Behavioral-financial-analysis-The-impact-of-restaurant-management-attitudes-on-corporate-financial-statements

following sample table: Score Points G rade Condition Indicated 5.0-45 5 A Strongly Agree (Excellent) 4.9-35 4 B Agree (Very Good) 3.49-25 3 2.49-2.0 2 C Sometimes Agree (Fair) D Sometimes Disagree (Needs 159-0.0 1 Attention) B Strongly Disagree (Major Problem Exists) Individual survey statements were categorized by grade (Appendix B, Table 1). Survey responses grouped into categories A or B indicated that positive conditions existed within the company. Statements grouped into the C category were used to help identify problems that were costing the company time and money. Statements grouped into the D or E categories indicated serious problems that needed ««««*«—» resolution or die company would move into or continue in a crisis position. Data from these confidential surveys was coded by job position so (he identity of the respondents would never be known to the Southern region's upper managers (regional and districts). These rrstanrant manager surveys were conducted before any of the components of restaurant managers' attitudes were fully appreciated. An informative picture of important restaurant manager concerns about XXX was formulated. Specifically, die surveys provided the following information: . *Areas of concern that most be addressed before corporate performance could be improved; ^Restaurants, districts, and regions in which individual components of the survey 40 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

should be reviewed first; and, ♦Benchmarks against which the future success of each component of the survey could be measured. Observations (128) were used to determine if the survey respondents truly held the company in high or low esteem, individually or as a group. The survey's respondents (128 of them) were each observed on a regular basis, at least six (6) times far a period of one hour within ninety (90) days following completion of the surveys. Exit Interviews were conducted with twenty-eight (28) restaurant managers who had left the company from November 1,1984 through. February 28, 1987 (Appendix C, Table 1). (Note: Many other managers left the company during that time frame, but those interviewed were the only ones that were personally known by the Researcher.) Only seven (7) of the respondents had taken the restaurant management cultural surveys. All of the interviews were based on a descriptive format which allowed the Researcher to get responses from the restaurant managers in their own words. All of the exit interviews were conducted within thirty (30) days after the restaurant managers had left (he company. Additionally, open-ended Interviews, (Appendix C, Table 2) conducted with fifteen (15) longer term restaurant managers employed for at least seven (7) years at XXX, were used to validate the results of the surveys, observations, and exit interviews. These open- ended interviews were held on a very casual basis with only three (3) of the respondents participating in the restaurant management cultural surveys, while two (2) of the respondents participated in the exit interviews. None of the respondents participated in any of the observations. 41 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

D. DUN'S ANALYTICAL SERVICES: Industry Norms and Key Business Ratios (DAS/INKBR) (D on and Bradstrcet, 1986, 1987, and 1988) The financial record of a firm was shown in two (2) financial statements: the balance Sheet andthe income statement. The balance sheet is often described as a momentary picture of the assets and liabilities of the firm, assets being what the firm owns and liabilities being what the firm owes. The difference between the assets and liabilities is called either net worth, or, more appropriately, owner equity (stockholder equity). The primary balance sheet equation is: assets = liabilities +•net worth. The purpose of the balance sheet is to answer the question: What wonkl be left to the owners of the firm if its assets were sold and used to pay its liabilities? The income statement shows the profit (or loss) of the firm during a given period of time. The statement may be shown quarterly, monthly, or even weekly, but as a rule is shown for the fiscal year of the firm. The income statement equation is: income - expenses = profit Additionally, the balance sheet and income statement can be used to present each item of the financial statement as a percentage or ratio. This enables the analyst to examine the current composition of assets, liabilities, and sales of a particular business. But, today there are over one hundred ratios which could be reviewed. . In order to research the researcher's hypotheses, the next decision which needed to be made was the question of which business ratios merited inclusion in this study. In reviewing DAS/INKBR 1985-86, 1986-87, and 1987-88 editions, the researcher found that the common- 42 ■i Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

size balance sheets and income statements for restaurants (SIC 5812-Eating Places) presented fourteen (14) key items on the financial statements as a percentage of its respective aggregate total. This presentation method related well with,the research, being done. Use of DAS/INKBR common-size percentages permitted a quick check of the relative areas of the target company (XXX) and that company's restaurant business (SIC 5812-Eating Places) (Appendix B, Table 2). After using DAS/INKBR to calculate the common-size percentages, those percentages were broken down into three areas comprising fourteen (14) Key Business Ratios, each to be defined in the Definition of Toms section of the PDE: 1. Solvency A. Quick ratio B. Current Ratio C Current Liabilities to Net Worth D. Current Liabilities to Inventory E. Total Liabilities to Net Worth F. Fixed Assets to Net Worth 2. Efficiency A. Collection Period B. Net Sales to Inventory C Assets to Sales D. Sales to Net Working Capital E. Accounts Payable to Sales 3. Profitability A. Return on Sales B. Return on Assets C Return on New Worth Additionally, the Researcher broke down each of the DAS/INKBR fourteen ratios into six (6) condition areas (Grade A, B, C, D, E, and F): R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Score Grade Condition Indicated 5 A Excellent (Upper Qnartile) 4 B Very Good (Middle Upper Qnartile) 3 C Positive (Mid Point) 2 D Fair (Middle Lower Qnartile) 1 E Needs Attention (Lower Qnartile) 0 F Major Problem Busts (Scores which fall outside of acceptable ranges were valued at *0.*) The qnartile listings reflected DAS/INKBRjudgmental ranking only. Using the 1985,1986, and 1987 financial statements of XXX found in the annual reports (10K), each one of the key industrial ratios was calculated and the results compared to the restaurant industry norms for 1985, 1986, and 1987 (Appendix B, Table 3). The resulting comparisons indicated how XXX measured up to industry norms in the survey years. These measures provided a profound and well-documented insight into all aspects of the workings of this restaurant company. E. STATISTICAL ANALYSIS The next step in the research was to analyze the March 1985, March 1986, and March 1987 Restaurant Managers Surveys (Appendix B, Table 1). This fifty-nine (59) question survey (Hebert 1970: 112-189) was broken down into four areas of twelve ratios, each defined in the Glossary of the PDE: 1. Organizational Relationships A. Owner/Top Management B. Regional Managers/Staff C District Managers D. Intercommunications 2. Organizational Support A. Owner/Top Management B. Regional Managers/Staff 44 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

3. Organizational Communications A. Communication Flow B. Development and Evaluation Systems 4. Organizational Operations A. Empowerment B. Initiative C. Benefits/Rewards D. Policy Planning Using the data obtained from the restanrant management surveys, results were compared to the results from the key business ratios analysis of XXX (Appendix B, Table 3) using two (2) statistical methods known as the Kruskal-Wallis test for K and the Mann- Whitney U test. F. KRUSKAL-WALLIS TEST FORK 'Sometimes the Maxm-Whitney U test for two samples may be generalized to several independent samples' (McCall 1986: 324-335). When this occurs, the most common approach to this kind of analysis is known as the Kruskal-Wallis K test (Table 3-1:46). McCall (324-335) believed that it was '...analogous to the parametric simple analysis of variance but does not make all of the sm e assumptions.* The hypotheses tested by the K test, sometimes called the H test (Agresti and Finlay 1986: 425-428), determines whether the samples come from the same or different populations. Thai is, this test determined whether all of the groups came from the same of equal populations, or whether at least one group came from a different population. The K value is approximately chi-square distributed. The Kruskal-Wallis test statistic is designed to detect '...differences among the groups as measured by the mean ranks.' In other words, \"The Kruskal-Wallis test results in a rejection of null hypotheses (Ho) if the differences among the sample mean ranks are sufficiently large* 45 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

