Impact of demonetization
The Indian economy, which was dubbed as the fastest growing among major economies in the World, while the rest of the world powers were struggling to keep up with their growth rates, came to a sudden jolt when, on 8th November 2016, Prime Minister Narendra Modi announced immediate demonetization of Rs 500 and Rs 1000 notes. 86% of India currency, in value, ceased to be legal tender as the two highest denomination notes were to be replaced with the new Rs 2000 denomination note. As per the continuously shifting government narrative, the plan was an attempt by the government to wash the stock of counterfeit money out of the economy, which has allegedly been used to fund criminal activities, such as terrorism and drug trafficking. In addition, the scheme aimed to draw a large part of the black economy into the banked and taxable part of the economy. While there was some breathing space for citizens to get their notes exchanged or deposited in the banks, all incidents of extraordinary deposit were subject to tax investigation. Sudden announcement left the nation in jitters and the banks and the notes printing facilities were ill prepared to deal with the crisis due to the highly classified nature of the program. This led to a lot of trouble for the citizens. People queued up to banks for hours in hopes of depositing their money in exchange for the new currency. Banks too had limited amount of new currency and hence cash remained out of circulation for few weeks. India is primarily a cash based economy. Businesses came to a standstill. It was hard to buy items of immediate necessity on credit in environment of such uncertainty. Major impact was felt by the poor and lower middle class, who had no alternate means of transacting. Some families didn’t even have bank accounts. Unorganised labour lost their jobs and farmers and fishermen had hard times selling. However, government had provided many relaxations for special needs like medicine, fuel etc., which prevented any devastating consequences. The problem continued for few days before the cash slowly started to circulate in the market. It has been around eight months since demonetization today and cash in the economy is in circulation as it was before 8th November. Loan functions of the banks took a backseat for few months as the banking manpower was busy dealing with post demonetization workload. Many revolutionary changes could be immediately noticed in the nation post demonetization. There was noticeable drop in terrorist and communist activities and the circulation of counterfeit currency. But now it seems these activities have surfaced back because demonetization did only reset the cash economy for one time while there are still many loopholes in our taxation, banking and legal systems which need to be fixed for any permanent solutions. Another positive outcome was multi-fold adoption of usage of modes of digital payment. Mobile based wallets witnessed a crazy growth of new users. This could complement government in its agenda of encouraging digital payments for transparency and compliance. But this too has faded down because of continuous and further increase in levying of service charges for ATM operations and other modes cashless transactions. Despite the magnificence of the decision, there was no economic hurricane. Overall move has been welcomes so far. Surprisingly, our economy grew by 7% in fourth quarter of 2016. It is expected, and effects can already be seen, that such stringent action will lead to lesser tax evasion and thus broaden the tax base, which will ultimately lead to reduction in taxes. Liquidity is still low in the market as compared to pre demonetization era but there is a significant pace with which cash is flowing back in the economy. Many parts of the informal sector which operated informally, only due to convenience and indifference, have now been pulled into the national economy. Market indicators like sales of vehicles, FMCG products etc. have started showing rebound after few months. We did not see any significant dip in GDP post demonetization. Although, one of the reasons could be the quality of Indian statistics because the informal sector, which borne the major brunt of demonetization due to extensive cash dependency, is largely underrepresented in the national accounts. Also, a major obstacle in analyzing the effects of demonetization is the lack of credible or extensive data on the same as reserve bank and the government has been since long very mum on releasing the comprehensive information. With abundance of money with the banks, banks have reduced deposit rates. Almost entire household savings have become a part of the national economy. Demonetization has led to greater financial inclusion of the poor sections of the society by connecting them with the banks. People have started worrying about tax evasion. Fall in real estate prices, if it persists, can be a real boon for the lower and middle class. Demonetization could have potentially derailed the process of implementation of GST, the biggest tax reform India has witnessed, but GST is in practice without any hindrance. While economists are still waiting to monitor the long term consequences of demonetization, the nation seems to have recovered quite well from the short term consequences pretty quickly. It so appears that the Indian economy is the best practice of resilience.
