Where-Got, Where-Gone Analysis

The term "trend analysis" encompasses a wide variety of methods of analyzing financial statements. This topic discusses a method known to accountants as a statement of sources and application of funds. It is referred to by credit people as where-got, where-gone analysis.

The changing relationships between a company's year-to-year balance sheet figures are a primary point of focus in trend analysis. Each of these methods, as well as showing what changes have taken place, may give the analyst some indication of what caused these changes.

Another method of determining these causes is provided by the "where-got, where-gone" analysis method. A typical where-got, where-gone analysis sheet is shown below. It is divided into five columns. In the first two columns to the left are the firm's balance sheet figures for two successive years. In the center column there appear the amounts by which the second-year figures have increased or decreased from those of the previous year. And in the two columns to the right these amounts appear under either the Where-Got or the Where-Gone heading.

The basis of this method of analysis is the increase or decrease in the net worth of the firm in question. All changes in asset or liability items producing decreases in net worth (such as the $1,000 increase in deferred debt) are listed in the where-got column. All changes in asset and liability items that result in increases in net worth (such as the increases in current and fixed assets, and the drop in current liabilities) are listed in the where-gone column. Naturally, the totals at the ends of the columns are equal because the successive financial statements from which the items of change are taken had to be in balance.

The origin of the terms "where-got" and "where-gone" is not clear. The idea those who devised the system apparently had was that if assets increase or liabilities decrease, funds are being used for these purposes and "go" into these items. On the other hand, when assets decrease or liabilities increase, funds are not absorbed or "gone," they are received or "got."

The logic of the system becomes more apparent if you substitute the words "source" for where-got, and "application" (or "use") for where-gone. Under these substitute headings it is easy to see that you have a picture of the flow of funds between the dates of the two financial statements. It shows the credit analyst where the funds came from, and how they were utilized in the business.

In the example shown here, it is obvious that there has been considerable improvement in the firm's financial position. Both current and fixed assets have increased while current liabilities have been reduced. But what is most important-and what the where-got; where-gone method of analysis clearly highlights is that the funds that have been used to increase assets and decrease current liabilities must have come either from current income or new investment. Why? Because deferred debt has risen by only $1,000.

In some cases, it is helpful to reduce the standard where-got, where-gone form to a summary statement:

This shows you at a glance that during the one-year period between the two statements, $10,000 came into the balance sheet-$ 1,000 from an increase in deferred debt and $9,000 from earnings or investment. It also shows you that during this period working capital received $8,000 of which $3,000 was used to reduce current indebtedness.

Where-got, where-gone analysis is particularly helpful to the credit analyst if there are trends going on within a business that may in time become detrimental to the company's ability to pay creditors invoices as they come due. For example, if you were to find in analyzing a customer's successive balance sheets that certain liability accounts were rising, figures would appear in the where-got column which would have to be explained by balancing figures in the where-gone column. And if these balancing figures in the where-gone column should appear opposite asset items that are of dubious value to the customer's credit position (such as over-investment in inventories or fixed assets) you would be warned about an increasing risk in extending credit to the company under review.

Edited by Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.