(Agresti and Finlay 1986: 425-428). The noil hypotheses tested for both the restaurant management survey ratios (12) and the financial ratios (14) was that the population distributions from which the samples were drawn were identical far each set of ratios. The Kruskal-Wallis test statistic has the following form. (Sanders 1995: 581-590 and Black 1992: 600-621): Table 3-1 s. Kruskal-Wallis K <H) Test The formula for the Kruskal-Wallis K (H) test is: W * 12N((N + 1)T £ n i(ri-.S ) hi this formula, T denotes a correction factor for ties that equals: c T » l - ^ (d - tO/N -N i-1 where d is the number of observations tied at the 1th level of the response variable. The factor T is usually close to 1.0 unless a large proportion of the observations occur in just one or two of the response categories. As long as none of the sample sizes (nl, nm) is especially small, the sampling distribution of the statistic W can be approximated by the chi- square distribution with (m - 1) degrees of freedom (number of groups being compared, minus one) when Ho is true. The test follows the following format in that the sample sizes are denoted by n l, n2, 46 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

~nm. The transformations of the ranks, called ridit scores, which fall between 0 and 1 are calculated using the marginal distribution of the response variables, and then the sample mean ridit (ri) is calculated for each group, 1* 1, m. The noil (Ho) hypothesis implies that the population mean ridfts are all equal. The variability of the mean ridits (rl, rm) about the overall mean ridit of 5 can be summarized by the sum of the squares: where each squared deviation is weighed by the sample size upon which it is based. Let N * n l + n2 + —+ rm denotes the total sample size. G. MANN-WHITNEY U TEST The Mann-Whitncy ITtest was selected because it is a nonparametric counterpart of the t test used to compare the means of two independent populations (Black 1992: 600-621). The rationale for the test is based upon \"...the premise that if two distributions of equal size ate identical, than a listing of the observations from both groups together in rank order (that is, smallest first) should yield a sequence in which the scares from two groups are well mixed.* If they are well mixed, then the number of scores in one group should equal the scores in another group (McCall 1986: 324-335). The following assumptions underlined the use ofthe U test: 1. The samples were independent. 2. The level of data was ordinal. 47 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

3. The hypotheses being tested was about the means. 4. The populations were approximately symmetric. The noil hypotheses being tested in this research was that the populations from both the twelve restaurant management ratios and the fourteen ftum eiat ntios were the same. The statistics based upon this rational were the Mann-Whitney U test (Table 3-2). Table 3-2 Mann-Whitney U Test The formula for the Mann-Whitney U test is: Uobs (or II) » nA(nB) * nA(na + 1)/2 - TA (or W) The test follows a logical format in which A and B equal the scores of each set, TA is the total scores of the A set, nA and nB equal the numbers of cases in groups A and B, respectively, and Uobs equals the critical value for U. The noil hypothesis (Ho) is that the populations horn which the two samples have been drawn are identical. The alternative hypothesis (Ha) is that the two populations are not identical. If n far each group is twenty (20) or less* Table H (Critical Values of the Mann- Whitney U far a Directional Test at .05 or a nondhectianal test at .10) is used. H. LIMITATIONS OF THE STUDY 1. The study was limited to only a small group of respondents representing only two groups of restaurant managers—salaried managers and hourly managers who worked at least 48 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

thirty [30] hoars a week. 2. At the tim e of Oie survey, XXX operated in three regions of the country. This study was limited to twenty-one (21) of the thirty-seven (37) restaurants within the Southern region because of the very HmftiMcontact between restanrant managers of one region with restaurant managers of another region. Additionally, the research was limited to twenty-one (21) target restaurants because of the ease of collecting observation data. 3. The study was limited to Dun's Fourteen Key Business Ratios. Their changes can indicate important trends, such as working capital to total sales and working capital to total assets, a common indicator of the ability of a business to meet its financial obligations. Ratios that reflect sbort-and-lang-tenn liquidity, efficiency in managing assets and controlling debt, and different measures of profitability are all included in this group of ratios. 4. The study was limited to three restanrant management cultural surveys of March 1985, March 1986, and March 1987, twenty-eight (28) exit interviews taken between October 1, 1984, and December 31,1987, fifteen (15) senior restaurant managers open-ended interviews, and 128 manager observations taken between March 1,1985, and December 31, 1987. 5. The study was limited to the 1985, 1986, and 1987 financial statements of XXX because these were the only financial statements available at the time through public records access (Securities and Exchange Commission). 6. At the request of the Graduate School Academic Dean's Office, the name of the target company (XXX) was not to be included in this dissertation because of some of the negative findings, some possibly hwHeating fraudulent practices within the company. 49 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Ethically, this research must protect the confidentiality of the restanrant managers used in this research. 7. At the time of the surveys, interviews, and observations, the Researcher had no idea that the stody would ever be used as the foundationfor a dissertation. Because ofthis, no release forms were ever signed by the respondents (human,subjects). However, the resalts of the surveys, exit interviews, open-ended senior restanrant manager interviews, and the observations were entirely the property of the Researcher. 8. Since the Researcher was both a restanrant manager and minority stockholder at the time ofthe study (1984 -1987), there may have been some bias in constructing the exit interview questions, the open-ended interview questions, die observation data, hecanse the researcher had seen first hand many of the problems indicated in the restaurant management surveys and knew what to look for. There was no bias in selecting or constructing the restanrant management surveys because these woe the only surveys available to the researcher at the time. 9. This study is very in scope and is not intended to reflect conditions within the other regions of the XXX Company, but only to view the management attitudes of twenty-one (21) restanrant.s out of thirty-seven (37) within the Southern region of the company. L SUMMARY The major objectives of this chapter have been to provide an overview of the basic methodology procedures and concepts used in this dissertation. In order to accurately reflect the operations of the business under review, and to ensure consistent recording between 50 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

surveys and financial data, the methodology used followed the generally accepted principles of each concept. 51 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

No single model or conceptual scheme embraces the whole breadth and complexity of reality, even though each fat torn may be nseftal In partfcnlar Instances. This Is why management remains an art, for the practitioner most go beyond the Umlts of theoretical knowledge If he Is to be effective. Seymour TDles CHAPTERIV: Results of the Study i. The dominate problem facing American business leaders today is an understanding that managers must direct their human capital investments and human resources within the H organization so that they can consistently provide both quality products and quality services. The study viewed behavioral financial analysis as a statistical tool used when comparing financial statements (balance sheets and income statements) with restaurant management cultural surveys. In doing so it was intended to introduce top business managers to the hypotheses that management culturalsurveys do reflect conditionsfound on thefinancial statements ofa business, and that human capital decisions can be correlated with the financial stability o fthefirm, the ability to meet the firm's financial obligations in a manner consistent with industry norms. Today's business firm is confronted daily by many decisions, some major and others minor, some with long-run consequences, and some which can be addressed easily. This dissertation is addressed to a particular group of business decisions: those which balance the firm's financial needs against its human capital investment and management decisions. Perhaps more than any other single factor, the human capital investment strategy adopted by the firm determines its future growth and profitability. Strategic human capital investment 52 I ... Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