Tanuj Gupta
Gamification in hr
Gamification principles can be effectively used in certain aspects to human resources management to keep employees motivated and engaged. Behaviour motivating techniques of traditional, modern and social games, like competition, real time feedback, addiction, fun, transparency, design intuitiveness, and performance based rewards etc can be used by organisations to achieve goals related to human resources management. 1) Employee Training and Development – Online and offline training courses related to employees’ field of job or the mandatory HR training pertaining to compliance policies, security and sexual harassment guidelines etc. are seldom attended with enthusiasm. These courses, which are not always beneficial in the short term, are often neglected by employees, who are busy dealing with their regular work. Adding some gamification experience to this mundane job can spur action. Employees can be motivated to pursue these courses by engaging them in a series of challenges and contests. For instance, company might put up an online portal where employees are rewarded for their timely progress in training programmes. These reward points might be traded for actual gifts or perks. Real time feedback and rewards for top scorers will induce a spirit of competition. 2) Recruitment and Onboarding – Rounds of multiple tests, interviews, discussions, and verifications can be very boring and testing patience of prospective candidates. Applying gamification techniques on few of these jobs can help in engaging candidates with ease. Online tests, scheduling of interviews, submission of documents etc can be done in a very game like manner using progress charts and achievements. This would increase the probability of candidate accepting the job offer and ultimately joining the company because by this point the candidate would already be highly engaged with the organisation. It would also facilitate transparency, which is very much expected by the candidates at this point. Game elements of discovery and fun can also be used in the stages of verification formalities, orientation, and HR training etc. during the onboarding and orientation process. This keeps employees’ spirits high and catalyses the process of adjusting to the new work environment. 3) Engagement and Retention – Gamification can help in achieving higher levels of employees’ engagement with the organisation as well as their social engagement among themselves. Principles of social gaming like continuous visibility, regular updates and notifications, multi tier connections, ratings, likes and dislikes feedback etc can be used to keep up personal engagement with and among the employees. It is very important that employees of various departments, even if not working directly together, should have healthy and friendly relations with each other. Apart from events like in house games and outdoor sporting events, social network games will facilitate the cause. These games can gather wider participation, owing to certain employees’ hesitation, non presence, or busy schedules which restrict their participation in regular events. All these activities also contribute in employee retention as they induce happiness in the workplace and bring management, HR, leaders and general workforce closer to each other.
Impact of Trump's Announcement
Israel Rage continues after Trump’s announcement December 9, 2017 marks the 30th anniversary of the first ‘Intifada’ declared against Israel. Rage has again simmered on this day with the leader of Hamas, Ismail Haniyeh declaring the third uprising against Israel. This is the result of declaration by US president which recognized Jerusalem as the capital of Israel. This declaration didn’t go well with Palestinian militant group and they consider it a declaration of war on Palestinians. At least three rockets have been launched till now from the Gaza toward the Israel town. In retaliation by Israel army two people were reported dead belonging to Hamas militant group and as many as 200 wounded and admitted in Gaza’s Shifa Hospital. Tension also rose in city of Bethlehem where protesters threw stones on Israeli troops. Demonstrations were also reported in East Jerusalem where Israeli troops used tear gas. Israel has also started targeting sites in Gaza following rocket strikes from militants. So this announcement by Mr. Donald Trump has created situation of new civil uprising in Israel and has given gift to radicalism. The Jerusalem has been one of the main obstacles for peace between Palestine and Israel after Israel occupied it in 1967. Since then Palestine has been claiming East Jerusalem whereas Israel recognizes it as its capital.
Pradhan Mantri Sahaj Bijli Har Ghar Yojana Policy
Pradhan Mantri Sahaj Bijli Har Ghar Yojana Policy Prime Minister recently launched the Saubhagya scheme, also known as the Pradhan Mantri Sahaj Bijli Har Ghar Yojana. What does it aim to achieve and can it really attempt all it promises? Introduction Electricity availability is essential for the development of our country. It will have positive impact on the lives of people. It helps in boosting the education and healthcare facilities of the region which results in overall human development. According to ‘World Bank’ data in 2014 only 80% of India’s population had access to electricity compared to world average of 85%. Hence, the current government has been focussing a lot on increasing the access to electricity. Prime Minister Narendra Modi had also earlier launched two important schemes to boost the electricity connectivity namely UDAY & Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY). Need for Saubhagya scheme Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) was launched in July 2015 to electrify the villages which didn’t have the connectivity. The government was able to electrify 14,701 villages but 2,760 were still left. Even if we consider that so many villages were electrified but still there was a lot of gap. According to the definition used: ‘A village was considered to be electrified even if 10% of household of that village had electricity connection’. Another gap was the irregular supply of electricity in the connected households. So, if out of 14000 villages electrified under this scheme, 90% of households don’t have connection and among those connected don’t have provision of minimum supply can still these villages be considered electrified? Features and Aim of Pradhan Mantri Sahaj Bijli Har Ghar Yojana It has been launched by Prime Minister on 25th September, 2017. It is different from DDUGJY in the sense that it provides access to all by last-mile connectivity. So, it brings the transition from connection villages to connecting households. The outlay for the scheme proposed is Rs. 16,320 crore out of which 14,025 crore is for rural households. The target set by the government to complete the electrification process is 31st December, 2018. Government will provide free connections to families under BPL (Below Poverty Line) category. These BPL families will be identified through Socio Economic and Caste Census (SECC) 2011 data. The whole process will be done using latest technology like using mobile app for household survey. The households which are not covered under BPL status will also be given the facility of paying the fees of Rs.500 in 10 instalments. In addition to ensuring electricity connectivity to every household the scheme aims to upgrade environment because the use of Kerosene lamps for lightning purpose will reduce. Other outcomes it expects to achieve are better connectivity, improved health and education standards and more jobs. Hence, it will help in improving overall quality of life of people. Challenges in implementation There are two major challenges to implementation: 1. Connection Bills: Though the scheme has the provision of free connections for BPL households but it doesn’t take into account the payment of monthly electricity charges. It is unrealistic to expect that BPL households will be able to pay the monthly bills s per high tariff of DISCOMs. 2. Regular supply of electricity: According to an estimate if we assume that all remaining households are connected then it will require additional 28000MW which is 7% of country’s total capacity. Meeting this high power requirement will be a challenging task as already there is a shortage of power especially in rural areas. Conclusion In last three years many schemes have been launched that are based on Government’s agenda of development, Saubhagya is one such scheme. It has a very ambitious aim of connecting every household to electricity grid network of India. But it remains to be seen whether the demand of the additional capacity will be met. If this scheme is successful then it will definitely provide a huge boost to Indian economy and overall growth.
