Got the Picture?

CPAs can use some simple principles to create effective charts and graphs for financial reports and presentations.
BY DAVID LYNCH AND STEVEN GOLEN

EXECUTIVE SUMMARY
AN AUDIENCE UNDERSTANDS AND REMEMBERS numerical information more easily when a CPA presents it visually as well as verbally.

TO SELECT THE PROPER CHART OR GRAPH to add to a written or oral report, a CPA needs to consider the message, the nature of the information comparison and the type of chart that’s most suitable for it.

THE TYPES OF CHARTS A CPA WILL USE most often illustrate a percentage of a whole, order in relation to other elements, change over time, how often an event occurs and relationship of two factors.

A CPA CAN CHOOSE FROM THESE common chart types: pie chart, horizontal bar chart, vertical bar chart or horizontal line chart, vertical column chart or histogram frequency distribution chart and scatter diagram.

A CPA SHOULD USE COLORS that make visuals easy to read. Color helps an audience grasp important elements of a graphic. Foreground colors for graphics and text should contrast with background colors.

THE VISUAL SHOULD ENHANCE a speaker’s remarks, not overwhelm them. In written material the graphic should be as close as possible to the material it refers to.

DAVID LYNCH is a professor of supply chain management at Arizona State University at Tempe. His e-mail address is David.Lynch@asu.edu . STEVEN GOLEN is an associate professor of accountancy and information management at Arizona State University at Tempe. His e-mail address is Steven.Golen@asu.edu .
ell-designed charts and graphs enhance any business presentation. Whether a CPA needs to communicate data in a written report or a talk, an audience understands and remembers numerical-relationship information more easily when it’s presented visually as well as verbally.

Most financial professionals know that visual aids enhance audience comprehension, and with today’s software it’s relatively easy to generate a graphic. However, creating the one that best communicates the message still can be a challenge. Software programs may suggest formats when you enter data, but you must pick which chart or graph will work best for your particular situation. Next you must decide whether to use color and, if so, what’s right for the context. After that you have to choose and design a title that has maximum audience impact. This article offers practical guidelines about matching five basic types of charts and graphs to the information CPAs may need to convey as well as how to prepare them. (Note: For additional examples of chart design in other stories in this issue of the JofA , see pages 14 and 91.)

Speakers who use visual aids are 43% more likely to persuade an audience to take a desired course of action than those who don’t.

Source: Hanke, J. “The Psychology of Presentation Visuals.” Presentations 12, May 1998.

WHICH FORMAT WORKS BEST?

To select the appropriate graphic, you need to consider three factors: the message, the nature of the comparison and the kinds of charts to choose from. Software can help (see “Some Chart and Graph Software,” at the end of this article).

The graphic’s message. After you decide what you want to say, think about how you want to use the numerical data to impart the message. Here are five sample statements much like those found in business reports:

Administrative costs account for more than 50 percent of total expenses.

Coca-Cola is first in sales among competing brands of cola for January.

Home Depot’s stock price has risen steadily during the past 12 months.

Most of our employees fall into the 31-to-40 age range.

Our data show a relationship between level of formal education and income.

The type of comparison suggests a format. After you’ve organized your information for a financial report or presentation, you’re ready to use a comparison to illustrate your message. The comparison you make ultimately determines the type of graphic to use. For example, a bar chart is an obvious choice for comparing data across a number of years, and a pie chart efficiently shows the relationship of parts of a whole. Essentially, there are five choices:

Percentage of a whole: Pie chart (see exhibit 1, below, left). (Administrative costs are more than 50 percent …).

Order in relation to other elements: Horizontal bar chart (see exhibit 2, below, right). (Coca-Cola is first in sales … ).

Exhibit 1: Pie Chart Exhibit 2: Horizontal Bar Chart

Administrative Costs Account for Over 50 Percent of Total Expenses

Coca-Cola Is First in Sales in January
Among Competing Brands

Change over time: Vertical bar chart or horizontal line chart (see exhibit 3, below). (Home Depot’s stock price has risen … ).

Exhibit 3: Vertical Bar Chart or Horizontal Line Chart
Home Depot Stock Has Risen Steadily Over the Past 12 Months

Intervals between events: Vertical column or histogram frequency distribution charts (see exhibit 4, below). (Most employees fall into the 31-to-40 … ).

Exhibit 4: Vertical Column or Histogram Frequency Distribution Charts
Most Employees Fall Into the 31–40 Age Range

Relationship of factors: Scatter diagram (see exhibit 5, below). (Our data show a relationship between level of education and … ).

COLOR STRENGTHENS YOUR VISUALS

A 3M Co. study showed that audience comprehension and retention improved significantly when color visuals were used instead of black-and-white ones. Color creates vivid demarcations that help your audience grasp important elements of a graphic, and it can influence viewers’ emotional responses.

Use colors that make your visuals easy to read. If a series of charts is used, make sure color is used in the same way for each graphic. If you use green for one background, use it consistently throughout the presentation. In general, dark colors such as black, navy blue, charcoal gray, brown or dark green are good background colors. Foreground colors for text and for graphic elements such as the bars of a bar chart, for example, should contrast with background colors. Light colors such as pale blue or yellow contrast well and are good for this purpose.

Exhibit 5: Scatter Diagram

A Relationship Exists Between Years of Formal Education and Income

Color influences how the brain absorbs information. Foreground colors affect comprehension and retention, while background colors set an emotional tone. Pastels, once considered too feminine for financial documents, often are used for a subdued effect where a lot of data must be shown in a limited space such as a pie chart with five or more pieces.

Colors in visuals also should be compatible with culture. For example, in the United States, green or black is associated with financial gain and red with financial loss (as in “in the red”). In many other countries, these hues do not have the same connotation.

