Industry Standards

Each industry has a set of financial standards accorded through years of operations and volume of business. Any new business going into an industry needs to understand the most likely outcome(s) from their respective industry. Statistical analysis tells us that it is highly unlikely for the new business owner to outperform the industry as whole. Therefore, if the business entrepreneur understands the financial realities, he can then deal with the setbacks as they occur.

Value Investing – Industry Standards (Lesson 13)

Have you ever wondered how the measurement of length called a ‘meter’ came to be? It is simply the distance light travels in a given time period. The key isn’t the actual definition, it is whom dictates this time period of travel. Some authority states that this is the definition of a meter (also written as ‘metre’). It is currently the International Committee for Weights and Measures based out of France. It is an 18 person task group promoting uniformity with units of measurement. This committee is the authority.

This same principle of authority exists in business. Every industry has their own authority or set of principles promulgated by an agreed upon group of individuals or a leader within that group. For value investors, understanding the authority for the respective industries is essential to measuring success for each member company within the pool of potential investments. Once a value investor recognizes what is the standard of production or performance, it becomes easy to compare their respective investments and then equate this into financial value. There is a hierarchy of authority for all industries. In almost all cases, the number one authority is a governmental institution or law. Other levels of authority at the next level include academia, associations, journals, books, white papers and committees. The third level of authority include experts and company level affiliations. The final level of authority is the leader in the respective industry.

Each of the following sections explore these different levels of authority. In each section, there is an introduction to the various resources the value investor may wish to use when investigating their respective industry. The key to this lesson is to understand that higher levels of authority are the standard setters. Value investing is about having facts to support a buy/sell position with each member of the pool of investments. The stronger the authoritative position of the standard setter, the more accurate the buy/sell trigger points can be calculated.

Job Costing Reports – Introduction (Part 1)

Job Costing Reports

Job costing reports are management tools used to evaluate project or production performance against a known or estimated standard. They are used in many business sectors and their respective industries. The primary purpose of job costing reports is to identify discrepancies or beneficial results, usually in the form of financial values. They can be used to report both financial and numerical production outcomes.

Business Principles – A Pyramid of Levels

Business Principles

There is no universal finite set of business principles. In the aggregate, there are over several hundred of them. Many of them are not applicable to every industry, on the contrary, many are specific to a unique business or industry. The best approach to understanding business principles is to look at this in a holistic manner, i.e. overall doctrine down to a few rules specifically designed for that one business.

Absolute Dollars

Absolute Dollars

In the hospitality industry, there is one financial tenet that takes precedence over any other business perspective. In this industry, it is about putting the maximum number of dollars (ABSOLUTE DOLLARS) in the register after each day. One of the most misunderstood business dynamics of this industry is the higher than average fixed cost to run the company.

Small Business Model Series Entry #4 – Basic Research

I spent a lot of time on the internet researching the industry as a whole. There are about 220,000 machines in the US that are owned by non-banking companies and individuals. My first thought is that this is about 1 machine per 1,000 individuals (there’s about 220 million adults in the US/220 thousand machines and you get 1,000 adults per machine).