Chemical Engineering Internship advice series-2
What type of training one should undertake and how to apply for Summer Internship? Now there are basically three domains in which a chemical engineer can undertake summer internship namely Research, Production and Designing. First option is the research training. This field is good for the people who want to pursue higher studies and do research work in future. Research internship is provided by various government institutes like IITs, NITs, IISERs, IISC Bangalore and other institutes of national importance like JNCASR. Out of these selection for internship in JNCASR is very tough because seats are very few and applicants are very large. Internship program of JNCASR is a prestigious one, student gets the stipend for is work and top performers also get scholarships for further studies. Also you get the chance of getting your paper published in an International journal. Selection in many institutes is done through application forms which are out in the month of January. Another way of getting selected is that you can find out the name, e-mail id, and the field of research of the professor under whom you want to undertake internship from the Institute’s website. Then you can send your resume to that professor. Other two options are summer training in Production companies and Designing companies. Now I will advise that a student takes production or plant training in IInd Year itself so that he can go for training in designing company in III Year, thus getting training in both the domains. These options are preferable for those who want to do core jobs after completion of their graduation. Also every student should keep in mind that it is a wrong concept that if you do training in Production Company then you cannot get job in designing company or vice versa. In my last article on Summer Internship I will tell about different production and designing companies and how to choose and apply for summer training in such companies.
Financial Analytics
Analytics in Financial Industry Data is the basic requirement for any decision. The amount and velocity of data is increasing every day. It is available in on the premises as well as on the cloud. Now to extract the useful insights from the huge data and to capitalize on the opportunities that are available analytics is playing a dynamic and vital role. Data and analytics guide every interaction, drive every process and ensure optimal outcomes. Data analytics is the buzzword today because along with traditionally being used in decision making, it is also used at the places where it doesn’t existed before. Predictive analytics is used these days to predict the behaviour of the customer to augment the customer’s internal & external experience. It not only recommends the best action to drive the process but also automatically triggers it. It can coordinate lots of processes and decisions thus acting as the brain of the organization. One major example in which data analytics was used at a big stage is the 2012 US presidential elections. Mr. Obama employed 100 data experts to extract information from a huge database using predictive models to gain a competitive edge. So an analytics driven campaign helped him in winning the elections. In the report published by International Data Corporation it was mentioned that the spending on business analytics services will be $89.6 billion in 2018 which was $51.6 billion in 2014. This represents compound annual growth rate (CAGR) of 14.7. Use of analytics in financial services industries Economic slowdowns, increasing demands from customers and regulatory pressures are the challenges that the financial industry is facing today. Also the stress on digital economy has lead to explosive data growth. Due to increasing social media usage the consumer awareness about the financial products is increasing today. All these factors have forced the financial services industries to use data analytics to extract not just the useful but also actionable insights from the data. Analytics has brought a major change in the financial services industries in areas such as risk & compliance, marketing, consumer and commercial banking, etc. So three broad functional areas across which financial industries have adopted analytics are operations, risk and marketing. 1. Operations: The basic use of analytics here is to reduce the costs. This is done using supply chain, workforce and IT operations analytics. 2. Risk: Analytics help to manage risks. This is done by fraud prediction, risk assessment, regulatory compliance such as BASEL, CRAR etc and loss forecasting. 3. Marketing: Analytics is done to grow the business. It involves market segmentation & sizing, market mix optimization and customer satisfaction. In risk mitigation analytics help in making data driven decisions to help mitigate risk. Natural language processing (NLP) is a technology that can analyze text and then digest the meaning for it. It is now being used in the area of fraud detection as it can read employee’s mails and also process and then digest new regulations. NLP can also access that which of the banking areas or products can be at the risk of non compliance. Natural language generation (NLG) technologies are also being used to generate AML suspicion activity reports. Analytics can also be used to perform risk based pricing and scorecards because risk models which follow the regulatory requirements can be made using tools. So analytics help financial services industries to detect, prevent and mitigate risks in real time. Customer analytics in financial services industry will involve: 1. Social media analytics: This will help in enhancing the online experiences for customers. Also new trend emerging in social media analytics is tracking the sentiment of customers on social media platform which can in turn help in developing strategies for different products. 