Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

Spreadsheets and the Rhetoric of Ratios

Posted on | March 2, 2019 | No Comments

In this post, I examine the figuring of ratios as a conceptual technique for constructing systems of understanding in the modern political economy. The ratio is an important mathematical device for reality construction in a wide range of activities, but their role in financial and management environments are especially notable. These type of ratios are a result of dividing one account balance or financial measurement with another. Examples are debt-to-equity, return on assets (ROA), and return on investment (ROI).

This post continues my series on meaning-making practices and the power of digital spreadsheets. I previously wrote about the historical components of spreadsheets – the lists, rows, numbers, words, and tables that combine to give users of spreadsheets their visual and analytical proficiencies. Accounting, in particular, used the lists and tables of spreadsheets to create “time-space” power that propels organizations across the span of months and years, and over the span of long distances.

More recently, I’ve been examining the various formulas that provide additional calculative and analytical capabilities for the spreadsheet. With almost 500 different types of formulas, from simple arithmetic like AVERAGE, SUM, and MIN/MAX to more complex formulas such as CHOOSE, CONCAT/CONCATENATE, HLOOKUP, INDEX MATCH, PMT and IPMT, XNPV and XIRR.

Below, I explore the communicative usage of ratios to construct an understanding of relationships, in this case, a corporation’s productivity.

Productivity ratios provide one evaluative structure for indicating the efficiency of a company. It is a ratio or fraction of output over input, where output is the number of goods or services produced by an industry, company, person, or machine and input is the amount of resources you want to measure.

Ratios are used mainly to establish a quantitative relation between two numbers, showing the times the value of one amount is contained within the other such as total revenue divided the number of employees. For example, in 2015, Apple had revenue of $182,800,000,000 and just under 98,000 employees. This meant that Apple made $1,865,306 per employee.

$182,800,000,000 / 98,000 = $1,865,306

Google was next with $1,154,896 of revenue per employee. Japan’s Softbank made $918,449 per employee for third place while Microsoft made $732,224 per employee. Measuring revenue per employee (R/E) provides an understanding of the productivity of the company and possibly how efficiently the company runs. It also provides a metric for comparing it with other companies.

Creating ratios in Excel requires the use of the GCD function (Greatest Common Divisor) or use the TEXT and SUBSTITUTE functions.

Spreadsheets vary in complexity and purpose, but they primarily organize and categorize data into logical formats by using rows and columns that intersect in active cells. They can store information and make calculations and data reorganization based on models. They display information in tabular form to show relationships and can help make elaborate visualizations with the data. Consequently, they make it easier to leverage organizational data to make relationships apparent and answer what-if questions. With the use of ratios, they can also identify high and low performing assets, track employee performance, and evaluate profitability.

A ratio denotes a relationship, usually between two numbers, but in any case, between amounts. They indicate how many times the first amount is “contained” in the second. They can be a valuable technique for comparison and a measurement of progress against set goals such as market share versus a key competitor. They can also be used for tracking trends over time or identifying potential problems such as a looming bankruptcy.

Ratios are a technique that “fixes” or freezes a relationship in order to construct a moment of reality. While they attempt to apprehend truth, they are instrumental in solidifying, at least temporarily, the appearance of concrete realities. Ratios have analytic capacity, such as how much productivity comes from the average individual worker.

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AnthonybwAnthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY Korea, he taught at New York University (NYU) for 15 years and at Marist College in New York before his move to Manhattan. His first academic position was at Victoria University in New Zealand. He has also spent ten years at the East-West Center in Honolulu, Hawaii. Originally from New York, his US home is now in Austin, Texas where he also taught in the Digital MBA program at St. Edward’s University.

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    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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