decisions, such as the decision to better train employees, increase employee benefits, or develop career ladders* can completely change the character of any organization within a few years. Future success, however, depends not only on finding an appropriate human capital investment strategy, but also on the way in which, any selected strategy in implemented. Short tenn decisions, such as who to hire or who to lay off, are often as important as the most complex long-term strategy (Hersey and Blanchard 1993: 1-54 and Griffin 1990: 2-33). By its very essence, human capital investment decisions most involve purposeful behavior which suggests the establishment of a goal, or what is much more likely, some variety of goals. In the absence of any objective, the organization would have no standard for choosing among alternative human capital investment strategies. Surety there is no need to tell the firm that has a very strong employee training program that it is better than the one with a very weak program. Yet, even this decision is not always that simple. For example, a human capital investment strategy which promises increased business while increasing employee training may not be verifiable. There may need to be some optimism on the part of top management arnVorthe owners. The organizational environment may dictate a wait and see attitude (Schmitt and Klimoski 1991: 216-252). Once the complexity of the human capital investment decision-making process is recognized, it should be rather easy to list a large number of reasons why an organization would adopt such investments. A few such reasons would be: 1) increased profits, 2) firm survival, 3) reduction of employee turnover, 4) increased sales, and 5) the achievement of market share. With this in mind, the Researcher began this quest for an understanding between the 53 I Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

financial stability of an organizationand the attitudes of its restaurant managers. A. RESTAURANT MANAGEMENT CULTURAL SURVEYS Hie 1985,1988, and 1987 restaurant management adtaal surveys were used to measurejob satisfaction. An.individaal manner's tftitude toward his or herjob was one of the major variables explored within this dissertation and is considered by some to be the foundation, ofmodem organizationalbehavior. In general, die restanrant management surveys focused on die individual managers' attitudes toward five basic dimensions of the job; pay, opportunities for promotion, the nature of work itself, policies and procedures of the organintion, and working conditions. Additionally, the restanrant management surveys looked at four primary areas and twelve sections: relationships (four sections with sixteen questions), support (two sections with tea questions), communications (two sections with. fifteen questions), and operations (four sections with eighteen questions) (Appendix A: a2-a5). % Thejob satisfaction, of restaurant managers was also influenced by their co-workers and by top management aw w i^i nuM p »* m nrg*nm*irm»\\ element, because the position was described and defined by the organization, it was often the individual disposition of the top manager—emotion, perception, and sincerity that most tnflnwMMMi Tfstomrmt m anagers' ttftn d e a . Also important were the instrumental benefits of the job, and the degree to which the job enabled restanrant managers to achieve other ends. Commitment and involvement were two (2) related restanrant management attitudes that were also important Commitment is defined as the individual managers feelings of identification with and loyalty to the organization. Involvement is defined as the restanrant manager's willingness to go beyond the standard demands of his or her job as an 54 I Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

'organizational citizen.* The restaurant management cultural survey means scores of 1985, 1986, and 1987, as presented in Appendix B: b2-b3, measured the attitudes of restaurant managers about relationships, support, information, and operations 'within,the Southern region of XXX, a national restaurant franchise. Relationship surveys for the three years under review focused on how the restaurant managers viewed their relationships with corporate management, regional management, district management, and their ability to network within the organization. The total relationship mean scores for 1985 (2.04), 1986 (1.94), and 1987 (1.97) indicated that most of the restaurant managers felt that there was a relationship gap between themselves and corporate, regional, and district management. The ability to network with both upper management and to work with restaurant managers from other mwirania, districts, or regions seems to be greatly curtailed. This lack of relationships seems to have caused a reduction in loyalty to the organization and desire to support organizational goals. Support surveys for the three years under review, 1985 (1.75), 1986 (1.76), and 1987 (1.67), indicated an organizational policy which may have reduced both product quality and service quality. When upper management does not publicize a quality assurance program, does not allow problem solving groups, reduces training time, and requires success far all programs and products within a very short period of time (less than a year), as was the case at XXX, then restanrant managers believed that upper management, by its actions, placed organizational profits before product quality and service quality. These attitudes helped to insure that poor quality became acceptable and was guaranteed. 55 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

The communication surveys for 1985 (2.87), 1986 (255), and 1987 (2.45) were meant to measure the ability of upper management to collect, organize, interpret, and disseminate information that met the needs of restanrant managers. This could be defined as the ability to supply restaurant managers with information that they could use to mate better decisions. While these mean scores were higher than the other categories of relationships, support, and operations, they centered on. a group of organization problems which were probably costing XXX both time and money and needed to be addressed as soon as possible. These problems seemed to focus on poor product quality, poor service quality, and a decline in the condition of both the restaurants' equipment and facilities. The operation surveys of 1985 (2.11), 1986 (158), and 1987 (1.79) were meant to focus on the decision-making capabilities, strategic planning process, employee benefit programs, and employee growth opportunities and how they affected restaurant managers. Operational decisions, in this dissertation, were viewed as the means through which upper management decisions and plans altered the destiny of the firm and the future of many of their unit level managers. These operation surveys indicated that restaurant managers viewed XXX as a company which offered few opportunities for growth, a very weak benefit program, an upper management team that supplied both poor leadership and decision m aking abilities, and strategic planning programs that were not «wn*nimteateri. These views may have caused major employee turnover problems and a misunderstanding about product quality and service quality. Total survey mean scores for 1985 (2.22), 1986 (2.05), and 1987 (1.97) demonstrated 56 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

an overall decline in the attitudes of restanrant managers toward upper management in the areas of support, relationships, information, and operations. Additionally, the surveys' results indicated serious problems that needed ttmwMwte resolution within the Southern region, or the region could move into a major crisis situation. B. EXIT INTERVIEWS (APPENDIX C: c2-c5) The exit interviews taken from October 1,1984, through February 28, 1987, were hey # assessment tools focusing on the attitudes of departing restaurant managers towards theirjobs, upper management, and XXX in general. In this research project, the exit interviews were used to reinforce the findings of the unit level management surveys of 1985,1986, and 1987. These findings indicated that five (5) major problem areas within the Southern region needed to be addressed by upper management: 1) relationships among all levels of managers within the Southern region, 2) attitudes of upper management in their support of restanrant managers and the decisions that they needed to make on a day-to-day bass in the management of their restaurants, 3) communications and between all levels of managers within the Southern region, 4) opportunities for individual growth, and 3) employee benefit programs. The findings of the exit interviews did tend to support the findings of the restaurant management cultural surveys which focused on the urgent need to improve relationships, improve management support, improve managerial communications, and improve current operating policies. 57 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

