Gary Bode, CPA: your QuickBooks bookkeeping can be turned into powerful managerial tools like the Z Factor (a Bankruptcy alarm indicator)
Quickbooks bookkeeping components can build powerful managerial tools, like those used by Fortune 500 companies, can be derived from your Intuit QuickBooks bookkeeping reports. Some of these QuickBooks bookkeeping calculations act as alarms, warning about potential financial danger. Days Cash on Hand is one of these. Another is the Z Factor which uncannily predicts if and when a company will have to go bankrupt, done through a calculation based on profitability and financial position. Such tools can be part of a Performance Dashboard which is used for managerial decisions. The process usually involves customizing an existing QuickBooks bookkeeping report and then exporting it into Excel for further refinement. Like producing graphs for trend analysis. Our Wilmington NC CPA accounting firm frequently exports QuickBooks bookkeeping reports into Excel to maximize its (QuickBooks) potential in helping your business.
“I don’t recommend running a company strictly “by the numbers”, but accurate and timely QuickBooks bookkeeping can construct powerful managerial tools like the Fortune 500 companies use.”
Gary Bode, Wilmington NC CPA accountant
This Z Factor has been around since the 1960’s. First developed by Dr. Robert Altman, it was originally used in public companies, as part of Financial Statement analysis by potential investors. Later, it was modified for private companies. But sadly, most small business accounting doesn’t use these tools. Quickbooks bookkeeping can be used extensively for managerial decisions.
Here’s the Z Factor calculation for private companies:
- A = [(Current Assets - Current Liabilities)/Total Assets] × 6.56 = ________.
- B = (Retained Earnings/Total Assets) × 3.26 = ________.
- C = (Earnings before Interest. & Taxes/Total Assets) × 6.72 = ________.
- D = (Equity/Total Liabilities) × 1.05 = ________.
- The sum of (A + B + C + D) equals your Z-score.
Note all components for the Z Factor can be directly taken from Intuit QuickBooks bookkeeping reports. If your QuickBooks setup includes an appropriate chart of accounts, data entry is consistent, and, the QuickBooks bookkeeping is timely. Again, generally the QuickBooks reports are exported into Excel for semi automated preparation of a monthly Performance Dashboard.
If your Wilmington NC CPA accounting firm hasn’t helped you harness the managerial power of your QuickBooks accounting, please consider calling us at (910) 399-2705. Small business accounting can help give your company a competitive edge.
