3 ms·

Help me understand what you are saying here. For those that don't know this one is "a measure becomes a target, it ceases to be a good measure". I'm not advoca

Help me understand what you are saying here. For those that don't know this one is "a measure becomes a target, it ceases to be a good measure". I'm not advocating for a single metric that can be gamed. A business is fundamentally about dollars in and dollars out. Maybe add receivables in there and a few other metrics from the P&L. I'm not trying to be prescriptive here on purely cash in and out. I do think there is a low friction way that companies could report daily certain metrics that over time would give their shareholders a sense of the company's health and trajectory.

ang_cire 7mo ago
Dollars/receivables in and dollars/deliverables out is just a question of rate, unless I'm missing something. If a 10 billion dollar company has a per-second dollar out/in rate of $1,000,000 due to actual organic business, a company with $2,000,000 can set up an LLC it buys and sells from, and legally 'swap' $1,000,000 a second back and forth in services "bought and sold" to mimic the appearance of the $10B company, to generate business interest/confidence/investment. That's an extreme example, but the point is that real-time money flow has nothing to do with the actual 'health' of a company.
- fc417fc802 7mo ago
  I'm fairly certain you're describing fraud.
  - jongjong 7mo ago
    I'm fairly certain he's describing the economy. There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed. For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading." There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult. You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want. Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.
    - philipallstar 7mo ago
      While I agree that "billionaire" is a stupid word that 99% of the population don't understand, but can be manipulated with, it is not true that investors only look at market cap. Lots of analysis goes into IPOs.
  - wbl 7mo ago
    That's what all these accounting rules exist to stop. No, you can't pretend that equipment breaking doesn't happen. No, you need to account for fixing the roof etc.
  - ang_cire 7mo ago
    It's not actually fraud if there is some ostensible service they're performing. Business units within businesses 'pay' each other for 'services' all the time. Ditto for subsidiaries. Whether something is fraud might come down to intent alone. The line between legal and illegal business transactions can be murky as hell.
    - fc417fc802 7mo ago
      For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.
      - kakacik 7mo ago
        Yet we see it happening all the time with various AI deals.
        fc417fc802 7mo ago
        I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.
        vannevar 7mo ago
        And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.
        fc417fc802 7mo ago
        I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.
  - baq 7mo ago
    it's only fraud if somebody finds out
    - dessimus 7mo ago
      It's only fraud if one doesn't keep enough cash on hand to b̵u̵y̵ ̵a̵ ̵p̵a̵r̵d̵o̵n̵ make a campaign contribution.
  - datsci_est_2015 7mo ago
    The difference between fraud and not fraud is if you can reach an agreement with auditors that it’s not fraud.
- PowerElectronix 7mo ago
  Extreme? Almost every AI related stock is investing in companies that then buy their product, efectively just giving stuff for free in exchange for better quarterly numbers.
  - kakacik 7mo ago
    And thus we keep talking about AI bubble and when it bursts, not if it bursts
    - mschuster91 7mo ago
      ... and how much of the stonk market and the actually legitimate economy it will take down with it. My personal opinion? The bubble burst will make 2007ff look harmless in comparison.
- oleganza 7mo ago
  Correct. These kind of metrics invite fraud exactly because they are not rooted in reality. "Money circulation" is a bad metaphor. https://oleganza.com/all/money-does-not-circulate/ https://oleganza.com/all/money-does-not-circulate/
  - xtiansimon 7mo ago
    Isn’t the ‘circulation’ or ‘rate’ question a misinterpretation of the model of P&L analysis the OP was suggesting…?
- zie 7mo ago
  When you realize companies can borrow against receivables and payables also.... But it eventually comes out, so while you can do it short-term, it's a terrible long-term strategy. Your stock will eventually crash and burn if you do too much of it.
munificent 7mo ago
All data that is externally visible about a public company will be consumed by traders and used to inform their market behavior. Companies know this, thus every action they perform that affects an externally visible number is calculated both for the actual intent of the action, and how that action effects the number and the consequent market behavior. This is why you see all sorts of moves that aren't strictly helpful for the business itself like being overly picky about which fiscal quarter certain expenses are taken in, etc. The more numbers about a company that are publicly visible, the more the company has to play this game. Of course, visibility for traders is important for market efficiency too. But there is a balance there where you don't want to turn the functioning of a business too much into a perceived popularity game where it spends too much of its effort just making the numbers "look right" orthogonal to what's best for the business's functioning.
- red-iron-pine 7mo ago
  in other words, they know how data impacts stock price and do their best to game the data.
  - CyberDildonics 7mo ago
    The data is how much money do you make in profit, companies try to game that already.
- casey2 7mo ago
  You can't just handwave assume a mechanism that games a real time system. Your 3rd paragraph explains how the current system adds another layer for gaming. Management can't predict what real time traders want to see, they can predict that less earnings this quarter are better than more earnings next. Your "balance" creates the problem in the first place. Companies can already make press releases whenever they want yet non fraudulent ones fail to move the market in a predicable way. If someone is committing fraud I want to know about it instantly not in 3 or 6 months. This is just a gimme to Elon's scam empire from an organization he "has no respect for".

