Rant: Good luck trying to understand your vendor’s finances
Accounting and Finance

Rant: Good luck trying to understand your vendor’s finances

Vendor management is an important yet often neglected aspect of CIO life. IT leaders need to understand their suppliers, follow their general directions in terms of product ‘roadmaps’, ‘end of life’ support plans, SLAs, pricing and, more than anything, their likelihood to stick around for the long term. Armed with these facts, buyers can then select suppliers and calibrate risks, whittling down outsize lists where necessary. Easier said than done.

In these days of rampant mergers and acquisitions, knowing about the financial strength of your key suppliers is critical. If Acme Corp. makes a widget you depend on and have spent a lot of time and money investing in and making sure it integrates with Widget B, then you don’t want MegaCorp.com coming along and consigning it to the dust. But that happens – over and over again.

Of course, having strong financials is no protection against being bought but it makes life difficult for the wannabe acquirer and it guards against the likelihood of a successful product line being shown the exit door. So it’s worth a CIO being at least acquainted with the fiscal health of his or her merchants.

Unfortunately, the ways that technology companies report their financials is a dog’s dinner and slap in the face of clarity.

The terminology is opaque and obscure. Here, for example is Salesforce.com’s latest quarterly report.

"Salesforce grew deferred revenue by 26% in dollars, and 27% in constant currency in the second quarter. We also delivered another quarter of year-over-year non-GAAP operating margin improvement, even as we closed our largest acquisition ever with Demandware," said Mark Hawkins, CFO, Salesforce. "Despite significant FX headwinds which impacted many of our key financial metrics, I'm pleased to raise our top-line guidance for the full fiscal year 2017 to $8.325 billion in revenue at the high end of the range."

Pretty dense stuff, no? And this is the version that came in the press release for general consumption!

Or how about this hairball (again a press release rather than accountants setting themselves exams):

“On a pro-forma basis, Hewlett Packard Enterprise estimates its total contribution to Hewlett-Packard Company fiscal 2015 non-GAAP diluted net EPS was approximately $1.84, within the range provided at the Hewlett-Packard Company Securities Analyst Meeting in September.

“The unaudited pro forma Hewlett Packard Enterprise fiscal 2015 non-GAAP diluted net earnings per share information presented is based on its estimated contribution to Hewlett-Packard Company’s fiscal 2015 non-GAAP diluted net EPS as adjusted to give effect to the separation transaction effective on November 1, 2015. The pro forma amounts do not necessarily reflect what the fiscal 2015 non-GAAP diluted net EPS of Hewlett Packard Enterprise would have been had the separation occurred on November 1, 2014. They also may not be useful in predicting the future financial condition and results of operations of the separate companies. The actual financial position and results of operations as reported in Hewlett Packard Enterprise’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission may differ significantly from the pro forma amounts reflected herein due to a variety of factors.”

I quote not selectively but from the early part of a statement that uses over 3,000 words. What is it that is wrong about this document - I mean apart from everything? The labyrinthine prose where you half expect to encounter a Minotaur at the centre? The abstruse and arcane and causally unexplained three- and four-letter acronyms? The passing of the meaning buck to other documents like a wrapped-up clue in a game of pass the parcel? The accretion of parenthetic clauses that heap Pelion on Ossa until syntax is left a mangled corpse, breathing its last? Oh, all of these and more.

The common reader who only wants to know the answers to simple questions such as ’Is this company profitable or growing?’ is left to his or her own devices. I’ve been decoding these statements for a quarter of a century and I have interviewed surely over 100 leading CFOs and yet they still leave me with a dull headache and desire to lie down with cold compress applied to forehead. Or, more honestly, throw a few down my neck in the nearest bar.

I’ve developed the basic competency to know what they’re driving at and to trust other sources who are better able to parse this information, experts who can forage deeply and with fingers nimble enough to extract the seed of meaning from its protective husk, but really it shouldn’t be this way after reams of corporate governance rules intended to create, a grand jest this, transparency.

A plea: financial statements released to the public should follow a standard template that answers questions interested parties not trained in accounting can understand. Salt in some plain language and we might have some clue as to what is going on.


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Martin Veitch

Martin Veitch is Editorial Director at IDG Connect

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