2. Customer lifecycle analysis: The most important application of analytics is customer segmentation and targeting. Acquisition and churn analytics is also done to estimate customer lifecycle value (CLV). 3. Campaign Management: Analytics can help to discover the opportunities to cross sell and up sell. The marketing campaign’s effectiveness can be judged based on return on investment (ROI). Analytics can also help in providing customer with real time customized and personalized product offerings. Almost every organization in financial services industry is using data analytics these days to help them optimize their processes and serve their customers in a better way. Royal Bank of Scotland (RBS) uses a big data analytics software SAS to improve its customer service. The software helps them to analyze and visualize large amounts of data thus the customers complaints are handles in a better way. The software tells them the errors made by their staff. They are thus aware about what causes complaints and how they can be resolved. So the key aspect of improving customer experience is taken care of by SAS. RBS is targeting £100 million investment in developing analytics technology. The other use of analytics they are targeting is to send automated text messages to inform the customer that their cash is safe if they have left it accidentally after withdrawing from ATM. They are using the technologies such as Cassandra and partnering with data driven start-ups like Pegasystems. JP Morgan uses data analytics in various ways. The investment banking giant uses the Hadoop tool to leverage big data for analytics. They have massive amounts of data due to a huge customer base. So Hadoop is used to process this data that include mails, social media posts and other information that cannot be analyzed by conventional means. The Hadoop can store bulk of data from various banking products. Along with the above mentioned uses Hadoop helps JP Morgan to detect patterns, risks and find any opportunity available to make money. Another platform used by JP Morgan is Sqrrl’s to help analyze and integrate cyber datasets securely. Many other analytics tools like Equities Analytics, Correlation Analyzer and Data Query are also used by JP Morgan. Pitfalls that organizations face when using data for decision-making A survey was consisted by Insight IQ in which 5000 employees of 22 global companies were evaluated. The motive was to find employees who have strong analytics skills and are best equipped to make decisions based on data analytics. It was found that only 50% of managers and 38 % of employees fell into this group. So this survey clearly highlights the shortage of skill set among employees when comes to decision- making using data analytics. Another problem is that usually reliable information exists but it is very difficult to find. It is like you have a library but no card catalogue. According to a survey done by Harvard Business Review only 44% workers say that they are aware where to look for the information they need. Companies should also try and increase the data literacy of their employees and also incorporate information to decision making by providing those employees right tools. According to Mckinsey director Tim McGuire companies face three major challenges while using data analytics. First is to decide that which data needs to be used, next is having the right capabilities to handle analytics and third is to transform operation by using the insights gained. Lastly still there are many organizations which do not trust the data that they have. Conclusion: So we can clearly see that data & analytics are at the centre of each organization. Especially the financial services industries are employing lot of analytics in their processes. Analytics is helping these organizations to serve their customers in a better way and also giving such insights that were not possible with the conventional ways. According to research report from Gartner the data analytics will take the centre stage when huge data will be generated by embedded systems and as a result of which vast amount of structured and unstructured data will be needed to be analyzed. Organizations will have to filter the vast amount of data coming from internet of things and social media. They need to then make sure that right information is delivered to right person at right moment. So, analytics is slowly becoming deeply embedded everywhere. Still there are the pitfalls that organizations face while using data for decision making. So there is a need to design an end-to-end architecture to fulfil the requirements of growing businesses. Organizations need to develop analytics skill in the employees instead of waiting for someone else to extract useful insights from the data. Analytics should go viral. This can be done by using a pragmatic approach to foster the development of analytics competency at the point of data ingestion. Cloud should be incorporated in the end-to-end architecture. Also the development of both professional as well as technical skills should be focussed upon to make en-to-end architecture a success. So, in the words of Tim McGuire, a McKinsey director analytics will define the difference between the losers and winners going forward.