C. SENIOR RESTAURANT MANAGEMENT INTERVIEWS 1985-1987 (APPENDIX C: c6) The fifteen. (15) senior restanrant management open-ended interviews focused on managers who had been with. XXX for at least seven (7) yens. Each of the fifteen restaurant managers interviewed were formal leaders within the organization. These key informants were selected for their presumed specific knowledge about both the past and current operations of XXX within the Southern region and were able to provide a historical perspective and a desired insight into what might be some major organizational problems. The fifteen. (15) senior restaurant managers interviewed did help reinforce the three (3) K restanrant management surveys and the twenty-eight (28) exit interviews. The interviews identified twelve (12) problem areas (Appendix C: c6) that could be osed to provide supplemental data to support the four (4) primary areas of research: relationships, support, information, and operations. D. OBSERVATIONS (TABLE 4-1) As the research evaluator, this researcher w s in the field or on-site where the restanrant managers who took part in the 1985, 1986, and 1987 restanrant management sorveys worked. The Researcher observed, talked, and worked with the restanrant managers and reviewed restanrant personnel records and restanrant daily financial records as part of the Researcher'sjob. Multiple sources of information woe sought and used to help evaluate the results of the three (3) restanrant management cultural surveys, exit interviews, and senior restanrant managers open-ended interviews because no single source of information, the Researcher believed, could be trusted to provide a comprehensive perspective of the problem. 58 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Table 4-1 below was developed to present the results of the Researcher's observations. Table 4-1 Restaurant Management Observations Number of Restaurant Managers Observed: 128 Observation Time Periods Time Period Number April 1, 1985 to June 30, 1985 51 April 1,1986 to June 30, 1986 46 April 1, 1987 to June 30, 1987 31 Observed Problem Areas 1985-1987 Ranked in Order 1. Lack of understanding of why restaurant managers must report improperproduct quality standards to franchiser. 2. Lack of autonomy at restanrant level. 3. Poor employees' benefit program. 4. Poor employee compensation plans. 5. Poor employee training programs. 6. Poor work schedules and lack of family time. 7. Lack of communications between regional and district managers and restaurant managers. 8. Poor maintenance programs. 9. Major employee turnover problems. 10. Autocratic attitudes of regional and district managers. 11. Lack of growth, opportunities. 59 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Note: This linking reflects many of the problems which were pointed oar in die management surveys, managers Interviews, and exit interviews. The tank aider was <fctorm«iMMt f a - ♦!»» mA mmmaita made hy 128 restaurant managers from 1985 through. 1987. The «*«■■■* management cultural surveys (1985, 1986, and 1987), die exit interviews, and die senior restanrant management open-ended interviews do svupport the above Table 4-1 observational findings. With this in mind, the Researcher began,to take notice of some tmnsoal situations found within the financial statements, both balance sheets and income statements, of XXX Company. E. FINANCIAL STATEMENTS The annual financial statements (balance Sheets and income statements) of XXX helped the Researcher in making routine statistical calculations concerning the financial condition of XXX Company. The Dun's Analytical Services: Industry Norms and Key Business Ratios (DAS/INKBR) studies covering the performance of restaurants (SIC 5812 wrffng places) in 1985,1986, and 1987 were compared with the XXX Company's financial statements covering the same time periods, which provided the statistical information about the strength and/or weakness of XXX as compared to the rest of the industry. These statistical comparisons provided some mixed results. The composite balance sheets presented in Table 4-2 (62) ate typical balance sheets based on restaurant industry ««tns (SIC 5612 eating places) listing the financial resources and the rights or of creditors and owners in those total resources at a specific time (1985,1986, 1987) as a percent of total assets and total liabilities plus net worth as they 60 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

compare with, the balance sheets of XXX during the same time periods. The cash assets for XXX for 1985 (1.2%), 1986 (03%), and 1987 (23%) were exceptionally low as compared to the restanrant industry norms cash assets for 1985 (15.4%), 1986 (16.4%), and 1987 (16.1%). Since cash is the most active asset on a company's balance sheet, a low percentage to to^al assets coold indicate that XXX was a company which was struggling to meet payroll, pay suppliers, and pay overhead. These problems parallel some of the problem areas indicated by the three restaurant management surveys, the interviews, and the 128 restaurant management observations* The inventory assets for XXX for 1985 (1.9%), 1986 (1.9%), and 1987 (23%), when compared with restanrant industry norms for 1985 (7*4%), 1986 (73%), and 1987 (73%), were, like the cash assets, noticeably very low. This could indicate a company which is trading on its inventory, a situation which has the suppliers investing mote in the business than the company under review. When this is the case, the company could be experiencing major cash flow problems or have its assets invested too heavily in under-producing assets, fixed assets, or other non-current assets. This condition, when found, can and will cause excessive managerial pressure at the top of an organization, which can cause pressure to be placed, or passed down, to lower level managers, who normally do not have the ability to rectify the problems. Again, this condition is reflected throughout the surveys, interviews, and observations. 61 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Table 4-2 Typical Balance Sheet Statements 1985,1986, and 1987 A Comparison of the Relationship Between Sample Restaurants (SIC 5812-Eating Places) and The Target Restaurant Company (XXX) 1985 1986 1987 % Norm XXX % Norm XXX % Norm XXX Assets 15.4 12 . 16.4 0.3 16.1 2.3 4.0 3.9 0.0 4.1 0.0 Cash 1.0 0.0 1.0 0.0 1.1 8.4 Accounts Receivable 7.4 0.0 7.5 1.9 2.3 Notes Receivable 5.1 1.9 5.7 72 2.6 Invsntory 2.8 22 52 Other Current 32.9 34.6 16.6 5.9 4.4 33.7 Total Current 38.2 36.3 54.9 28.9 58.4 30.2 57.5 35.5 29.5 Rxed Assets 35.7 38.1 30.8 Other Non-Current 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets Liabilities Accounts Payable 6.6 9.1 7.9 9.9 6.2 11.6 Bank Loans 0.7 0.0 Notes Payable 0.8 0.0 on 0.0 4.1 0.0 Other Current 14.8 4.2 3.8 0.0 3.9 0.0 Total Current 16.5 2.4 14.9 2.6 27.8 16.0 28.7 11.5 27.5 12.5 Other Long Term 25.1 24.3 24.2 22.0 26.5 16.6 Deferred C redit 0.1 2.7 .9 Net Worth 02 3.3 02 482 62.8 66.5 Total Uab.& Net Worth 46.0 60.9 45.5 100.0 100.0 100.0 100.0 100.0 100.0 Nets: The researcher views the percent of cash assets and the percent of inventories as a very serious matter. AddWonaHy, the notes receivable asset of 1967 is a loan (demand note) to the p company which becomes due when they decide to pay ft. 62 I Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Some*: The 1966,1986, and 1967 Annual Financial Statements (10K) of XXXCompany as reported to the Securities and Exchange Commission and the 1965,1986, and 1967 Dun's Analytical Stucfes of Industry Norms and Key Business Ratios for Restaurants (SIC 5612 - Eating Places). Hie accounts payable liabilities for XXX for 1985 (9.1%), 1986 (9.9%), and 1987 (11.8%), when compared with the restanrant industry norms for 1985 (8.6%), 1986 (7.9%), and 1987 (82%), were above the normal percentages and may indicate a cash flow problem and a situation which points to a company trading on its inventory. The accounts payable liabilities of XXX were obligations that are expected to be paid, horn current assets, within one year. The cash and inventory assets of XXX may not be able to meet these obligations. This situation, like the cash problems and inventory problems, seems to support the findings of the surveys, interviews, and observations. The typical income statements, as depicted in Table 4-3 (64), report the results of business activities for a period of time, typically a fiscal year. These results are classified as net sales, gross profits, and net profits after taxes. Net sales measure the in-flow of new assets to the business from the earnings process, while gross profit measures the difference between net sales revenues and die cost of goods sold. From this profit margin, the company must cover all other costs if it expects to have net income. Net profit after taxes is the after­ tax income of die portion of the business that is continuing. 63 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Table 4-3 The Typical Income Statement 1985,1986,1*87 Restaurants (SIC 5812 - Eating Places) N M Srin IM S IfSS 1M 7 %Norms XXX %Norms XXX %Norms XXX Grom Profit 100.0 100.0 100.0 100.0 100.0 100.0 Net Profit After Tam s mwmmo--nong w g m 60.3 00.6 61.8 71.5 51.9 72.4 (% of Total Aooots) 3.9 2.1 4.0 4.8 5.3 5.6 Working Capital 4.2 NEG. 7.0 NEG. 5.9 NEG. (%of Total Sales) •v 2.6 NEG. 2.0 NEG. 1.4 NEG. Source: XXX income statem ents for 1985, 1986, and 1987, and the Duns analytical sendees: Industry norms and key business ratios for SIC 5812 (restaurants) eating places for 1985,1986, and 1987. Table 4-3 (above) Indicates a negative working capital position for all three years under review. This measure of liquidity is a measure of XXX's ability to pay its short-term debts as noted by both a poor cadi position and a poor inventory position. The high gross profits could indicate that, as repotted in the interviews and observations, XXX had reduced product quality, while keeping prices up, in an effort to meet its current obligations. This situation seems to be mirrored by the surveys, interviews, and observations. After reviewing the balance sheets and income statements of XXX Company for the target years, the researcher focused on «eraW«htng the relationship between three independent samples (test years for 1983,1986, and 1987) with the primary purpose being to determine if the samples came from populations with equal or similar means (Sanders 1993: 581-390). 64 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

