To really understand any numbers, you need to question them. You need to question any number until you know the source it comes from.
Only if you know how a number has been created, you could understand it fully. Many say a statistic can’t lie. Really? It depends on the point of view you have and the numbers you put in. If the numbers are based on lies or being manipulated, then the statistic lies, even though it looks correct.
Coming from an Accounting point of view, to understand a number correctly, you may have to dig into the details of an account or several accounts. Only when you have all the details you could say “Ah, now I know that this number makes sense, is right or wrong or needs even more investigation”.
Numbers are Everywhere
Today’s world numbers are everywhere. Numbers could be used to manipulate, to frighten you, and to keep you in or out of something.
Thus, it is crucial to understand numbers, no matter which source they are from.
It’s easy to question the numbers of your business, especially your accounting system. They are easy to question and investigate as you have full control over all data involved. You could dig deeper at your will.
This will be different if you question numbers from other businesses. You may have an Annual Report of a business, but you will not be able to dig deep into the numbers as you do not have access to the accounting system of the business.
Evaluating Numbers others present
Accounting Principles apply to all businesses, especially publicly traded businesses, it makes it possible to understand a little more about the numbers of businesses you do not have access to accounting details.
Yet, you could not question the numbers deep enough. Therefore, Auditors will do this for you. But they only have limited time to audit a business. As audit time is limited, they work with tests and assume that the results are valid for all transactions.
A viable approach, but there had been short-comings in the past and of course in the present moment. However, the system could only be as good as everyone is willing to be honest and true. And I hope and believe most businesses are honest and true.
More Questions on Numbers
When it comes to numbers outside accounting, it might even get harder to evaluate if these numbers are true and presenting the right picture.
Here are some questions to ask about them:
- Who benefits from the numbers presented?
- Who has paid for gathering the data?
- Are the data showing a result which would be to the benefit of the organization that paid for data collection?
- Have people providing information been paid?
- Are the data based on facts, or have data been used which derived from Assumptions and now presented as facts?
- Are the numbers used to scare others?
- Has the calculation or way to gather the numbers changed over and over again?
These are just a few questions, but you could find many more if you really want to understand numbers.
Relations among numbers
It’s also a good idea to set numbers into relation with other numbers. For example, if your business spent amount X on advertisement, you could relate this to the Revenue of your business. Then you could use this percentage to evaluate if the spending on advertisement was reasonable or not.
Relations work everywhere the same. They are a good way to find out if numbers are reasonable or looking odd, thus needing more investigation.
You already question numbers many times in your life. When you are doing any shopping, no matter if it is for private or business use, you compare prices. Actually, you are questioning the numbers and ask yourself if the price is reasonable.
Question everything no matter who provides the Numbers
You may even search the internet to check if the price is good. Are you questioning all numbers the same way? Probably not. We have the tendency to believe numbers without question, depending on the source they come from.
A big mistake! If the numbers are not true, the information might harm you, your business or your family.
Sometimes numbers are presented out of scope or only with partial information. What value do these numbers have to you? Honestly, none. If you do not have all necessary numbers to understand a topic fully, the partial numbers are useless.
Partial numbers are useless as you are not able to understand everything behind them, and they do not allow you to make a decision about what to do.
The only way to get into a position to make an educated decision is to ask for the missing numbers and their source.
Conclusion
It’s easy to misunderstand numbers. It’s also easy to lie with numbers. Letting numbers look as facts even when they are derived from assumptions.
To make a good decision for yourself, your business or your family, you need to know the details behind the number. Are the numbers trustworthy? Do I understand the relations of the numbers? And so on.
By questioning everything, mankind has achieved many great things. So never stop questioning, no matter who is presenting something to you. That does not mean to trust nobody. It just means to be cautious about believing everything.
All the Best and Happy Questioning!