IMPORTANCE OF CLASSIFIED INFORMATION 1. Present need for classified in at no previous period in our economic history has it been so important to the business man as it now is to have all kinds of information about his business available to him in classified form. With the growth of modern business, with specialization and standard ization of factory and office routine, it has become in creasingly important that executives and their im mediate subordinates should have the right kind of statistical information about the activities of a busi ness.
The old practice of closing the books once a year in order to determine whether a profit had been made or a loss sustained is becoming obsolete. The busi ness man of today wants daily information. He wants, also, that information in comparative form so he can tell how it compares with that of a month ago, or a year ago. To compete successfully with other business men he must know the causes that have con tributed to the success of the year's sales, as well as the factors that have caused any loss during the year.
2. Classified information measures efficiency.— Properly classified records act as a measure of effi ciency. Factory superintendents and other depart ment heads may endeavor to explain the reasons for the condition of business as disclosed by the records. The indisputable fact, however, remains that the rec ords will point definitely to either a profit or a loss.
With proper records before him the executive is enabled to determine where the responsibility for the condition of his plant or any, department of it rests. He is then in a position to strengthen the weak points of his department heads and to help them develop their strong features.
3. Business policies.—From an analytical study of the classified information the managerial body of a business enterprise is able to determine the future course of action. If, for example, the results' show that a previous advertising campaign increased the volume of business, it is quite likely that a more ex tensive advertising policy will follow. Similarly, if
the records show that while the volume of business has increased, the cash receipts have not kept a pro portionate pace, assuming that the terms of sale are the same, it is evident that there is a weakness in the credit department or in the credit policies. This result, if not offset by other factors, may call for a restricted policy in the expansion of credits.
At this time more than at any other it is obvious that the business man must base his action regarding his future business policies upon the of past performances as shown by properly classified records. He must not rely on memory.
4. How outside factors affect a business orgaidza tion.—In interpreting a set of financial statements one has necessarily to put together many related but apparently separate facts into a general picture which will portray in compact form the condition of the or ganization. One must, therefore, not only read into the statements facts taken from a set of books, but he must also consider unrecorded facts as well. This point will be discussed in greater detail later, but it is mentioned here to bring home the effect of unrecorded factors on future conditions. Such things as changes in selling plans, increased cost of labor, increased freight rates, etc., all will have a direct effect on the business. Any one who analyzes financial or business statements must estimate the probable future condi tions in the light of these outside factors. Moreover, certain adverse results, as indicated by the financial statements, may be entirely explained and accounted for by some condition which is only temporary.
Thus, for instance, a severe flood in a western city might have caused a decrease in the sales of a busi ness whose greatest volume was disposed of in that territory. Inasmuch as the condition was only tem porary in its effect, one would not be justified in bas ing upon the net results shown for that year an opinion concerning the usual volume of business done.