F. KRUSKAL-WALLIS TEST(S) The Krusfcal-Wallis test was used to determine separately whether the 1985, 1986, and 1987 Key Financial Ratios studies and the 1985, 1986, and 1987 restaurant management survey ratios studies came from the same or equal populations or whether at least one group came from a different population (Black 1992: 600-621). Using the Kruskal-Wallis K test an the 1985,1986, and 1987 Key Fiuandfcl Ratios for XXX (Table 4-5:67), the Researcher was able to determine that the populations for all three test years were the same or equal. Additionally, this information helped to demonstrate that there were no significant differences in the three year financial trends of the business. Similarly, the Kruslcal-Wallis test on the 1985, 1986, and 1987 restaurant management survey ratios for XXX (Table 4-4: 66) indicated that the populations from aUthree of the test years also came from equal populations. This information helped the Researcher determine that restaurant manager attitudes remained fixed throughout the three survey years. After the Researcher established that the results of both tests indicated that all of the groups came from the same or equal populations, the Researcher proceeded to review in depth the Key Business Ratios of XXX, the test company, with the industry norms. G. KEY BUSINESS RATIOS Dun's Industry Norms and Key Business Ratios woe specially produced to be used as a management tool. The common-sizc balance sheets and income statements offered each item on the financial statement as a percentage of its respective aggregate total. Common- size percentages (Appendix B: b4) were computed for all statement items of all individual companies used in the industry sample. An average for each item was then 65 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

determined and presented as the industry norm. Table 4-4 Krnskal-WaUls Tea for the Restaurant Management Cultural Survey Scores Groups 1989 1906 1987 C -3 1 212.0 1 12 *n« 266.5 187.5 n j- 12 N*36 .12 df * 2 ( 3 - 1) NA * 12593.5 NF * -3(N * 1) * -111 K * 2.45 Null Hypothesis (Ho): 1985 Group* 1986 Group* 1987 Group Alternate Hypothesis (Ha): At least one group is different Decision Rules: Using the .05 level of significance, a nondirectional test, and that K is distributed as chi-square with k - l * 3 - 1 * 2 d f . If K is less than 5.991, do not reject Ho. If K is equal to or greater than 5.991, reject Ho. This te a is always one-tailed, and the rejection region is always h the right-hand tail of the distribution. Because K * 2.45, or smaller that the critical chi-square value (5.991), the researcher accepts the null hypothesis. Source: Appendix B, Table 1 (b2 - b3) Restaurant Management Cultural Survey Mean Scores for 1985,1986, and 1987. 66 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Table 4-5 Knnkal-WaHls Test for the Kay Business Ratios Groups 1985 1996 1997 C -3 1 11 T] ® 283 312 308 nff 14 14 14 N.42 d f - 2(3-1) NA -19450 NF - -3(N + 1) - -129 K * .23552 Null Hypothesis (Ho): 1985 Group ■ 1986 Group * 1987 Group Alternate Hypothesis (Ha): At least one group is different Decision Rules: Using the .05 level of significance, a nondirectional te st and that K is distrfcuted as chi-square with K -1 * 3 -1 - 2df. If K is less than 5.991, do not reject Ho. If K is equal to or greater than 5.991, reject Ho. This test is always one-tailed, and Ihe rejection region is always in the right-hand tail of the distribution. Because K « .23552, or smaller than the critical chi-square value (5.991), the researcher accepts Ihe null hypothesis. Source: Appendix B, Table 2 (b4-b) Acceptable Range Chart for Selected Financial Ratios and Appendix B, Table 3 (b) Ratio Value Table (Target Company). This enabled the researcher to examine the current nature of the assets, liabilities and sales of XXX (Tables 4-2: 62 and 4-3:64) and compare them with industry norms (Appendix B, Table 2: b4 and Table 3: b6) while gaming valuable insight into the performance of the business. The fourteen Key Business Ratios, located in Appendix B (Tables 2 and 3: b4-b6), were categorized into three (3) major groups and fourteen (14) sub-groups: Solvency, 67 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Efficiency, and Profitability. Solvency ratios (quick ratio, carrot ratio, carro t liabilities to net worth, carrot liabilities to inventory, total liabilities to net worth, and fixed assets to net worth) were used to measure XXXs ability to meet both, its short- and long-term obligations. These figures were of prime interest to the Researcher because of both their credit and top management implications. The quick ratio for XXX was computed by dividing cash (there were no accounts receivable) by total current liabilities. Thisratio reveals the protection afforded short-term creditors in cash and near cash assets. Normally,'most credit managers believe that any time this ratio is as much as 1 to 1 (1.0) the business is in a liquid condition. The larger the ratio, the greater the liquidity. The analysis of the financial statements of XXX indicated that XXX was operating well below industry norms (1.6 - 02) for 1985 and 1986 (0.0), while improving in 1987 (0.7). This ratio revealed that XXX's quick assets do not exceed the total current liabilities owed in the years under review, and this situation could place the creditors at risk XXXs 1985 (0.5), 1986 (0.4), and 1987 (1.0) current ratios were computed by dividing total current assets by total current liabilities. These ratios measured the extent to which XXXs current assets would cover its current liabilities. The higher the ratio, the more assurance existed that the payment of current liabilities could be made. These ratios also measured the margin of safety available to cover any possible shrinkage in the value of current assets. Normally, a ratio of 2 to 1 (2.0) or better is considered good. Based on the 1985 - 1987 industry range of 0.6 - 2.8, XXXs 1985 and 1986 ranges revealed that there was 68 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

little margin of safety for the creditors, the 1987 ratio (1.0), while showing some improvement, did not allow any margin of safety far possible shrinkage of current assets. Again, this situation could place the short-term creditors at risk. The current Habflltfca to net worth ratios for 1985 (19.1), 1986 (19.9), and 1987 (242) for XXX were derived by dividing current liabilities by net worth. These ratios contrasted the funds that creditors temporarily are risking with the funds permanently invested by the owners. Normally, the smaller the net worth and the larger the liabilities, the less security there is for creditors. Additionally, creditors are alarmed and care is usually exercised when extending credit to any firm with’current liabilities exceeding two-thirds (66.6 %) of net worth. While the industry ranges far 1985 -1987 of 13.4 -1125 indicated that in this category XXX was doing a very good job, it should be noted that a large net worth may indicate a conservative philosophy, which may signify that XXX was unwilling to risk its own assets. The current liabilities to inventory ratios of XXX far 1985 (614.0), 1986 (659.0), and 1987 (699.0) were calculated by dividing current liabilities by inventory. When compared with the 1985 - 1987 industry ranges of 106.0 - 525.0, this ratio indicated that XXXoverly relied on funds from disposable or unsold inventories to meet its debts. Again, management may be retying on its creditors to finance its current liabilities, and credit managers should be concemed because growth may not be managed wisely. The total liabilities to net worth ratios of XXX Company for 1985 (645), 1986 (372), and 1987 (50.6) were obtained by dividing total liabilities by net worth. In comparing the results with the 1985-1987 industry ranges of 27.0-227.0 with the results of XXX, the 69 i Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

