10. Requisites of proper financial statements.• The variety in the kinds of business and the different physical or artificial conditions accompanying them makes impracticable a single type of accounting sys tem. The form of financial statement which will best serve the individual purposes of any concern must be particularly adapted to that undertaking. No one form of statement will be equally serviceable in different organizations.
11. Financial statements should be comparative.-- While it is clear that much information can be ob tained from a single balance sheet, and from a profit and loss, or income statement of one period, it is equally obvious that changes in conditions made dur ing a given period can be regarded as satisfactory only when they represent an improvement over a previous period. The effect of new policies, changes in management, and the like, cannot be fully meas ured unless the results, as shown in statements, are given in comparative form. This holds true not only with regard to main income statements and balance sheets, but also as regards sub-schedules and depart mental statements. By observing the effect of a par ticular policy for several years the management is in a far better position to estimate the value and the effect of it.' 12. Importance of the personal has been made of the importance of outside factors in connection with the interpretation of financial state ments. The personal element is perhaps the most varying as well as the most important factor. Mis takes in management often offset all of the favor able characteristics which a business may possess. It is therefore important to give proper consideration to the individual efficiency of every man in an admin istrative position.
Harmony and cooperation of effort are salient fea tures of the human element question. Individual stars will not bring success to a business unless they are willing to cooperate with the heads of allied de partments.
Expansion in one department at the expense of another or in undue proportion as compared with others will frequently result in internal strife or fi nancial loss.
To obtain a clear idea of the possibilities and op portunities of a business, one must be able to ap preciate not only its present condition but also the advantages and opportunities, if any, that will accrue to it in the future.
13. Consideration of outside out side factors, as already stated, will affect costs and sales, but they cannot be discovered from the recorded data. The demand for most products is frequently an uncertain item. One must therefore ascertain what probable future demand will be made. The de mand for specialties and commodities that are on the border line of staples will naturally be subject to. great fluctuations.
In connection with costs, the probable supply of raw materials is an important consideration. Assum ing that there is a steady demand for the product, we must be sure that the cost of the raw materiaLs will not rise and that supplies will not be entirely cut off.
Labor problems are frequently the rock on which the success of a business is wrecked. Sources of la
bor, the probability of strikes, and the development of unions are important outside factors affecting costs and sales. Transportation facilities and trans portation costs are likewise important in this respect. They must all be ascertained and considered if the financial results of a business are to be properly in terpreted.
14. Executive's reasons for a study of financial statements.—Three considerations should lead the ex ecutive to study financial statements.
First, he must be able to get all possible data on the condition of his own business. That can be ob tained only , from reports prepared in proper form.
'Secondly, he is interested in furnishing to others honest and exact statements of the condition of his business.
Thirdly, he should be able to read the financial state ments of others so as to get a true picture in hjs own mind of the business conditions of those with whom he deals.
15. Stockholders' reasons for a study of financial statements.—Inasmuch as the stockholder has not the first-hand information regarding the inside factors which the managing officials have, he must necessarily read "between the lines." His chief use of the finan cial statements will be to employ them in deciding upon the value of the services rendered by his board of directors. He will use the statements also to guide him in his control over his representatives in the man agement of the company.
The particular interest of the stockholder is in the payment of dividends or the return on invested cap ital. He is also interested in knowing that such pay ments are made from revenues earned and realized. He is therefore concerned to know whether the prop erty has been fully maintained and whether all income has been honestly and faithfully recorded.
16. Information as a guide to legislation.—The im portance of classified information upon legislation is very seldom realized. In the agitation of railway em ployes for increased wages, the figures of cost have varied from twenty million dollars, the estimate of railway employes, to one hundred million dollars, the estimate of the managers. There should not be such a wide margin between the estimates.
When the agitation of a ten-hour working day was at its height, manufacturers asserted that industry would be bankrupt. The outcome happily was not what the pessimists declared it would be.
Do we know the industrial cost of a universal eight hour working day? Classified information, properly interpreted and analyzed, will furnish an answer to that question. Have we not rather been content in many cases with the gathering of statistics and the tabulation of results, rather than attempting to analyze and properly interpret the information which we already have? In fact, the lack of public faith in the statistics which are offered in the discussion of the great social and economic problems of the present day, arises in part from the erroneous interpretation and unscientific analysis, or the lack of proper inter pretation and analysis, of the mass of tabulation and statistics which we now possess.