Finance Kit for WAT-PI

What does a MBA-Finance do?

The primary focus of a business is to increase its value – and it mostly zeroes
down on how much money it makes and manages, which is when finance managers
come into picture. Finance professionals (in Corporate Finance) are accountable to
manage the money of the organization i.e. to know from where to source it, deciding
how to spend it to get the maximum returns at the lowest possible risk. They seek to
find ways to ensure flow of capital, increasing the profitability and decreasing the
expenses. They explore the best ways to help company expand whether it is through
acquisition or investing internally.
Additionally, there is a different career profile of finance professionals in
Investment Banks who need to have clear viewpoints on investing, stocks and how to
value companies, and how to design their portfolios to minimise risk. Yes, a career in
finance does get a lot of the glory and while salaries can go sky high, but you’ll have to
work hard for it.

Few Jargons to familiarise yourself with financial world

1. Financial Statements
Financial statements are a collection of reports about an organization's financial
health, its financial condition and performance. They are useful for the following
reasons:
• To determine the ability of a business to generate cash, and the sources and
uses of that cash.
• To determine whether a business has the capability to pay back its debts.
• To track financial results on a trend line to spot any looming profitability issues.
• To derive financial ratios from the statements that can indicate the condition of
the business.
• To investigate the details of certain business transactions, as outlined in the
disclosures that accompany the statements.
There are 3 core financial statements
• Balance Sheet
• Income Statement/ Profit and Loss Statement
• Cash Flow statement
Finance Kit for WAT-PI
a. Balance Sheet summarizes a company’s assets, liabilities and shareholder’s
equity at a particular point in time. It presents a snapshot of the financial
position of the company.

• It is based on the following accounting model:

Assets= Liabilities + Shareholders Equity
• Assets are of two types
o 1) Fixed assets- Assets which are purchased for long term. Eg- Building,
Land
o 2) Current assets- Assets which can be quickly converted into cash. Eg-
Cash
• Liabilities are obligations of the company, payable to another entity. Liabilities
are incurred in order to fund the ongoing activities of a business. If the
obligation is due within the next 12 months, it is classified as current liability.
• Shareholder’s equity represents the amount of business holdings that weren’t
purchased using debt(loans).

b. Income Statement reports how much revenue the company generated, the
expenses it incurred and the resulting profits or losses during a period of time
(usually the financial year).
Finance Kit for WAT-PI

• The basic equation underlying the income statement is:

Revenue – Expenses = Income
• Revenue which is also known as “Top Line”, is the amount of money the
company actually receives during the particular period.
• Expenses are summarized and charged in the income statement as deductions
from the income before assessing income tax.
• Income is the increase in net inflow of cash or other assets during an
accounting period.

c. Cash flow statement tabulates how much cash is coming in and going out of the
firm.
There are three major elements in the cash flow statement:
• Cash flow from operating activities- It encompasses cash generated from
a company’s day to day operations. This includes cash inflows resulting
from sale of a product for cash.
• Cash flow from investing activities- It pertains to the purchasing and
selling of investments which include property, plant and equipment.
• Cash flow from financing activities- It covers obtaining or repaying
capital. This include the sale of stock, stock repurchase and issuance of
dividends.
Finance Kit for WAT-PI

2. Stock market
To understand what is a stock market we will need to understand the types of
companies. Please go through the below video at once for an understanding

Youtube - How the Stock market works

Please note that companies whose stock prices you see in the newspaper or in
news channels are public limited companies.

Forms of Business Organization

These are the basic forms of business ownership:

1. Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set-
up and is the least costly among all forms of ownership.

2. Partnership
A partnership is a business owned by two or more persons who contribute
resources into the entity. The partners divide the profits of the business among
themselves.
Finance Kit for WAT-PI
3. Corporation
A corporation is a business organization that has a separate legal personality
from its owners. Ownership in a stock corporation is represented by shares of
stock.

4. Limited Liability Company

Limited liability companies (LLCs) in the USA, are hybrid forms of business that
have characteristics of both a corporation and a partnership. An LLC is not
incorporated; hence, it is not considered a corporation. Nonetheless, the
owners enjoy limited liability like in a corporation

5. Cooperative
A cooperative is a business organization owned by a group of individuals and is
operated for their mutual benefit. The persons making up the group are called
members. Cooperatives may be incorporated or unincorporated.

6. Public Limited
Companies owned by minimum seven people. There is no limit on the
maximum number of owners. Shares of public limited companies are traded
over a stock exchange (NSE, BSE, NYSE, etc.)