Researcher found that there was not a sizable long-term, debt harden, hi general, total liabilities should never exceed not worth (100 percent), and long-term credit nranagftrs should be relieved with these results. The fixed assets to new worth ratio for XXX was calculated by dividing its fixed assets by its net worth. While the portion of net worth that consists of fixed assets will vary from industry to industry, customarily, a smaller proportion is desirable. XXX's high ratios of 96.1% (1985), 144.8% (1986), and 1322% (1987) indicated that there were heavy investments in fixed assets at the expense of net working capital, which was a negative figure for each of the three years under review. Additionally, the firm is over-trading and seemx to be using large funded debt to supplement working capital. With fixed assets above 7S percent of net worth, XXX has an over-investment problem which most creditors should examine with care. The efficiency ratios indicated how effectively XXX used and controlled its assets and provided crucial information for evaluating money for XXX was being made. The Researcher discovered that the collection period ratios and the net sales to inventory ratios indicated the importance, because ofcadi flow, of not having accounts receivable and the importance of a very strong inventory control program. This allowed far a swift flow of funds into the business. Because of these two key areas, the Researcherbelieves that XXX was able to stay in business. But, because of the poor showing in the ratio areas of assets to sales, sales to net working capital, and accounts payable to sales, the Researcher was able to detect that XXX was not only under-trading (not generating sufficient sales to warrant the assets invested) but had an overly conservative top management team which may have lacked 70 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

the skills to manage a more aggressive sales policy. Additionally, the sales to net working capital ratios indicated that XXX was not only in a negative cash, position, bat the Company was carrying more liquid assets than needed for its volume. The accounts payable to sales ratios indicated that XXX was using its suppliers to help finance its operations whkhrplacing its short-tenn creditors at This poor showing of the last three ratios, when viewed with the observation studies of Appendix B, Tables 2 and 3 (b4-b), 4-2 (62)’, and 4-3 (64), does seem to a strong relationship between restaurant management attitudes and top management's inability to manage in XXX's current environment of depending on creditors to finance the growth of the business. This position may have caused top management to beccme concerned with the direction the Company was moving and placed them in a position of reducingjob security, keeping employee benefits to a bare minimum, and reducing product quality and customer service. The profitability ratios indicated that XXX was moderately successful in earning a return for its owners. The return on sales ratios for 1985,1986, and 1987 indicated that XXX was able to reach a satisfactory profit level for its owners and did place the firm in a position (short-term) to withstand adverse conditions such as falling prices, rising costs, and declining sales. The return on assets ratios for the three test years indicated that XXX was fairly successful in effectively utilizing its assets. Though the return on net worth ratios for the three test years indicated that XXX top management was somewhat successful in its attempts to realize an adequate return on its invested capital, it should be noted that this vitality was based on an over investment in long team assets, a three year negative working 71 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

capital condition, and a dependency on short-term creditors to supply credit to the business. Boththe solvency and profitability ratios indicate that XXX may be a company in the middle stages of a financial crisis. The Researcher believes that XXX’s ability to meet both short- and long-term obligations was severely limited. The Researcher viewed the efficiency ratios with great interest becausethree of the ratios indicate major management problems throughout the three test years. While the profitability ratios showed some positive signs, the overall results of this study indicated that there was both a financial and top management crisis in the near future unless some drastic,actions are taken. After reviewing the results of the key business ratios and the Kruskal-Wallis Test, the Researcher began working with the Mann-Whitney U test to examine the null hypothesis that there is no true difference between two sets of data—the Key Business Ratios fourteen (14) mean scores and the twelve (12) restaurant management survey mean scores—and that the data came from two independent samples (Sanders, 1995). H. MANN-WHITNEY U TEST The Mann-Whitney (J Test was used to compare the means of two independent populations (Table 4-6:73), Key Business Ratios and restaurant management surveys far the following test years: 1985, 1986, and 1987, which were ordinal in diameter. The rational for the test was based on the premise that *..if two distributions of equal (twenty [20] or less) size are identical, then a listing of the findings from both groups in rank order, that is, smallest first) should yield a sequence in which two (2) scores from the two (2) groups are well mixed (McCall 1986: 334-335). The study involved the use of a two tail test of the differences oftwo (2) means at the .025 level with the critical value of Z being + or -1.96. 72 R eproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

All three (3) of the test results for the years 1985 (.617), 1986 (.1543), and 1987 (1.23) fell within the Z range at the .025 level (-1.96 to +1.96) reqoiring the null hypothesis to be accepted and that '...the populations (Key Business Ratios and rwsfanninf management survey ratios) from, which the two (2) samples have been drawn ate identical.* This acceptance supports the overall hypothesis that '.^management coltnnl surveys do reflect comBtions found an the financial statements of a business...' and '..-that human capital decisions can be correlated with the financial stability of a firm .' These results, when viewed in a constructive manner, can help top management view their overall problems with a positive attitude toward the future. Similarly, tq£ management may began to view the principles ofhuman capital investment and human resource accounting in a more trustworthy posture. Table 4-6 Mann-Whitney U Test for the Unit Management Survey and the Key Business Ratios Groups 1965 1986 1987 U « 96.00 87.00 60.00 . 186.00 213.00 W1 - 177.00 84.00 84.00 M■ (mean) 84.00 19.44 19.44 S D - 19.44 .1543 1.23 n1 * 14 n2 ■ 12 Z - .617 Critical Z value at .025 is -1.96-to +1.96 Ho: The null hypothesis states that the populations from whichthe two samples have been drawn are identical. Ha: The alternative hypothesis states that these two populations are not identical. Decision Rules: The Mann-Whitney technique presented in this part of the study is for small samples, th* is, when n l and n2 are both twenty (20) or less. For small sample sizes, the 73 R eproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

value of U is approximately normally distributed. Using an average expected U value for groups of this size and a standard deviation of U allows computation of a Z score for the U value. The probability of yielding a Z score of this magnitude, given no difference between the groups, was computed. A decision was then made whether to reject or not reject the null hypothesis. Their problem involves use of a two-tailed test of the difference of two means. Far a/2 • .025, the critical value of Z is -1.96 to -*-1.96. If Z is between -1.96 and +L96, do not reject Ho. If Z is outside ofthe -1.96 to +1.96 range, reject Ho. Because Z for each group 1985 - .617,1986 - .1543, 1987 -1.23) was within the appropriate range the researcher accepts the null hypothesis. 74 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Every genuine teat of a theory is an attempt to fhUfy it, or to reftata it. Karl R. Popper Chapter V: Sommary, Conclusions, and Recommendations Existing research, about human capital investments end human, resource accounting indicate that both areas have been gradually, but undeniably, growing over die past several years. As this growth continues, some organizations have begun to view their employees as assets and see the need to utilize some human, resource accounting activities. Several organizations today even see the need to place their highly trained wotkes and key employees an their Hai»m»> sheets. The current study the hypotheses that '.^restaurant managers' attitudes do reflect conditions found in the financial statements of a business.' This study also attempted to describe the relationship between Human resource accounting, human behavior, and organizational efficiency. It was written for an audience of top managers, researchers, and students of organizational behavior in an attempt to merge financial analysis, human resource acmmittng strategies, human capital theories, and Hitman resource management concepts into a Socio-economic Model (stakeholder model) dealing with a proposed new field called 'Behavioral Financial Analysis.* A. Summary of the Study 1. Statement of the Problem: The major problem facing American business leaders today is an understanding that 75 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

