Confirmation bias is the inclination to seek or make sense of news or facts in a way that validates one’s preconceptions. So, during the decision making process for psychologist they will refer to information that supports their decision more favorably. They will rarely give the obvious negative much consideration and since our beliefs and postulations are definitely prejudiced so the tendency to give more attention and weight to data that support our beliefs than we do to contrary data will subtly but gradually have a harmful effect. An illustration of Confirmation Bias A very real manifestation of this tendency can be observed in the virtual world. For instance, investors are increasingly turning to message boards or virtual communities to search, clarify, and exchange information before making investment decisions. The volume of discussion on such portals is so intense that it has become possible to sense stock sentiments from here. These Continue reading
Financial Management
Financial management entails planning for the future of a person or a business enterprise to ensure a positive cash flow, including the administration and maintenance of financial assets. The primary concern of financial management is the assessment rather than the techniques of financial quantification. Some experts refer to financial management as the science of money management. The five basic components of the Financial Management Framework are: Planning and Analysis, Asset and Liability Management, Reporting, Transaction Processing and Control.
Double Entry System of Bookkeeping
The recording of financial transactions undertaken by an individual or an organization defined Bookkeeping. The organization could be an enterprise, a charitable organization or even a local sports club. The necessary support for such accounting function is provided by bookkeeping as the preparation of cost reports, financial statements, and tax returns. Making entries to specific accounts with debit and credit system and keeping track of a business’s financial transactions is involved. Bookkeeping has evolved through the years from clay tablets, to paper ledgers, and now computerized systems. Even for now, bookkeeping fundamentals have not been changed through the ages. And chances are the future societies will not be able to exist without a formal system of financial recording keeping. In short, some of the same problems that plagued ancient bookkeepers still exist even with modern advancement. The process of bookkeeping is always considered to be as vital importance to categorize Continue reading
Credit Derivatives – Meaning and Definition
Rationale for Introducing Credit Derivatives Our present society lives on credit. Credit allows us to consume far more than what our savings can sustain. Therefore, credit is the very basis of consumerism. Our economy drives on the basic force of credit. What exactly is credit? Credit is parting with value today against a promise for value in future and this credit has inherent risk in it which is known as credit risk. Credit risk is the risk that the promise of payment in future may be broken. In other words, credit risk is an investor’s risk of loss arising from a borrower who does not make payments as promised. When the borrower fails to make payments, it is termed as default. So, credit risk is also known as default risk. This concept of credit risk can be looked at from two perspectives. Credit risk on the loans granted by banks Continue reading
Valuation of Assets in a Demerger
A demerger scheme usually involves the allotment of shares in the transferee company to the shareholders of the transferor company, in lieu of their reduction of their interest in the transferee company having a mirror image of shareholdings. If post demerger as part of strategy, intention is to create holding subsidiary relationship or retain part stake than it is possible to allot shares of the transferee company to the transferor company. In the context of a demerger scheme, a valuation exercise is mandatory in order to determine the number of shares to be issued to the shareholders of the transferor company in consideration for the spin off/demerger of the undertaking or undertakings. If demerger is going to be in ‘Shell Company’, than valuation is primarily to determine the capital structure of the Transferee/Resultant Company. If the demerged and resulting companies belong to same group of management and shareholders are common, Continue reading
Financial Management: Definition, Nature and Features
Finance is the lifeblood of a business firm. The health of every business concern mainly depends on the efficient handling of finance functions. In simple term, Financial Management may be defined as the management of the finance or funds of a business unit in order to realize the objective of the firm in an efficient manner. It is broadly concerned with the mobilization and use of funds by a business firm. Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. In other words, it is concerned with acquiring, financing and managing assets to accomplish the overall goal of a business enterprise (mainly to maximize the shareholder’s wealth). Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. It was a branch of economics till 1890, and as a separate discipline, it Continue reading
Divisional Performance Measurement
Performance measurement is the performance-based management process which is flowing from the organizational mission and the strategic planning process. Divisional performance measurement includes the objective and subjective assessments of the performance sub-units of an organization such as divisions or departments. Divisional performance measurement are effective in ensure that a strategy of organisation is successfully implemented by monitor a divisions effectiveness in satisfying its own predetermined goals or stakeholder desires. Divisional performance measures may be based on non-financial as well as on financial information. Divisional Performance Measurement – Financial Measures 1. The Return on Investment (ROI) Nowadays, most of companies concentrate on the return on investment (ROI) of a division that is profit as a percentage in direct relation to investment of division which instead of focusing on the size of a division’s profits. ROI addressed divisional profit as a percentage of the assets employed in the division. Assets employed can Continue reading