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R > E

Re: "The Self Defense Society".

My father passed that little bit of wisdom to me a couple of years ago. I was ready at the time to learn some deep secret about managing corporate ledgers. Instead he says "Check the cash box, if there is more money there at the end of the month than there was at the beginning, chances are pretty good that you aren't going out of business this month". All he said was make sure that Revenue is greater than Expense. Such a simple idea it is. So simple that I thought I would find no resistance passing it on in other places.

Would you believe that I was wrong?

"That is too simple, what you really are interested in is Return on Investment!"

R > E is first order analysis. It is an indicator of where you are right now. In terms of our introduction to differential calculus analogies, it is the position of our car. ROI on the other hand is either 2nd order or 3rd order analysis. It is either the Velocity or the Acceleration. It depends on how you decide to calculate the ROI. Watching the feeds, it isn't always clear how they are juggling their numbers to indicate ROI. The number gets massaged to meet the intellectual capacities of the audience watching. It gets done wrong legitimately regularly.

The beauty of R > E is that it gives you a nice warm fuzzy about the nature of your cash flow situation. When R < E, your debtors are likely to be standing at the door with their whips and chains sometime soon. R > E, they happily see their interest coming in. First order analysis is a great way to stay away from debtors prison. Except there is no debtors prison anymore. Here in the states we have the opposite right now. People with pristine credit histories are now less credit worthy than those that have just completed their Chapter 7, 11, or 13. If you are just out of the "prison", you are more credit worthy than someone who is completely current. Why? Because the person who is completely current can start one of the chapters tomorrow. We have managed to make it bad to have good credit here.

Thermo won't let that state of affairs continue forever though. R>E is just the first law. I will always bet on the side of the you can't win, you can't break even, you have to play, because it represents the reality I see. I will steer clear of the folks who think they can make RE. If you are managing something, the first chart you look at is R>E. ROI comes last. Always keep the first order numbers in sight. If your board of directors starts accepting 2nd and 3rd order numbers as 'data', quietly dissolve your shares and move on.