\"...managers must direct their human capital investments and their human resources within, an. organization so that they can consistently provide both quality products and quality services to their customers.\" To research, this problem, the first gathered information to determine if restaurant management attitudes could reflect or minor conditions found on both, the balance sheets and income statements of a business. Secondly, the concepts of human resource accounting, human capital investment, and human resource management were explored'and applied so that upper level managers (CEOs, COOs, CFOs) could began to realize that poorly defined strategic plans executed at the top could flow downward and have a catastrophic effect upon lower level managers. Furthermore, it must be understood that top management decisions, also by definition, can ramity. Their effects can spread, not only to lower level managers, but to employees throughout the organization, to both consumers and creditors, and, finally, can have a negative impact on both product quality and quality service. Recent studies have explored using employee attitude surveys, *nhaticBrf employee training programs, improved employee benefit programs, career ladders, and on-going employees' evaluation programs to improve the overall perception of die organization by the employee. Indications were that * * * * * employee training, benefits, and problem solving teams were easy for management to promote and utilize, and that employees approved of the efforts of top management and were motivated by these concepts. The studies also showed that such programs resulted in valuable sensory input from the employees. Further research is needed to explore the effects of this research if management adopts Behavioral Financial Analysis as a philosophy and installs Homan Resource Accounting as 76 Reproduced w ith permission of the copyright owner. Further reproduction prohibited w ithout permission.

a management tool. 2. Purpose of the Study: The Researcher's intent in conducting this study was to review and assess the region (Southern) of a national restaurant company (SIC 5812 eating places) that was having major employee turnoverproblems accompanied by what may have been questionable, if not serious, financial problems as reported on the balance sheets and income statements of the target company when compared with industry norms (a sample size). These problems, coupled with poor restaurant management training programs, meager employee benefit programs, and a lack in both product quality and quality service, could have been an omen of a future business financial disaster. 3. Procedures: Exit interviews were held with twenty-eight (28) restaurant managers who left the Company between 1984 and 1987, and fifteen (IS) restaurant managers who had been employed with the Company at least sever (7) years. Moreover, restaurant management cultural surveys were taken in 1985 (63), 1986 (77), and 1987 (75) accompanied by 128 restaurant management observations covering the majority of the surveyed managers. The 128 unit level managers had no first knowledge that they were being observed or the results of those observations. Likewise, only a few of the human subjects interviewed or surveyed woe ever told about the results of the study. Industry norms (14 for SIC 5812 eating places) were compared with the financial statements (balance sheets and income statements) for 1985, 1986, and 1987. This information was obtained from public records only. 77 I_ Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

After the results of the interviews and surveys were recorded and the study of the industry norms was complete, a series of ratios was established, and the Kruskal-Wallis Test and the Mann-Whitney U Test were used to establish whether or not a relationship prevailed between the business ratios and the survey ratios. 4. Findings: The Researcher's hypotheses \"...restaurant managers' attitudes do reflect conditions found on the financial statements of a firm\" was established with this particular study of this particular company for the years 1985, 1986, and 1987. Additional studies must be done on other companies under different circumstances before the hypotheses can be fully validated and appreciated. B. CONCLUSIONS Ralph S. Larson and Robert N. Wilson (March 12, 1996: 1-3), believed that the most important contribution to performance excellence comes from the \"creativity and dedication of the men and women\" of Johnson & Johnson. With this in mind, Johnson & Johnson (J&J), in their 1995 Annual Report (back cover), developed a philosophy which this Researcher regards as the foundation for human resource accounting, human capital investment decisions and behavioral financial analysis and if adopted by organizations in crisis (like XXX) could be the initial step in their recovery. They believed that Johnson & Johnson (J&J) was responsible to their employees, \"...the men and women who work with them throughout the world, and that everyone must be considered as an individual*. J&J must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and .O I1 I Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

working conditions clean, orderly and safe. J&J most be mindful of ways to help employees fu lfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. J&J must provide competent management, and their actions must be 'just and ethical.” Schein (1980: 228-229) viewed the organization as an 'open, complex system in dynamic interaction with multiple environments, attempting to fulfill goals and perform tasks at many levels and in varying degrees of complexity, evolving and developing as the interaction with a changing environment forces new internal adaptations.” Based on the findings of this study, the Researcher found that the Southern region of XXX was clearly an organization in crisis, unable to interact with its two primary stakeholders —employees and customers. The conclusions reached in this restaurant management cultural survey indicated that there were seven major problem areas: I. The attitudes of the restaurant managers within the Southern region were mirrored on the balance sheets and income statements of XXX. These attitudes, coupled with a reduction in product quality and customer service, caused, in the Researcher's opinion, the poor performances as shown in the 198S, 1986, and 1987 Annual Reports of XXX. Travis Engen in ITT Industries' 1996 Annual Report stated that 'enthusiastic, committed and informed employees are more productive” and make the 'greatest contribution to the company success.” Moreover, ITT re-directed its \"measurement and reward systems to focus more clearly on the creation of shareholder value. TTTs management incentive systems are now formally built on the foundation of Economic Value Added.” This has helped ITT 79 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

'ensure tint capital investments they axe making for future growth will achieve an appropriate rate of return.' The Researcher believes that if this type ofthinking had been adopted early on, XXX would not have been in a financial and managerial crisis (1996:2-13). 2. Management styles and attitudes had both a positive and negative effect on XXX. The positive aspect of the management style did take care of problems in the short-term (day- to-day, week-to-week) but was a disaster in the long-term (mooth-to-month, year-to-year). Duane Collins stated in the 1996 Annual Report of Parker Hannifin Corporation (23) that *0100 is little question that Parker's has benefited greatly from the innovations of our employees' and that management has realized that it must 'invest continuously and wisely in new technology, employee education and training to maintain our competitive edge.' If upper management at XXX had taken this attitude early an, the Researcher found that it could have been a dominant player in the fast-food restaurant industry within the geographical areas it operated. 3. Quality products and quality services were affected by poor restaurant manager attitudes. Because of poor product quality and destructive restaurant management attitudes, products became an albatross instead of competitive weapons, with equity as real as XXX's restaurants and people. That's why major companies focus an consumer loyalty, product quality and quality service. Charles D. Miller and Philip M. Neal stated in the Avery Dennision 1996 Annual Report (March 1, 1997: 2-29) that 'loyalty is at the care of our brands' equity' and our product image establishes a '...powerful reason to buy.' Miller and Neal both believed that management attitude and employee interest make '...quality a given - the assurance that products will provide what the customer desires.' 80 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

4. Restaurant managers reseated upper management when. they were required to lower both,product quality and service quality. Many felt that '.~ if the manager was required to produce the two best adiing products below the franchiser national standards, then,they were lying to the customer.' Additionally, they felt that '.~ if XXX lied to their mfaHMag, then, they would He to their employees, creditors, and minority stockholders/ John Whitmire stated in the 1996 Annual Report of Union Texas Petroleum March. 6, 1997:4-21) that a '...crucial element in our growth strategy is to align employees' interests with those of our shareholder' and that quality and 'training play a key role in the professional development of employees at all locations.' Fnrthermore.employee teams from various business units focus on establishing quality assurance programs throughout the organization. 5. Restaurant managers resented being required to spend long hours (sometimes off the dock) at work while sacrificing family time. Schein (1980:39) believed that *~peopIe sometimes; work far money but then, to upper management surprise, fail to respond to an incentive system.' The Researcher, like Johnson & Johnson, believes that an organization must be mindful of ways to help their employees fulfill their family responsibilities. 6. The lack of employee benefits and career development opportunities, coupled with poor employee training programs and major employee turnover problems, reduced Company loyalty while creating additional pressure on the financial resources of XXX. Showwalter and Mulholland (July - August 1992: 84) and Harari (November 1993: 26) believe that liberating employees, giving employees the freedom to implement organizational strategy, gives them the authority to 'delight' customers. 81 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

