Tom Phillips of Effective Agreements shares this useful and amusing nugget from his life:
“One time, at DSC, we were negotiating with a European company, making a presentation on DSC’s financial performance. At one point the leader of our team and the leader of the European team bogged down in an increasingly heated discussion about inventory turns. The European leader insisted that our inventory turns were alarmingly high, indicating our products were not selling or we had invested far too much in inventory. Our team leader disagreed, saying our inventory turns were excellent both for our industry and for an American manufacturing company in general. The two men arrived at a complete impasse on the issue and were starting to get frustrated with each other.
As the junior member of the four man team by several levels, my job was to turn the slides. (That was not really my only job: I created the financial statements in Excel, etc.) As we were not going forward in the presentation, there was nothing I could do but sit and listen, and I happened to hear the European pooh-bah say the word “revenue” to one of his team.
I shouted “stop”, shocking the whole room into silence. I then asked the European leader how they calculate inventory turns? He answered, “dividing one year’s revenue by the inventory”. So, we explained that we calculate it using cost of sales: for the numbers to be comparable, he had to effectively double ours.
The “take-away” on this one (besides European accounting is not always the same as GAAP): every negotiating team should have one person whose assignment is to listen, and nothing else!”