific point in time. It is composed of two equal parts which connect the people in a business to the things they have finances. On top are the Assets, at the bottom are Liabilities and Net Worth. Both are always equal because they represent, on a specified date, the things above and the sources of financing below.
Business: a complex enterprise involving some degree of risk which provides a person or people with livelihood by provision of some product(s) or service(s) to other people; and a greater return to itself then the cost of said provision. The business can be either for, or not for, the profit of individuals/investors.
Cash Statement: a measure of cash transactions which affect the bank account during a period of time specified. Lou saw this as the "fulfillment (settlement) side of the the contract, a 'missing link' which makes it clear how and why the Balance Sheets change.
Du Pont Formula for Return-on-Assets, n/s x s/a = n/a: states that one can multiply company cost control as the fraction net profit over sales (n/s), times marketing leverage as the fraction sales over average assets (s/a), to equal return on assets (ROA) in the fraction net profit over average assets (n/a). The classic DuPont Formula then reduces to the percentage created by n/a, which is called ROA.
Financial Statements: Lou saw them as the mechanism for showing the overall status of the property and contracts. These are tangible aspects the business, not to be confused with the intangibles, which are much harder to measure, such as the people, their morale, market positioning, and goodwill.
Income Statement, aka Profit and Loss Statement or "P&L": a non-cash measure for the total promises (commitments) of the business, both future cash inflows and outlays, and previous cash inflows and outlays. Although there are dollar signs, income is not cash. Lou saw it as all the "promises to pay" or the agreement side of business contracts during a period of time specified.
Liabilities and Equity: representing the people owed money (creditors) and the remaining claims on assets by the investors (stockholders).
Mobley Matrix: showing that the starting Balance Sheet, plus or minus income data, plus or minus cash data, equals the ending Balance Sheet. It is a mathematical matrix, or 'magic square' because it adds and subtracts horizontally and vertically on every line. The copyright for this financial compilation is owned by Lou Mobley's estate and Chuck Kremer. It cannot be used in a commercial product without express written permission.
Mobley Return-on-Assets Chart: presents the standard DuPont formula for calculating return-on-assets as a graph showing the big-picture of how well a business is being managed. It shows the relationship of the three measures. Putting cost control on the y axis and marketing leverage on the x axis to show the ROA as a curve which companies fall on depending on how well they balance cost efficiency and asset effectiveness.
Net (Net Profit): the number from the Income Statement (aka Profit and Loss Statement / "P&L" or Operating Statement): showing total promises to pay made by customers, minus the total costs and expenses required to deliver the product(s) or service(s), during the period of time specified. Also called net earnings or net income.
N/A, or net profit over average assets: return on assets - a measure of the profit generated for every dollar of asset investment.
N/S, or net profit over sales: cost control - a measure of the profit generated for every dollar of sales. Shorter-term thinking focused on productivity efficiency.
OCF (Operating Cash Flow): Cash internally generated by operations, not cash from investing or financing activities. Cash from selected line items on the Cash Statement for standard recurring business operations. Also called Cash from Operating Activities on the cash statement. The only bottom line that is purely derived from numeric facts. Both Net Profit and Return on Assets can be defined in many ways.
S/A, or sales over average assets: marketing leverage - a measure of sales generated for every dollar invested in assets. Long-term thinking focused on sales efficiency.
Sales: the number from the Income Statement showing total promises to pay made by customers during the period of time specified. Also called Gross or Total Revenue.