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Dollars and Homogeneity

Originally published July 15, 2004

 

Go to Yahoo and take a look at the stock market. When you see stocks and their current market price, you may take for granted that the stock is being measured fairly. After all, isn’t that what GAAP, FASB and Sarbanes-Oxley regulations are all supposed to govern? And for all the discipline and legislation that surround corporate reporting, there is one curious anomaly. That anomaly is that corporate progress is measured in dollars. Stated differently, there is the assumption that a measurement made in dollars is at the lowest common denominator. 

 

The assumption is made that a dollar scale equalizes everything. Accordingly, if a corporation measures its progress in terms of dollars, those dollars are accounted for by the established rules.  It is assumed that there is a level playing field. 

But such an assumption may be valid only to a financial analyst or accountant. The assumption may not be valid to the data analyst. 

We will examine a few cases. 

In the first case, suppose the revenues of corporation ABC are compared year-to-year. The revenues for 2004 are compared to the revenues of 1999. This kind of comparison is made all the time. But is it a fair comparison? Probably not! Why? The reason is that corporation ABC is a different corporation in 2004 than it was in 1999. 

During this five years span at ABC Corporation:

  • management changed;
  • competition changed;
  • products changed;
  • the marketplace changed;
  • personnel changed;
  • legislation changed, etc. 

Throughout these changes, progress or results have been only measured in dollars. The problem is that what was being measured in 1999 might be very different than what is being measured in 2004. While dollars are constant, what is being measured is certainly not constant and therefore, not comparable. 

In the second case, let’s consider corporate mergers and acquisitions. Recently, PeopleSoft bought J. D. Edwards. According to financial reports made prior to the merger, the PeopleSoft prospects were low. But after the merger, measuring in dollars, PeopleSoft had enjoyed enormous growth. The dollars told one story; the merger told another. Indeed, in terms of sale, turmoil, and hostile bids, the market story for PeopleSoft looked quite different than the strictly dollar story. 

And, of course, there is the issue of inflation. In recent years, inflation has not been a problem because of the Federal Reserve Board, the economy and other governing factors. But when inflation starts to reappear, then measuring results in dollars becomes very unpredictable. In order to get a clear picture over time, it is necessary to adjust dollars to a standard base rate adjusted for inflation, if dollars are to be used as a measure of comparison. 

It is then quixotic that the world accepts dollars as a common basis for comparison when this basis creates so many apparent inequities.  

The data analyst is always looking for a “rationalized” world, in which apples are compared to apples and oranges are compared to oranges. Looking at apples and oranges just as “fruit” masks the differences between them. 

However, we can look at the problem another way. If you don’t measure corporate progress in dollars, how do you measure corporate progress? There doesn’t seem to be any other kind of measurement that provides a rationalized basis for comparison. 

So perhaps the dream of the data analyst – the ability to make a rationalized comparison across time or across companies – is just that – a dream. Maybe it is only in theory that a rationalized comparison can be made. As long as dollars are used, rationalization becomes just a theory, not a reality.

  • Bill InmonBill Inmon

    Bill is universally recognized as the father of the data warehouse. He has more than 36 years of database technology management experience and data warehouse design expertise. He has published more than 40 books and 1,000 articles on data warehousing and data management, and his books have been translated into nine languages. He is known globally for his data warehouse development seminars and has been a keynote speaker for many major computing associations.

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