Playing the numbers game

By Jeff Randall BBC business editor

Making comparisons between firms is increasingly difficult

There was a time, not so long ago, when British companies reported only two figures of any importance: pre-tax profits and post-tax profits.

The difference between these numbers depended largely on the skill of the accounting department and, perhaps, a bit of jiggery-pokery with brass-plate domiciles.

The results were delivered twice a year - for six-month and 12-month periods - and could be understood, indeed explained, by even the most bone-headed business reporter.

The more diligent financial hacks would occasionally burrow deeper into the accounts, looking for crackerjack items such as "cash flow" and "capital expenditure", but by and large covering corporate results was a simple affair.

Confusion

Alas, this is no longer the case.

In a world where hatchet-faced lawyers and corporate-governance stormtroopers crawl over every number a company chief executive even dreams about, never mind decides to publish, the pressure to issue results on a mile of computer print-out rather than on one sheet of A4 has become irresistible.

There is enormous scope for unscrupulous spin-doctors to hide that which their masters would prefer us not to see

The upshot, however, is not, I fear, a better understanding by lay persons of what is going on inside British business. Quite the reverse.

It's a case of much more is considerably less: obfuscation has replaced clarification.

Making accurate comparisons between this year's performance and last year's is often beyond anyone without a doctorate in forensic numerology.

And as for weighing up one company's numbers against those of a rival, I suggest you ease yourself into the task by reading Stephen Hawking's advanced thinking on Black Holes.

Doing the sums

Worse still, as investors are sucked into a vortex of bamboozling data, there is enormous scope for unscrupulous spin-doctors to hide that which their masters would prefer us not to see.

So, profits now come in all shapes and sizes.

In addition to the old-fashioned pre-tax and post-tax, there's pre-exceptionals, post-exceptionals, earnings before interest, earnings before depreciation, earnings before amortisation, earnings at constant exchange rates, underlying earnings, basic earnings, adjusted earnings and diluted earnings.

Are you keeping up?

A few years ago, some bright spark invented the term "ebitda", which basically means what a company earns before it accounts for all those pesky costs, such as tax and interest payments.

I'm proposing to use this method myself when next forced to see the bank manager: "You see, sir, if you remove my PAYE outgoings, mortgage commitments and school fees, I've more disposable income than Roman Abramovich."

It certainly worked for Vodafone, which this week turned a stonking loss into an impressive profit, simply by reformulating the way it presented its numbers in line with new accounting rules.

Against the clock

Dixons bowled reporters an "unplayable googly"

Getting to grips with accountancy gobbledegook and PR doublespeak is bad enough for reporters on daily newspapers, but at least they have a few hours to check facts and consult with a trusted analyst.

We in broadcasting, where the response is expected to be almost immediate, increasingly feel like someone in a blindfold who has been told to negotiate Hampton Court Maze while sorting out Rubik's Cube.

Company results are normally issued at 7am, and it's not unusual for Radio 4's Today programme to ask me for an on-air assessment only ten minutes later.

I've learned to dread John Humphrys saying: "Mega-Corp has just issued its figures. Jeff, what do they tell us?"

Recent Christmas trading statements from British retailers were typical of the way companies can pick 'n' mix numbers to suit their own messages.

We had four-week figures, eight-week figures, 12-week figures; total sales, like-for-like sales, non-petrol sales; sales from continuing operations and discontinued operations.

Dixons bowled us an unplayable googly by announcing simultaneously a Christmas trading update for four-week and eight-week periods, plus interim results for the pre-Christmas 28-week period, which included neither the four-week period nor the eight-week period.

Getting my head round the numbers was like playing bingo, doing the lottery and filling in a pools coupon all at the same time. I've barely recovered.

One of my business heroes, the late Lord Weinstock, who was a trained statistician, once said: "When we see profits rising and cash diminishing, we have learned to become suspicious."

These days, I'm not sure that even he would have been able to work out what's going where and why.

BBC business editor Jeff Randall presents "Weekend Business" - the flagship business show on BBC Radio Five Live. To find out about the issues at the heart of big business, tune in on Sunday evenings between 1900 and 2000 GMT.