Indian It sector
Indian IT sector is heavily reliant on US for its business. India’s IT outsourcing industry is worth around $108 billion, as per the National Association of Software and Service Companies. Silicon Valley’s biggest companies, including IBM, Apple, Microsoft, Google, and Amazon, import a sizable amount of talent from India. Infosys, Cognizant, Wipro, Accenture, TCS, and Tech Mahindra are the biggest beneficiaries of the US H-1B work visa program. Recent developments by the Trump’s administration have aimed at reducing migration of workforce in US. With their aim of ‘America First’, the Congress passed bill that puts certain restrictions on the selection process of the beneficiaries of the work visa program. It will now be very costly for companies to import outsiders for IT jobs. There are regulations that also reduce and limit the number of people who’ll be granted work visa for US. This has sent shock waves in the entire global IT industry, especially India. If and when the restrictions come in enforcement, and are successful in US administration’s objective of keeping majority of skilled professionals from coming to US for work, lakhs of Indian IT jobs will suffer directly and indirectly. Speculations have already caused massive restructuring drives in many Indian service based tech giants like Infosys, Tech Mahindra, and TCS. A string of layoffs is expected to continue for at least next two years. The announcement has led to big unrest among the stakeholders in India. There has been a huge public outcry. NASSCOM and the Ministry of External Affairs in India have already took some steps to discuss with trump government how US and Indian IT industries are interdependent on each other and the regulations would hurt both the economies. IT companies in India that are major exporters of IT services are taking pre-emptive measures to tackle the impending fall in demand of work for them. Companies are looking at alternatives to survive. Some industry experts point that this decision, in fact, could prove to be a boon for Indian IT sector which would now shift its focus on core development of software products instead of just providing services to US based clients. This would further lead to enhancement of IT training in India. American IT companies that import a large number of Indians will have to look for employees within US for software. This direct loss of jobs to Indians living in US will also cause rippling effects in India’s domestic IT industry. But the problem isn’t just limited to India; many firms in US might have to shut down completely as they cannot afford to continue in operation by hiring expensive American workforce. The bigger question is what happens to the vacancies created in US. Either the companies would have to shift their entire operations in some other country or might have to hire Americans for the jobs. The former is any a overhauling process which hurts Americans more than anybody else. The latter is too difficult to be accomplished. In reality American education system is not producing as many computer science engineering professionals as demand in the market. Over the decades, there have been a flat percentage of American graduates specialising in computers and software domains. On the contrary there is abundance on Indian, Chinese and South Korean students graduating in the subject. Unless US becomes self sufficient in IT skills, this nationalistic sentiment isn’t going to do it any favour. Companies have started looking out for expansion in European and other pacific nations, foreseeing impending uncertainty in US rules and regulations. IT job placements from colleges have observed a significant downfall in numbers, both in India and Indian students in US. Students across the globe who dream to pursue higher education in US are also considering education opportunities in European and Canadian universities. There is no denial that the Indian IT industry and the companies in US have been hurt a lot by new regulations. Dependency is mutual and it this sudden wave of jingoism in US might throttle survival of both the industries in this era of globalisation. How this turns out in long term is yet to be seen.
IOT
The Internet of Things (IoT) is the latest fad in the technology sector. IoT is the concept of connecting electronic devices to the internet. This includes everything from mobile phones, washing machines, HVAC systems, lighting and almost anything else that one can think of. IoT is about connecting companies, people, technology, and devices in real time. IoT attempts to solve many daily life problems, manufacturing limitations, agricultural issues via automation. It builds over core concepts of sensing and actuation, monitoring and analysing real world parameters and using wireless or wired connectivity for remote control and automation. Next big step in the emerging technology is application of artificial intelligence. IoT has applications in areas of manufacturing, transportation, insurance, agriculture, smart homes and buildings, electronics, utilities, and defence. Bosch, GE, Google, Amazon, Hitachi, IBM, Samsung, Cisco, Fitbit, and AT&T are few of the big names which are investing and expanding in IoT research, development and prototyping. Some of these companies are working towards developing and providing IoT infrastructure for use by other companies in developing IoT products and services for consumers. of smart homes. Google’s acquisition Nest is selling thermostats and fire detectors which can learn patters and interact with their users. be used to monitor and control energy distribution, embedded networks and cyber security products. with traditional and cloud databases. essageSight, for machine to machine data transfer, giving normal objects mobile like capabilities. data analysis of IoT data. frastructure, has created SmartThings that includes connected motion sensors and plugs, which are linked to a central hub and can be monitored through a mobile app. There are many real life consumer relatable solutions that IoT can offer. Many of these have been implemented and being expanded slowly. – Risk assessment based on actual usage data is a strategic component of many insurance companies. For instance, wireless sensors and devices installed in vehicles can gather driving behaviours like speed, hard braking, clutch driving, sudden turning etc. and thus provide insurance companies with tons of data points which were inaccessible before. car maintenance data of its users in order to keep them from damaging the vehicle and enforcing traffic regulations. ased retail outlet in Seattle, set retail industry a-buzz with its powerful demonstration of the technology. Customers can just walk in to the store; pick up the desired grocery from the shelves and leave. Carefully designed sensors, cameras, AI and ML algorithms, along with the interconnected system of user’s phone and payment account with do the rest of the job of determining the cart, its value and billing. spaces. Sensors can determine patterns of usage and switch the systems on and off accordingly. Moreover, lighting and HVAC systems can be controlled and scheduled remotely. s in residents’ mobile apps. IoT security systems can also facilitate in monitoring and securing premises from break-ins or other hazards. Any irregularities are immediately alarmed to the relevant physicians and appropriate medical help can be provided. There are multiple speculations about viability and sustenance of IoT in future. Many are pondering about its business viability and long term utility. There are doubts whether IoT can offer any quantifiable value aside from entertainment or limited convenience. But, current trends and above cited examples show quite positive and promising results. It seems that IoT isn’t just a superfluous fad and is here to stay for long.