What is a share?
o In very simple terms, A share is an ownership of a company.
o Lets suppose the company Oil Drum Mfg. Co is divided into 1000 shares.
So, 1 share = 0.1% ownership of a company
o In case of Public limited company the shares are registered and traded
over a stock exchange
o In case of Private limited the shares are not freely traded. They can be
bought or sold among existing holders or by the company
Thus, the companies we see being traded (bought/sold) at various exchange
like NSE and BSE are public companies.
Now shares of companies can be traded in two ways:
• Primary Offer or Primary Market (IPO/FPO)
• Secondary Offer or Secondary Market
Different offerings to public:
Finance Kit for WAT-PI
• In a primary offer the company sells the shares of a company to the
general public through IPO or FPO.
• IPO or Initial Public Offer is a primary offer in which a company offers
for sale its shares to the general public for the first time
• FPO or Further Public Offer is a primary offer in which a company
offers for sale its shares to the general public after the first offer is
made. In such situations the shares are already being traded. New
shares are issued to market.
So, the exact steps are:
• A private company decides to go public either to raise money from
the public or to fulfil regulatory compliance
• It approaches an investment bank or an underwriter and issues an
IPO
• Public buys the offered shares via the IPO (Primary Market) in return
of cash
• Public trades the share in the secondary market
• If the company wants to issue more shares it approaches
underwriter for a FPO
• Company sells more share to the public via FPO
• Now a higher number of shares are traded in the secondary market
due to the FPO
• To go public a company has to offer for sale its shares via an IPO to
the general public.
• After the IPO the public trades (buy/sell) the shares in the secondary
market
• In the Secondary Market there is no involvement of the company.
The shareholders only sell share.
• The stock exchange (NSE/BSE) facilitates the offer and trade of
shares like a normal market place.
In Primary Market, the issuers give a price band or a fixed price. People bid a price in
the price band and those who bid above a particular price (issue price which is
obtained on the basis of application/bids) get the shares while those who bid below
the issue price don’t. In fixed price IPO people have to pay the fixed price if they want
the shares.
In Secondary Market, the seller gives an offer price at which he is ready to sell and a
buyer gives a bid price at which he is ready to buy. If the lowest offer price and the
Finance Kit for WAT-PI
highest bid price coincide the trade of shares happen. Such price (at the last trade) are
often known as LTP or Last Trade Price which is normally displayed on the newspaper
and ticker.

(PFB: The Balanced Sheet for your News & GK brush-up)

Please be abreast of latest news & events.
In case of further queries, feel free to reach us at finvest@iimtrichy.ac.in.
You may also ping us on Facebook - https://www.fb.com/FinvestIIMT - FinvesT, IIM
Trichy
 THE BALANCED SHEET
The Finance Update MONDAY, 22 JANUARY 2018
STATS AND NUMBERS
BSE SENSEX NIFTY 50 USD/INR GOLD CRUDE OIL
19 JAN 2018 35511.58 10894.70 63.8419 29745.00 $68.61
1 MONTH CHANGE +2055.79 (6.14%) 572.45 (5.55%) -0.517 (-1.36 %) 1345(4.74 %) 3.92(6.06 %)

NEW & NOTEWORTHY

HSBC to pay $100 million World Bank projects a Ledger, a French Tax overhaul leads Amex
to end US currency rigging growth rate of 7.3% for cryptocurrency wallet to loss, first time in 26
probe. India in 2018 maker raises $75 million. years.

HSBC will pay $100 million in
penalties to resolve US justice
department charges of rigging
currency rates. The HSBC matter
was a fraud perpetuated on its own
clients. The case involves conduct
of two employees Mark Johnson
and Stuart Scott for conspiring to
take advantage of inside
information about Cairn Energy
Plc’s plan to sell stake in an Indian
subsidiary. HSBC was hired by
Cairn Energy to trade about $3.5
billion in proceeds of the sale to
pounds.
The ‘enormous growth potential’ of
India compared to other emerging
economies will accelerate the
growth to 7.3%-7.5%. To
materialise this potential WB
suggests boosting investments,
improve female labour force
participation and relax investment
bottleneck. India should also
leverage its advantageous
demographic profile. Labour
market reforms, education and
health reforms as well as relaxing
investment bottleneck will help
improve India's prospects.
The capital was raised through a
Series B round and was led by
European Venture Capital firm
Draper Esprit. Ledger makes secure
hardware wallets that let customers
store their bitcoin and Ethereum
holdings offline to remove the risk
of being hacked. The investment
would be used to fund its R&D
operations. The funding round
dwarfs that raised by BitGo and
Blockchain, which raised $42.5
million and $40 million
respectively in Series B financing
rounds last year
, programs.
American Express would not
buyback shares for the next six
months due to the impact of the
recent U.S. tax reform. The
company had $2.6 billion in
charges tied to profits AmEx had
earned abroad and was now
repatriated to the U.S. under a
special one-time tax program. The
company also had some deferred
tax assets or credits it could have
used toward future tax bills, which
it had to write down. The new tax
rate is around 22% and extra
income from tax saving will be
used for employee profit sharing.

