Anthony J. Pennings, PhD

WRITINGS ON DIGITAL ECONOMICS, ENERGY STRATEGIES, 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. Ratios can serve as rhetorical devices by shaping how information is perceived, interpreted, and communicated. They distill complex relationships into digestible comparisons, enabling speakers or writers to emphasize particular points or narratives.

The ratio is an important mathematical device for reality-rhetoric 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 (D/E), return on assets (ROA), and return on investment (ROI).

At a more micro-level,

– Liquidity ratios (=B2/B3 B2: Total Current Assets /
B3: Total Current Liabilities),

– Profitability ratios like Gross Profit Margin (=B6-B7)/B6
B6: Revenue / B7: Cost of Goods Sold and Net Profit Margin
(=B8/B6 B8: Net Income B6: Revenue)

Solvency ratios (increasingly calculated by AI) simplify and frame company performance. Examples are Debt-to-Equity Ratio (=B11/B10
B11: Total Liabilities / B10: Shareholders’ Equity) and Debt Ratio
(=B11/B9 B11: Total Liabilities / B9: Total Assets

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.

The Role of Ratios in Modern Political Economy and Spreadsheets

Ratios are essential conceptual tools in modern political economy, serving as mathematical devices to construct systems of understanding. They compare financial metrics such as debt-to-equity, return on assets (ROA), or productivity measures like revenue per employee. By establishing relationships between numerical values, ratios enable insights into efficiency, profitability, and organizational performance.

Spreadsheets enhance the use of ratios by offering powerful formulas and tools for calculation, visualization, and data modeling. Functions like SUM, AVERAGE, and complex formulas like XNPV or CHOOSE allow users to analyze data effectively. Ratios, when combined with spreadsheet capabilities, make relationships between data points apparent, answer “what-if” questions, and assist in identifying trends or potential problems.

Spreadsheets organize data through rows, columns, and tables, enabling time-space management in organizations. Productivity ratios, such as revenue per employee, measure organizational efficiency and allow cross-company comparisons (e.g., Apple’s $1.86 million per employee in 2015). Ratios “fix” relationships momentarily to create perceptions of reality, solidify truths, and highlight progress or risks, such as impending bankruptcy.

Spreadsheets combined with ratios track performance, analyze market share, and evaluate asset profitability. Ultimately, ratios, amplified by spreadsheet technology, provide actionable insights into organizational dynamics, productivity, and financial health.

Citation APA (7th Edition)

Pennings, A.J. (2019, Mar 2) Spreadsheets and the Rhetoric of Ratios. apennings.com https://apennings.com/technologies-of-meaning/spreadsheets-and-the-rhetoric-of-ratios/

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AnthonybwAnthony J. Pennings, PhD is Professor at 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. 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. His US home is in Austin, Texas where he also taught in the Digital MBA program at St. Edward’s University.

Category: democratic political economies, digital spreadsheets, meaning makers, technologies of meaning, visual literacy and rhetoric
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    Professor at State University of New York (SUNY) Korea since 2016. 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, digital economics, and strategic communications.

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