Financials for Insiders
It's probably safe to assume that most investors know how to read a financial statement,but if the owners of your company are your employees ? as is the case with companies owned in part by employee stock ownership plans (ESOP) ? you'rebetter off assuming that people could use some help. After all, sharing an income statement and balance sheet can be a powerful tool for motivatingperformance, but not if people don't understand what they're looking at.
At Reflexite, an employee-owned manufacturer, in Avon, Conn., financial statements come with annotations for each line item. The idea camefrom a discussion that Cecil Ursprung, president and CEO, had with key managers. "One of my bright, capable managers said 'I hope you publish somethingdifferent from what I got, because I don't know how to read the thing'," recalls Ursprung, who figured he had to do some educating if ownership was goingto mean anything to employees.
Now, every financial statement that Reflexite employee-owners receive comes with explanations, in the right margin, for each item. For instance, next to"prepaid expenses," it says, "This is the value of expenses paid in advance, such as insurance premiums."