Basics of finanace
Equity share capital or equity financing is one of the primary methods of fundraising capital for a joint stock company. A company issues equity shares for raising capital investment in exchange for the share in the ownership of the company. Shareholders gain voting rights and control over the management. These shares are issued to general public and shareholders are entitled to the residual income of the company once it dissolves. Shareholders may enjoy high dividends on their investments in case of profits. Another benefit is that these shares are easily transferrable and hence very liquid. Equity financing is a high-risk investment from shareholder’s point of view as equity shareholders do not enjoy any preferential rights with regard to repayment of capital or dividends. Their payment is uncertain and least in order of priority. From company’s point of view, equity capital enhances goodwill and helps attract potential creditors with ease. There is no obligation on the company to pay dividends and there is no maturity date for shares. On the other hands, huge equity capital leads to dilution of ownership and also is a big cost for the company as shareholders expect big dividends, which are to be paid after tax deductions. Preference share capital or preferred stock is another method of fundraising for a joint stock company. Preferred shares are shares of company’s stock that guarantee certain preference to the shareholders in terms of dividends and capital repayment. These shares have fixed rate of dividends in case the company reaps profit and their payment is legally binding. Payment of dividends to equity shareholders is done only if surplus profit is left over after payment of dividends to preference shareholders. In case of bankruptcy or winding up of the company, preference shareholders have first right to claim over the return of capital or sale of assets respectively. But preferred shareholders do not have any ownership or voting rights in the company. Preference shares are relatively less volatile than equity shares. Nevertheless, preference shares are optimal for risk-averse investors looking for a steady flow of fixed dividends. Also, these shares can be called for repayment even before the company dissolves, unlike the equity shares. Debentures are instruments of medium to long term debts which are used by companies to borrow money, at fixed rates of interest. They are a kin loan certificates for a fixed period of time. Debentures are freely transferrable and debenture holders do not enjoy any voting rights in the company. Debentures can be issues with our without collateral, coining on the goodwill and faith in the latter case. In case the company defaults, debenture holders have first claim over any unpledged assets for seizing. Interest on debentures is payable even if the company is operating under loss.
Entrepreneurship concept for engineer’s series-4
Process of becoming an Entrepreneur (continued) Now till now I have written about the basic idea of becoming an entrepreneur. Before discussing about the process of becoming a successful entrepreneur one should know that no one can provide you a magic pill for this. It is a long journey that has many ups and downs and its completion depends on many factors. Before discussing further the traits, qualities and characteristics of an entrepreneur it is better to become aware about the problems that a young graduate might face: Being young is a challenge in itself because you are not taken seriously by banks and accountants which means the problem of arranging money. Also the process of arranging money is tough as one has to also arrange for a guarantor. Another problems are the self assessment problems: Some might initially think that what will happen if they will not succeed. Some will get afraid of the risks that are involved in the start-up. Sometimes resistance of family and friends can come in the way .Another big question that can come in mind is the inertia factor that is Where and How to start? Definitely these are the serious problems but they can be easily solved by adopting a sensible and creative approach. For doing this simply one must to know about the traits of an entrepreneur so that one can apply some of these . Traits are: Entrepreneurs want high degree of achievement. They pull their own strings. They are ready to take moderate risks which help them in getting higher return on assets. They have the ability to allow ambiguity. They want to do more in less time. Persistent problem solving. They have positive energy levels. They are high in self confidence and are optimistic. They have internal locus of control. They are driven to achieve.