CPAnalyst Software

Presenting financial statement information may have gotten a bit easier. Tomorrow’s Software LLC of Chicago has developed a product that can import financial and operating numbers from financial programs and/or spreadsheets, analyze the information and present it pictorially with a separate written analysis. CPAnalyst takes corporate financial statements and automatically presents them as numbers, words and graphics on the same computer screen, which is divided into four quadrants. The system prepares monthly, quarterly, six-month, nine-month and annual financial statements, developer Irwin M. Jarett, CPA, PhD, says. The annual report produces eight financial statement components showing tabular data, a graphic representation of the data and written analyses for each of the data sets: balance sheet, assets, liabilities and equity, revenue and expenses, retained earnings, cash flows, sales and gross margin (by month) and an overview based on the DuPont ratios. The CPA can (and should) edit the written report. For more information contact Irwin M. Jarett. Fax: 312-786-1568.

SELECT AN APPROPRIATE TITLE

One of a CPA’s most important tasks when creating a visual aid is to give it a foolproof title. You want the reader to interpret the information contained in the visual in only one way, so get to the point. When you write a title, ask the question, “What is the central idea I want to communicate using the information in the graphic?” Your answer should be the gist of the title.

Suppose your firm has created a horizontal bar chart comparing one company’s sales with those of other companies in the same field. You may be tempted to use the title “Company A’s sales compared with those of its major competitors.” A better title would be “Company A’s sales rank second among major competitors.” You need to tell your audience what you want them to grasp in simple, direct language. The problem with the first title is that it doesn’t say what’s significant about the data.

FINER POINTS OF PRESENTATIONS

Using charts and graphs in a talk. For many oral presentations, an audience doesn’t have the benefit of accompanying text. To simplify information for listeners, keep a number of points in mind:

Don’t overload your presentation with charts and graphs. Your goal should be to augment your remarks, not overwhelm them. Having too many visuals will reduce the impact of each.

Keep your charts and graphs simple. Concentrate on making one point and limit the text. In general, the more quickly your audience can comprehend a graphic, the more effective it is.

Use upper- and lowercase letters, not all capitals. They make the type easier to read. Italic and sans serif type are more difficult to read than a simple serif typeface such as Times New Roman.

Keep the focus on the audience, not on the visual. Facing your audience, stand to the right of the visual (which will be left from their vantage), and point to your visual with your left hand. English is read from left to right, so your audience will naturally look from you to the visual. This helps to maintain a connection with your audience.

Comment on the main point you wish them to grasp to focus audience attention. Once you have finished talking about the material in the visual, remove it and move on. If you leave a graphic in place after it’s served its purpose, it becomes a distraction.

Using graphics in documents. In a written report you need to remember to do the following when using visual aids:

Use no larger than 24-point type (smaller is probably better) and limit text to five to seven lines.

Label and number charts and graphs. Common labels are t able, chart, graph and illustration. Or call them all exhibits .

Put a source note at the bottom of each graphic. This note will tell the reader where the information in the graphic came from. A source note may reference primary or secondary data. It should appear at the bottom of the graphic and might look like this: “Source: Primary” or “Source: Bureau of Business Research, Arizona State University.” The idea is to provide enough information that your reader can locate the source to get more information if needed.

Introduce the graphic in the text before the reader comes to it, so the reader knows why it’s there.

Place the graphic as close as possible to the copy it augments. Remember, you are trying to reinforce a point. A reader will not look at the graphic if it is at the end of the report.

WORTH A THOUSAND WORDS

Charts and graphs in oral and written presentations both simplify and emphasize important information. The most useful formats have withstood the test of time: Pie charts, horizontal bar charts, vertical bar or horizontal line charts, vertical column or histogram frequency distribution charts and scatter diagrams have become classics because they work.

Choosing the proper format for conveying financial information requires careful thought and planning from you. Remember to use color to improve reader comprehension, to create a title that pinpoints the main idea, to keep text to a minimum (if it’s necessary at all) and to employ visuals appropriately for speaking or writing. If you do, charts and graphs will become a powerful communication tool for your reports.

Some Chart and Graph Software

Visio 4.0
Microsoft Corp.
1 Microsoft Way
Redmond, Washington 98052
www.microsoft.com

$399. Windows compatible. Features include organization charting, network diagramming, floor planning and Web site mapping.

Harvard Chart XL 2.0
Harvard Graphics
13 Hampshire Drive
Hudson, New Hampshire 03051
www.harvardgraphics.com

$135. Windows compatible. Features include templates for more than 300 business, statistical and technical charts, the option to view data and charts simultaneously and to import and export both data and charts.

DeltaGraph Pro 3.5
SPSS Inc.
233 South Wacker Drive
Chicago, Illinois 60606
www.spss.com

$299. Windows and MacIntosh compatible. Features include 80 chart types and 200 chart styles, the ability to integrate pictures into actual charts, graphic exporting and the use of the Pantone Matching System.

Lotus 1-2-3 Millennium Edition Release 9.5
IBM
1133 Westchester Avenue
White Plains, New York 10604
www.ibm.com

$282. Compatible with Microsoft Excel,
Lotus Notes, ERPs and databases. Features include Web tables, Web publishing and creating hyperlinks, SmartFill, Smart Labels and voice dictation.

Microsoft Excel for Windows 95
Microsoft Corp.
1 Microsoft Way
Redmond, Washington 98052
www.microsoft.com

$340. Windows compatible. Features include calculation and formatting assistance, online help, navigation assistance, analytical tools and integration filters for Lotus 1-2-3 and Quattro Pro data.

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