ang_cire 7mo ago

Dollars/receivables in and dollars/deliverables out is just a question of rate, unless I'm missing something. If a 10 billion dollar company has a per-second dollar out/in rate of $1,000,000 due to actual organic business, a company with $2,000,000 can set up an LLC it buys and sells from, and legally 'swap' $1,000,000 a second back and forth in services "bought and sold" to mimic the appearance of the $10B company, to generate business interest/confidence/investment. That's an extreme example, but the point is that real-time money flow has nothing to do with the actual 'health' of a company.

fc417fc802 7mo ago
I'm fairly certain you're describing fraud.
- jongjong 7mo ago
  I'm fairly certain he's describing the economy. There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed. For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading." There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult. You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want. Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.
  - philipallstar 7mo ago
    While I agree that "billionaire" is a stupid word that 99% of the population don't understand, but can be manipulated with, it is not true that investors only look at market cap. Lots of analysis goes into IPOs.
- wbl 7mo ago
  That's what all these accounting rules exist to stop. No, you can't pretend that equipment breaking doesn't happen. No, you need to account for fixing the roof etc.
- ang_cire 7mo ago
  It's not actually fraud if there is some ostensible service they're performing. Business units within businesses 'pay' each other for 'services' all the time. Ditto for subsidiaries. Whether something is fraud might come down to intent alone. The line between legal and illegal business transactions can be murky as hell.
  - fc417fc802 7mo ago
    For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.
    - kakacik 7mo ago
      Yet we see it happening all the time with various AI deals.
      - fc417fc802 7mo ago
        I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.
        vannevar 7mo ago
        And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.
        fc417fc802 7mo ago
        I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.
- baq 7mo ago
  it's only fraud if somebody finds out
  - dessimus 7mo ago
    It's only fraud if one doesn't keep enough cash on hand to b̵u̵y̵ ̵a̵ ̵p̵a̵r̵d̵o̵n̵ make a campaign contribution.
- datsci_est_2015 7mo ago
  The difference between fraud and not fraud is if you can reach an agreement with auditors that it’s not fraud.
PowerElectronix 7mo ago
Extreme? Almost every AI related stock is investing in companies that then buy their product, efectively just giving stuff for free in exchange for better quarterly numbers.
- kakacik 7mo ago
  And thus we keep talking about AI bubble and when it bursts, not if it bursts
  - mschuster91 7mo ago
    ... and how much of the stonk market and the actually legitimate economy it will take down with it. My personal opinion? The bubble burst will make 2007ff look harmless in comparison.
oleganza 7mo ago
Correct. These kind of metrics invite fraud exactly because they are not rooted in reality. "Money circulation" is a bad metaphor. https://oleganza.com/all/money-does-not-circulate/ https://oleganza.com/all/money-does-not-circulate/
- xtiansimon 7mo ago
  Isn’t the ‘circulation’ or ‘rate’ question a misinterpretation of the model of P&L analysis the OP was suggesting…?
zie 7mo ago
When you realize companies can borrow against receivables and payables also.... But it eventually comes out, so while you can do it short-term, it's a terrible long-term strategy. Your stock will eventually crash and burn if you do too much of it.

munificent 7mo ago

All data that is externally visible about a public company will be consumed by traders and used to inform their market behavior. Companies know this, thus every action they perform that affects an externally visible number is calculated both for the actual intent of the action, and how that action effects the number and the consequent market behavior. This is why you see all sorts of moves that aren't strictly helpful for the business itself like being overly picky about which fiscal quarter certain expenses are taken in, etc. The more numbers about a company that are publicly visible, the more the company has to play this game. Of course, visibility for traders is important for market efficiency too. But there is a balance there where you don't want to turn the functioning of a business too much into a perceived popularity game where it spends too much of its effort just making the numbers "look right" orthogonal to what's best for the business's functioning.

red-iron-pine 7mo ago
in other words, they know how data impacts stock price and do their best to game the data.
- CyberDildonics 7mo ago
  The data is how much money do you make in profit, companies try to game that already.
casey2 7mo ago
You can't just handwave assume a mechanism that games a real time system. Your 3rd paragraph explains how the current system adds another layer for gaming. Management can't predict what real time traders want to see, they can predict that less earnings this quarter are better than more earnings next. Your "balance" creates the problem in the first place. Companies can already make press releases whenever they want yet non fraudulent ones fail to move the market in a predicable way. If someone is committing fraud I want to know about it instantly not in 3 or 6 months. This is just a gimme to Elon's scam empire from an organization he "has no respect for".