Return on assets case study
Title: Significance of Return on Assets (ROA) & its correct computation for determining the profitability of a company. Return on Assets (ROA) is an important criterion to judge the profitability of the company. It measures the profitability of the company in relation to its resources. Often the management of the company is in the dilemma ‘What to do with the assets available?’ ROA answers this question for them. ROA for capital intensive company will be relatively low as compared to company with low capitalization. This is because capital intensive company requires large amount of assets to do what it does. At the same time capital intensive company will have more no of assets that can be turned into money at the time of failure. Methodology I have tried to highlight the importance of the Return on Assets for a company by taking two cases. In the first case I have taken the example of a largest producer of steel, ‘Steel-giant’. The management of this company is under a lot of stress due to their decreasing return on assets. So here the importance of correct computation of ROA is highlighted by using payments made to both lenders and owners in the numerator. In the second case I have taken the example of two companies ‘PM’&‘IT’. PM is having high profit margin and IT is having high Investment turnover. I have highlighted the importance of ROA in this case by using Du-Pont analysis. Problem Statement 1 Steel -giant is a leading producer of steel in India. It is a public sector undertaking which is mainly owned by Government of India. It started its operation in India in 1954 and has slowly and steadily become the steel market leader of India. India’s steel industry from last 6 years has seen a lot of turbulence due to sharp decline in global commodity prices. As a result of which Steel-giant has seen a sharp decline in profits. This has in turn led to reduced Return on Assets. After facing huge decline in profits and return on assets, the company now is being led by a dynamic chairman from last two years. His continuous efforts and India’s push for infrastructure projects has led to increase in profits in the current year. He asks for the financial data of last 4 years from his accountant which is given below: Important data 2017 2016 2015 2014 Total Assets 426.5 411.5 407.6 411.8 EAT 1.8 -0.2 4.4 5.2 Interest 5.2 4.9 5 5.5 Tax Advantage 1.82 1.715 1.75 1.925 The chairman understands the importance of ROA and hence wants to find out Return on assets (ROA) of last 4 years and compare it with the industry figures. The accountant calculates ROA based on the conventional method: ROA= (EAT/ Total assets)*100 So this gives return on assets for: 2014 = 5.2/411.8 = 1.26% 2015 = 4.4/407.6 = 1.08% 2016 = -0.2/411.5= -0.05% 2017 = 1.8/426.5 = 0.42% Chairman looks at the calculations of accountant and realizes there is some fault in the calculations. As the ROA calculated is less as compared to the other industries having nearly same EAT. So he hires a consultancy service ‘Think different consultancy services’ to advice him regarding the correct calculations and other steps to improve ROA. The consultant of the company after looking at the calculations instantly informs the chairman about the correct concept. Solution: He says that ROA calculated using conventional method is an underestimate of profitability as EAT is a reward to shareholders. Actually assets are financed both by shareholders funds and debt-holders funds. So, the numerator should also include reward made both to the owners and lenders. So the numerator will be inclusive of interest paid to debt-holders. (Reference: Page 4.34, Management Accounting by Professor P.K. Jain) So Real ROA= (EAT+ Interest- Tax advantage on interest)*100/ (Total Assets) Based on this formula he calculates ROA as follows: 2014 = (5.2+5.5-1.92)/411.8 = 2.13% 2015 = (4.4+5.0-1.75)/407.6 = 1.88% 2016 = (-0.2+4.9-1.715)/411.5 = 0.72% 2017= (1.8+5.2-1.82)/426.5 = 1.21% The chairman understood the usefulness of the formula suggested by the consultant after seeing the ROA improving considerably for all the years. Consultant further inquired about the assets of the company like Land, plant & machinery as he was aware about the vast amount of land lying unused in the PSUs. He found that more than 100 acres of land was lying unused in various plants of Steel-giant. He also observed that the company like other steel companies was battling a flood of cheap imports from china inundating the company with cheap supplies. So some amount of plant & machinery was also lying unutilised. So he estimated the total unused assets of about 30%. He now calculated the ROA based on Total assets actually used: (Eat + Interest-Tax Advantage)*100/ (Total Assets)*0.7 2014 = 2014 = (5.2+5.5-1.92)/ (411.8)*0.7 = 3.04% 2015 = (4.4+5.0-1.75)/ (407.6)*0.7 = 2.68% 2016 = (-0.2+4.9-1.715)/ (411.5)*0.7 = 1.04% 2017= (1.8+5.2-1.82)/ (426.5)*0.7 = 1.73% This concept helped chairman to understand that ROA is based on the concept of assets actually used to generate profit as the ROA of Steel-giant now became comparable to other steel companies earning same amount of profit. So the Chairman got to know that assets which are not in use are not contributing to EAT so they shouldn’t be used in the calculation. Some recommendations were also given by the consultant: 1. He observed that the other expenses like travelling expenses, scrap recovery expenses, maintenance expenses, etc. formed a major part of the company’s expenses. Since the company is already facing issues of less margins so he insisted on reducing these miscellaneous expenses. 