By Dr. Joe Webb on January 23rd, 2013
Followers of these blogposts, columns, and presentations are well aware of one of my favorite subjects, the importance of adjusting financial data for inflation. This is always important when there are no unit data available or when companies sell so many products or services that unit data would overwhelming or not applicable.
My usual advice is to use these data when sitting quietly in your office when everyone in the building has called it a day. A clean glass, some ice, and a preferred consoling beverage might be wise to have nearby. Do not access such liquid prior to using these data in Microsoft Excel or other spreadsheet program. The amount of liquid required is situational, and may depend on the results.
Using your income statement (or other financial reports) for past years, these multipliers will bring your company data to the purchasing power of a US dollar as of December 2012. The table begins with 2007, but if anyone needs earlier ones, please contact me. It’s pretty simple: take your 2007 financial data and multiply all of the items by 1.093; 2008 data by 1.092, etc.
So if business has been flat since 2007, you will be sorry to learn that it hasn’t. The value of what you do has gone down. That may be worth one pour of the consoling liquid. If business has been declining, you might need two pours since the decline has been steeper than you might have thought. Has business been going up? The data might suddenly look flat, or if the sales line still shows an upturn, congratulations. Instead of more pours, get more glasses and share the delight.
The print business has been tough. Prices for print have not kept up with inflation, but the costs of producing print certainly have. So print businesses have been cutting here and there or trying to be more productive to make up for the shortfall. Everyone knows how I feel about that, because it’s covered in Disrupting the Future. (That’s still a free download). You don’t want to cut your costs, you want to change your costs with a strategic eye to the future. It’s in the book, so I won’t fill this space with those comments since they are in full context there.
A little over a year ago, I prepared a free presentation on Slideshare with audio commentary that explained the numerous issues with inflation and inflation adjustment. It’s 43 minutes of insomnia-curing rambling and ranting under the guise of economic explanation. I’m told it helped clear up a lot of questions people had. My favorite question about inflation, however, is “can we inflation adjust employees?” Of course not, because only dollars and other currencies are inflated, not units or people. The presentation reviews the different kinds of inflation indicators, the pros and cons of each, and how inflation has played havoc with print business management decisions.
The snarky answer to the question about inflation adjusting employees? “only if you change what they eat.”
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