A universal Bank in the Nepal to end India’s

making: IDFC-Capital
First merger.
IDFC Bank and Capital First
announced the merger of two
banks. Combined entity will have a
customer base of 5 million and
branch network of 194. Swap ratio
for the merger is 139:10 (139 IDFC
shares for every 10 shares of capital
first), resulting in 40% equity
dilution. This is pursuant to IDFC
Bank's strategy of "retailising" its
business to complete their
transformation to a well-diversified
universal bank, and in line with
Capital First's stated intention to
convert to universal bank.
MAJOR M&As, IPOs, JVs & INVESTMENTS Internet monopoly with
Tech Mahindra to pick up 17.5 per cent stake in Altiostar for new Chinese link
$15 million
China Telecom Global has
Rakesh Jhunjhunwala-backed John Energy to file for launched services in Nepal ending a
Rs300 crore IPO decade long monopoly of India in
the cyber connectivity market. Until
now Nepal had depended on Indian
ICICI venture to invest ₹100 crores in Go Fashion for 14% companies like Bharti Airtel and
stake Tata Communications Ltd for
access to internet. Nepal has been a
natural buffer for India and China
Torrent Pharma, the flagship company of Rs.18300 crore
and the two countries have made
Torrent Group to buy US-based Bio-Pharm. efforts to increase their investment
commitments in Nepal. The new
deal is an alternative to provide
uninterrupted connectivity

Read more at:

ET CETERA
//economictimes.indiatimes.com/articlesho
w/62485644.cms?utm_source=contentofint
erest&utm_medium=text&utm_campaign=c
ppst
Capital infusion worth
Rs10,000 crore into 6
stressed PSBs.
The government would infuse
Rs. 10,000 in PSBs including Dena
Bank, Union Bank of India and
Bank of Maharashtra as part of the
Indradhanush scheme.
Indradhanush is a seven-pronged
revamp plan for public sector banks
(PSBs) that includes a capital
infusion to the tune of Rs 70,000
crore by FY 2019. The immediate
infusion is for the maintenance of
the required regulatory capital.
NPA of PSBs is Rs 7.34 lakh crore
as of September 2017 giving India
one of the highest ratios among
high NPA nations.
Will India adopt the China
way of app-based
payments?
WhatsApp is integrating its
Unified Payments Interface based
platform SBI, ICICI, Axis and
HDFC. In China, mobile payments
volume doubled to around $5
trillion in 2016 mainly driven by
Alipay and WeChat Pay, a feature
of the country's largest messaging
app. WhatsApp's payments feature
is highly anticipated in India
because of the huge popularity of
the app across diverse populations
and its anticipated ability to bring a
huge segment of the country within
the digital payments ecosystem.
Bank of Baroda partners
with Invoicemart as a
TReDS partner.
Buyers and sellers registered with
Invoicemart can now access
funding from BoB. Invoicemart is a
joint venture between Axis Bank
Ltd and Mjunction services ltd. The
initiative is a launching step for
BoB to focus on supply chain
financing. TReDS helps MSMEs
unlock working capital without the
hassle of applying for
loans. Recently Government of
India advised all public-sector
banks to get registered on TReDS.
This helps the SMEs and MSMEs
in getting trade finance at ease.
NBFCs to grab almost
50% of consumer durables
credit by 2021.
NBFCs would pocket almost half
of the consumer durable lending
space which would touch Rs.2
Trillion. This rise is due to
penetration of formal finance and
NBFC’s expansion of unsecured
retail credit market. Share of
NBFCs in the unsecured lending
portfolio, have been propelled by
customised product offerings like
consumer durables financing,
lifestyle financing and personal
loans, improved availability of
credit data, and strengthening of the
credit processes and distribution
networks.

NEW KIDS ON THE BLOCK PEOPLE PROFILES/INTERVIEWS COUNTRY IN FOCUS: JAPAN

• Airtel with aggressive capex plans on • Manish Gunwani, Rel Cap MF on • New phase of postwar expansion cycle
4G credible Budget 2018 with pickup in private consumption and
robust exports. Upgrades assessment.
• RIL Q3 Net Profit soars 25% with Jio • Chanda Kochhar, ICICI Bank on
LeadTheNew

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