2. Company has a huge amount of land lying as waste. This land is currently unproductive and company at this position can’t afford this. If the company doesn’t have any plans of expansion in future it can rent this land to generate income. Another option is to sell the land to fund its operations but that will only be a short term boost. So the company should quickly come up with plans to either diversify its business or rent the unused land. 3. Lastly it should not allow the machinery to be unutilised for long periods of time. Because the cost of machinery is a fixed cost, it will continue to be incurred even if it is not put to use. So company should ensure maximum utilization of its installed capacity, so that proper utilization of assets can be done. Problem Statement 2 This problem is related to two companies PM & IT. Both the companies are generating same ROA form two years which is close to 9%. Both of them have approached the same consultancy service ‘Think different consultancy services’ to know about the reasons of low ROA and also the ways to improve it. Important financial data of PM for 2 years is given below: Important data 2017 2016 Sale 80.8 80.6 Earnings after tax 6.5 6.2 Average Total Assets 70.2 69.2 Important financial data of IT for 2 years is given below: 2017 2016 Sale 140.2 138.5 Earnings after tax 1.5 1.4 Average Total Assets 15.5 15.1 Solution: The consultant is fully aware about the Du-Pont analysis and how he can use it to find about the real reasons of less ROA. So, first of all he performs analysis on data of PM: Net Profit margin = EAT/ Sales 2016 = 6.2/80.6= 7.69 2017 = 6.5/80.8 = 8.04 Investment Turnover = Sales/ Average Total Assets 2016 = 80.6/69.2 = 1.16 2017 = 80.8/70.2 = 1.15 By Du-Pont analysis ROA= Net Profit Margin*Investment Turnover 2016 = 7.69*1.16 = 8.96 2017 = 8.04*1.15 = 9.26 After doing this analysis the consultant gave them recommendations: 1. He explained the company ‘PM’ that they were just concentrating on increasing their net profit margin which is only one factor in calculating ROA. They also need to concentrate on other important factor which is Investment turnover. 2. They can improve their turnover by increasing their sales by employing effective marketing strategies. They can have better utilisation of assets to improve their Investment turnover. As it is clearly visible from the data they are using large amount of assets to generate sales. Analysis on data of IT: Net Profit margin = EAT/ Sales 2016 = 1.4/138.5 = 1.01 2017 = 1.5/140.2 = 1.07 Investment Turnover = Sales/ Average Total Assets 2016 = 138.5/15.1 = 9.17 2017 = 140.2/15.5 = 9.04 By Du-Pont analysis ROA= Net Profit Margin*Investment Turnover 2016 = 1.01*9.17 = 9.27 2017 = 1.07*9.04 = 9.68 After doing this analysis the consultant gave them recommendations: 1. Unlike company PM they were concentrating only on Investment Turnover. But there net profit margins are very low. 2. To address the issue of low net profit margins the consultant advised them to economise their costs or reduce their expenses. This will lead to increase in EAT and hence the net profit margin. So by using Du-Pont analysis consultant could clearly bring to the fore the areas which required more attention from management. By using both these problem statements I wanted to drive home the point that ROA is very important factor in assessing the firm’s profitability. It is more important for companies having huge chunk of unused assets. It highlights the importance of proper utilization of assets, because if unused assets are brought to use the companies can also address the issues of rising NPAs.
Entrepreneurship concept for engineer’s series-5
Process of becoming an entrepreneur (continued) Till now I have written about the basic meaning of Entrepreneurship, its stages,its characteristic and its traits. Now all these things can be better understood and can easily be practically applied it is good to consider some real life examples. So here are the examples of some successful entrepreneurs who exhibited the mentioned traits: Vision: Without having a vision to make mark on mobile industry Mr. Dhirubhai Ambani wouldn’t have made that big. Knowledge: Without the knowledge of computers Mr. Narayan Murthy could not have made it big. Desire to succeed: Without desire to succeed Mr. Mukesh Ambani would not have ventured into Biotech, Retail. Need of Independence: Without a desire for Independence Mr. Sabeer Bhatia would not have quit his job to start his own enterprise & create Hotmail.com. Value Addition: Without providing the facility of Lifetime Free Roaming “Tata Indicom” would not have been able to create space for itself in already saturated market. Optimism: Without being an optimist Mr. Narayan Murthy (who took loan from his wife) would not have created Infosys. So, all these examples show that if you are creative and have the passion and guts to start your own enterprise then you are bound to succeed. You just need to remove the mind blockers like inertia, Personal doubts and Family & Friends. Yes it is true that initially you will face many problems and it may be also possible that you fail in your first attempt. But you must keep patience and continue your sincere efforts. Surely you will be successful. All the five articles on Entrepreneurship for engineers are to provide motivation, confidence, skills and tools which will inspire and enable young people & engineers to start their working lives and achieve economic and social regeneration through enterprise.