#AtoZChallenge Archives – Page 37 of 43

April 21, 2021April 22, 2021

R is for ROI (Return on Investment)

ROI is overrated.

Return on Investment (ROI) is one of the most widely used financial ratios, like Earnings Per Share (EPS), Current Ratio (CR), or Debt to Equity (DE). These things grow like weeds, once fledgling MBAs get hold of an HP 12-C calculator. Soon every conversation gets sprinkled with acronyms. Then, executives try to apply financial ratios to everything, and anyone who objects that you can’t put a value on everything is told to take a hike.

Net Profit means after subtracting the Cost of the Investment. Graphic from investinganswers.com.

Not Entirely Useless

ROI can be a useful measure, especially in making choices. Suppose you have a portfolio–that’s investor slang for “bunch of different”–investments that you made of differing amounts. You want to know which one has grown the most consistently over the last five years. An ROI comparison makes the numbers comparable.

April 20, 2021April 21, 2021

Q is for Qualified Opinion

Normally, I prefer facts over opinions and prefer the fact-giver to be qualified. However, when it comes to auditors, I do want opinions, but–oh boy–I want mine Unqualified.

The raging debate over audit opinions is one of the juiciest parts of accounting. Aside from the myriad types of Fraud (See letters “F” and “K”) that can happen, companies with good intentions still stretch their accounting practices a bit. Even when they’re large and public, with their financials in plain sight. Especially when they’re large and public, it seems. Just ask GM and Toshiba.

But let’s step back a minute. What does an auditor do and where does a Qualified Opinion come into the picture?

I’ve known plenty of auditors. They don’t always wear glasses.

April 19, 2021April 20, 2021

P is for Pacioli

Portrait of Pacioli attributed to Jacopo de’Barbari at the Capodimonte Museum in Naples.

Luca Pacioli wrote the book on accounting. He also wrote the book on algebra, geometry, mathematics, and arithmetic. It’s a musty old book by now, fragrant with the smell of parchment, dust, museum purifiers, and centuries passing. But Summa de arithmetica, geometria, proportioni et proportionalita contains the world.

Pacioli’s *Summa de Arithmetica*, photo from the Smithsonian.

Da Vinci’s Buddy, Della Francesca’s “Admirer”

Pacioli was born in Tuscany, studied in Venice, taught in Rome, Croatia, Naples, and eventually settled in Milan under the patronage of Ludovico Sforza. Sforza supported another famous scholar: Leonardo.