In working on
The Media is Thriving this week, it’s really driven home a trend that I think many of us think about, but few of us ever really work through: the tendency of the business media to pick the metric that drives home a point, and use them all interchangeably to imply either growth or profit, or the opposite thereof.
I’ve noticed several terms are used almost interchangeably in stories, despite having very different meanings. So, in the same way that Noah took a stab at making a
scale of internet meme awareness, I think it might be useful to sort of develop a scale of accounting obfuscation:
Revenue – The money a company brought in
Revenue Growth – How much more/less revenue was this quarter over last. Useful to see if a company’s selling more or less, and to highlight if you want to obfuscate exploding costs that are hindering profitability.
Rate of Revenue Growth – Whether the revenue growth this quarter was more or less than last quarter. Useful if a company is doing well and revenue is growing, but you want to imply that the company’s not doing as well as it used to be, and you’d like to paint a bad picture
Profit – How much a company made. Useful to highlight when you want to obscure flagging revenue, cost cuts, or a low revenue base.
Profit Growth – How much more/less profit was made this quarter over last – useful if you want to badmouth a profitable company.
Rate of Profit Growth – And if Profit Growth is still looking good, you can turn to rate of profit growth: How much the profit growth was more or less than last quarter, compared to a previous year/quarter. 80% Profit growth 2 quarters ago, and only 70% profit growth this quarter? Rate of profit growth is down! The company is over!
These can all work for positive spin or negative spin, of course, but I think right now we’re in a weird area. The terms are so laden, with stock expectations built in, from the “good times” or 07 and early 08 that we still use them in that way, painting negative pictures of things.
I read a story this week about a media company who’s “profits were down 90%” from a quarter a year ago. Terrible news, right! Yeah, except this is really a story about a profitable media company coping through a recession. If you ask me, a major media company staying profitable in this recession is good news. Why spin it otherwise?
Then there are the terms I don’t even know what they mean.
This article, way down, refers to an industry whose “revenue is slowing.” What does that mean? Positive revenue, positive revenue growth, and a negative rate of revenue growth? Is that really a bad thing?