Financial Analysis:
Getting the Big View
In a
Little Picture
C. Torben Thomsen
Department of Health Administration
School of Public Health
Loma Linda University
Loma Linda, CA 92350 USA
+1 909 824 0800 Ext 47108
tthomsen@sph.llu.edu ABSTRACT
A small computer generated network diagram replaces all the traditional financial statements and introduces a new paradigm for visualizing integrated financial data. It invites natural questions from novices and prevents unusual conditions from escaping the notice of experienced readers.Keywords
Accounting, finance, visualization, network model
(FIGURE 1. COMPARISON OF MICROSOFT AND IBM
Can be found in file ctt_ fg1.EPS. You can print it on a PostScript printer or view it on the screen if you have a PostScript interpreter) INTRODUCTION
Traditional financial statements have been the main medium of presenting information about companies to the investing public. Traditional accounting, which is the process of producing those financial statements, has changed remarkably little over the past 500 years. The advent of the computer has also done little to change the actual structure of financial statements. Today financial information is available electronically from service bureaus, through the EDGAR system of the Securities and Exchange Commission , and through the World Wide Web. However, the traditional formats are now merely delivered electronically. To look at a set of financial statements [without referring to the supplemental material] would typically require one to look at 4 pages of difficult to read lists of text and numbers.The CHI90 Conference [5] saw the introduction of a small, simple, and graphic replacement of the traditional financial statements. This presentation reports on the evolution of that business instrument panel into an even more powerful and general model. While non-experts are usually intimidated by traditional financial statements, the business instrument panels invite questions that encourage on-the-spot learning. The graphic is so simple that it can be understood even by children.FROM CHI 90 TO CHI 96
The original business instrument panel (BIP) modeled the flow of value between various locations [accounts] as circles on a path indicated by an arrow. The new BIP draws upon the universal tool of network modeling that stimulated the formation of the branch of mathematics known as topology [3] and [4]. It replaces the circles and arrows with half-circles that have a natural way of indicating flow in the direction of the rounded part of the half-circle. This also allows the possibility of two-way flows on the same path. The two big half-circles near the center of IBM’s BIP indicate issue of new debt and paying off of old debt in roughly equal amounts.When users were given the original BIP and the revised BIP with roughly twice the information content, they almost unanimously opted for the more complex present model. This says something about the considerable ability of humans to absorb complex material visually [1].The original BIP was drawn on a gray background, the revised BIP is drawn on a white background. The areas of the squares and half-circles are proportional to their numerical size in the financial statements, and drawing them on a gray background made possible the use of solid figures rather than line figures. A solid figure is a more accurate indication of area than is a line figure, because of the ambiguity of whether or not to consider the thickness of the drawing line as part of the figure. In practice, that ambiguity was found to be trivial, and the practical expedient of saving ink by drawing on a white background rather than on a gray background took precedence.COMPARING MICROSOFT AND IBM
The detailed explanation of the various components are beyond the scope of this paper and are discussed fully elsewhere [5], [6], and [7]. But a few aspects of analysis will illustrate the power of the new way of presenting comprehensive financial information.Size
Since the area is proportional to size, one has an immediate and tangible feeling for the relative size of the two companies. This invites the question of how a third company would compare in size to these two?Relative Market Value
All the components of the figures reflect the values carried on the books of the companies. But the two dashed squares in the center of each picture indicate the high and the low market value of the company for one year. The gray square in the middle indicates how much investors have put into the company and the dashed squares indicate how much that investment is worth now. IBM’s market value is quite stable [small difference between the two dashed squares] and quite close to the original investment; whereas Microsoft has a more significant variation between high and low market value and a remarkably large difference between the original investment [gray square in the middle] and the present market value. While there is a big difference in the overall size of the two companies, the market value of Microsoft is almost as big as that of IBM.Profitability
The divided half-circle in the upper right-hand corner of each picture shows how the total profit was divided among debt holders [white], the government [gray], and the stockholders [black]. There is no white area in Microsoft’s half-circle since it has no long-term debt. While IBM has a bigger total profit, Microsoft is the winner when profit is compared to sales [the big half-circle to the far right].Note that in this brief discussion, there has been no use of numbers. Instead, the user develops an intuitive feeling for the companies under analysis. That feeling can then later be supplemented by the actual numbers, which then are placed in a visual context.Experts in using instrument panels will be able to pick up any anomalies in a company’s performance almost instantaneously rather than laboriously plodding through the traditional statements.CONCLUSION
This new numberless representation of a complete business in a small picture holds potential for increasing financial literacy by dramatically easing the interface between the user and very complex information. It neatly integrates all the important financial information about a business in a compact graphic form and thus gives the big view of the business in a little picture.REFERENCES
1. ACM SIGGRAPH. Computer Graphics [Focus: Visual Literacy] 29, 4 (November 1995).
2. Barten, P.G.J. The Effects of Picture Size and Definition on Perceived Image Quality. Proceedings of the Society for Information Display 30, 2 (1989), 67-71.
3. Biggs, N.L., E.K. Lloyd, and R.J. Wilson. Graph Theory: 1736-1936. Oxford University Press, 1976.
4. Euler, L., Solutio Problematis Ad Geometriam Situs Pertinentis. Commentarii Academiae Scientiarum Imperialis Petropolitanae 8 (1736), 128-140.
5. Thomsen, C.T. The Business Instrument Panel: A New Paradigm for Interacting with Financial Data. Proc. CHI’90 (Seattle, WA, April 1990), ACM Press, 161-166.
6. Thomsen, C.T. The Deep Structure of an Innovative Accounting System,. Proc. Twelfth International Conference on Information Systems (New York, December 1991), 307-314.
7. Thomsen, C.T. Reinventing Accounting. BIP, San Bernardino, CA, 1995.