Leonard Towhaimun and Daryl A. Ferguson in Citizens Utilities Company 1996 Annual Report (March 14,1997:1-10) professed that they began preparing for competition by investing heavily in the retraining of all of their employees and providing each. '...with, an enriching and rewarding work experience and environment.* Edward P. Campbell and William P. Madar wrote (1996:2-5 and 18) that the Nbrdson Corporation \"...will continue to fuel long-term, growth, with investments in four strategic areas* the first being tnnran resources. The primary objective of this \"business strategy was to provide opportunities for employee self-fulfillment, growth, security, recognition and'equitable compensation / 7. There was a direct relationship between human resource accbuntin& human resources management and human capital investment programs at XXX. The Researcher agrees with Richard D. McCormick and Sol Trujillo (1996: 1-7) \"that loyalty comes from trust and to sustain that trust a company must focus not only an quality but choice/ By focusing on choice and the customer and \"linking employee rewards to customer satisfaction,* organizations can deliver quality products and services with speed, accuracy and convenience (McCormick & Trujillo: inside cover). Richard A. Manoogian and Lee M. Gardner (1996:2-25) concluded that the secret of MascoTech, Inc success throughout the organization was built around the encouragement of \"individual initiative and decision making, ...which stimulated growth and canfinuousty improved our ...business processes.\" MascoTech \"strives to create a work environment that encourages and rewards superior performance.\" MascoTech \"recognizes that people are the driving farce behind our success.\" They 'recruit and promote highly capable and motivated individuals while providing them with resources, opportunities and support necessary to 82 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

achieve superior performance.” Likewise, the Researcher, like Hany M. Cornell, Jr. and Felix E. Wright (Match 2, 1997:2*15), views the employee as an organizations most important asset, and that by encouraging employees to invest both thne and funds in the business creates a \"^strong common interest between employees and shareholders.* hi light of die above discussion, the Researcher concluded that when an organization links employee rewards to customer satisfaction it creates a business culture which encourages individual initiative and decision making, aligns employees interests with those of its shareholders, and provides the opportunities and support necessary to achieve superior performance, then that organization has developed the foundations for a human resources management program, human capital investment program, and a human resource accounting program. If XXX had been realistic in their business practices, the Researcher believes, the majority of the business problems they faced in the 1980's would have been insignificant C. DISCUSSION The results of the study indicated that same, but not all, of the restaurant management attitudes were mirrored in some of the fiwmefeii ratios found on the financial statements of XXX. Nevertheless, lack of experimental controls at the strategic planning level suggest viewing the results of any one study such as this with great caution. On the other hand, the results of the management cultural surveys, exit interviews, management observations, and management interviews in connection with this study indicated 83 t \\ Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

a catastrophe within the Southern region of XXX and unquestionably favors tmpfawiMting a human resource accounting program, re-evaluation of both,the employee benefit pmgnim and the ™iMp»iait tntirmy program, n d the of a hnman capital investment program. As the stndy indicated, both,the majority owner and upper management at XXX viewed and treated their restaurant managers as disposable assets - just the cost of doing business - not economic assets. Unfortunately they did not realize that their strength was their restaurant managers who dealt with, their customers on. a daily basis. From the restaurant managers who had been with them for years to those they would hire in the future, upper management did not take pride in the restaurant managers they developed, the managers who were the key to the success or failure of both their product quality and customer service. Restaurant management turnover so high, thirty-five percent, at XXX that upper management stopped providing the training and professional development that was needed to bring both maximum product and service quality to customers and economic value to XXX. M. Anthony Bums wrote in the 1996 Annual Report of Ryder Systems, Inc. (February 21,1997:2-5) '...we provide products and services that help ensure our customers loyalty, hi creating product and service value, which in turn, increases economic value for our shareholders, Ryder focuses on several areas: 1) asset value that helps assure financial rewards for our stakeholders; 2) market credibility earned through, a history of successful service and continuous improvement; and 3) competitive advantage powered by the creative combination of Ryder people, systems, and services.' This type of corporate environment did not exist at XXX during the 1980's. 84 Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

Laurence M. Downes of New Jersey Resources Corporation (NJRC), in the 1996 Annual Report (November 1, 1996: 1*22) pot forth, what the Researcher believes should have been the business philosophy of XXX, 'w e will work together as a team to provide value to customers and shareholders by continually improving our core —business and increasing market share by developing and delivering new ...products and services.' Additionally, NJRC would satisfy customers by 'listening and responding to their needs, edncating them about choice ...and focusing our efforts an offering products and services that meet their ...needs.' NJRC, while its goals and Objectives, win provide a 'falfiHing and challenging work environment which encourages employees to channel their creative energies to satisfy customers.\" The encouragement to be creative must allow for 'the reshaping of ...the Company in a way that will create a future of opportunity and promise for our people and our shareholders' (Mohrhanser and Magulski 1997: 2-11). This encouragement creates 'the team effort, loyalty, commitment and perseverance that contributes to an organization's strong performance and will drive the success of the Organization in the future' (Howard, February 24, 1997: 2-5). D. FUTURE RESEARCH Based upon my examination of the statistical data, farther research is suggested by including the Chi-square goodness-to-fit test, which may have some implications in excepting some of the efficiency ratios of XXX within this study and could cause the n l = 14 classification (Table 4-6:73) in the Mann-Whitney U test to move to a n l - 13 or lower classification. This change might help improve the foundation of the hypotheses. Particularly 85 Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

appropriate would be to view each, of the means of the 59 questions in an expanded Mann- Whitney U test (a test where at least one of the samples [n2] would be greater than 20) that had the nl = 14 and the n2 = 59. The results of this test might help improve the acceptance of the hypotheses. Moreover, future research is needed to engage some major research opportunities which have been created: *Use the hypothesis to test other SIC coded companies. *Test a company which is doing well and where the employees arc happy. *Test a not-for-profit organization. *Tcst all classes of employees within a company. *Test different classes of employees within a company. *Test the hypothesis using additional statistical methods. •Test a company doing well where management is unhappy. *Test a company doing poorly where the management is happy. As the Researcher was undertaking this study, it became clear that there was little empirical evidence to date to support his hypotheses and that the blending of current financial analysis theories, human resource management concepts, human capital investment strategics, and human resource accounting principles into a socio-economic model dealing with behavioral financial analysis would prove most difficult and time consuming. \"The leadership and management of any organization have never been more challenging than today. There is a growing awareness among today's top organizational leaders that the success of the organization depends directly on effectively using our human Reproduced with permission o f the copyright owner. Further reproduction prohibited w ithout permission.

resources (Hersey, Blanchard, and Johnson 1996: 1-23). With this in mind the Researcher will explore the possibility of aHHfagto the model in the future economic value-added methodology, or EVA, a system that defines value creation as the return a business generates on invested capital over and above the costs of obtaining that capital (Butler and Friedl 1996: 2-4). Robust quality (DuBrin 1994:400-430) a system that allows the building of quality into products, service, process, or procedure so that it can withstand fluctuations, both human and production, without the loss of quality, also seems to merit further investigation. Additionally, the Researcher will expand the research to include the acquisition and replacement of human capital assets. This focus will look at both the asset expansion model, the investment of funds in additional assets in order to increase sales, and the asset replacement model, retiring one asset and replacing it with a more efficient asset (Moyer, McGuigan, and Kxetlow 1995: 330-333). The Researcher found that when a business is successful the credit belongs to the employees who provided customers with outstanding products and services. The above concepts will be used to strengthen or compliment the behavioral financial analysis model in the future. E. CHAPTER SUMMARY This chapter contained an overview of a study that used financial ratios, restaurant management cultural surveys, exit interviews, management observations, management interviews, business balance sheets, and business income statements, and were meant to improve the working conditions of managers while improving the profits of a business. The 87 Reproduced w ith permission of the copyright owner. Further reproduction prohibited w ithout permission.

chapter concluded with implications for future research. Reproduced with permission of the copyright owner. Further reproduction prohibited w ithout permission.

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