Indian Depository Receipts (IDRs) are transferable securities to be listed on Indian stock exchanges in the form of depository receipts created by a Domestic Depository in India against the underlying equity shares of the issuing company which is incorporated outside India. As per the definition given in the Companies (Issue of Indian Depository Receipts) Rules, 2004, Indian Depository Receipt is an instrument in the form of a Depository Receipt created by the Indian depository in India against the underlying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an Indian Depository (say National Security Depository Limited — NSDL), which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian Depository to issue the IDRs. The Indian Depository Receipts would have following features: Overseas Custodian: Foreign bank Continue reading
Financial Concepts
What is a Master Budget?
Budget provides comprehensive financial overview of planned company operation. A company’s objectives budget is the overall financial plan showing expenditure of the available funds. A company’s budget is driven by the aims and objectives of the company as well as what it can actually accomplish. Many variables in a business can be budgeted which includes sales, output, cost- (variable and fixed), profits, cash flow, capital investment. Budget should be SMART, that is specific, measurable, achievable, realistic, and with time bound otherwise budget will be ineffective. Strategic objective of the company is the first factor that needs to be considered when formulating budgets because unaligned budget with strategic objective lead to failure. The next step of budgeting is identifying the limiting factor that the organization is faced with which is known as constraint which may be a limit on the number of goods a business could sell (demand is limiting factor) Continue reading
Financial Leverage and the Shareholders Risk
It has is seen that financial leverage magnifies the shareholder’s earnings. It has also been observed that the variability of EBIT causes EPS to fluctuate within wider ranges with debt in the capital structure. That is, with more debt, EPS rises and falls faster than the rise and fall of EBIT. Thus, financial leverage not only magnifies EPS but also increases its variability. The variability of EBIT and EPS distinguish between two types of risk- operating risk and financial risk. 1. Operating Risk- Operating risk can be defined as the variability of EBIT (or return on assets). The environment- internal and external- in which a firm operates determines the variability of EBIT. So long as the environment is given to the firm, operating risk is an unavoidable risk. A firm is better placed to face such risk if it can predict it with a fair degree of accuracy. The variability Continue reading
Purposes of Cost Allocation
Cost allocation is the assigning of a common cost to several cost objects. For example, a company might allocate or assign the cost of an expensive computer system to the three main areas of the company that use the system. A company with only one electric meter might allocate the electricity bill to several departments in the company. Cost allocation implies that the assigning of the cost is somewhat arbitrary. Some people describe the allocation as the spreading of cost, because of the arbitrary nature of the cost allocation. Efforts have been made over the years to improve the bases for cost allocation. In manufacturing, the overhead allocations have moved from plant-wide rates to departmental rates, from direct labor hours to machine hours to activity based costing. The goal is to allocate or assign the costs based on the root causes of the common costs instead of merely spreading the Continue reading
Revenue Management – Meaning, Benefits, Scope and Future
The phenomena of revenue management gained importance in recent years due to variable and discriminatory pricing schemes offered by various companies to their customers. Revenue management applies the orderly analytics that predict the behavior of the consumer at micro level and augment the prices and availability of products to the customers thus enhancing the overall revenue for the company. The aim of devising revenue management techniques is to deliver the fine product or service to the appropriate customer at the precise price. Revenue management system is based on analyzing the customer’s perception of the value that the product would provide and make straight the availability, placement and price according to that perception. This discipline became the need of every business rapidly. There could be many reasons for this. Even a kid whose is out for selling orange juice will have to analyze and predict the appropriate weather and time for Continue reading
What Is Capital? Definition and Concept
Capital is the money needed to produce goods and services. In plain terms, it is money. All businesses must have capital in order to purchase assets such as land, buildings, machinery, raw materials and maintain their operations. Business capital comes in two main forms: debt and equity. Debt refers to loans and other types of credit that must be repaid in the future, usually with interest. Equity, on the other hand, generally does not involve a direct obligation to repay the funds. Instead, equity investors receive an ownership position in the company which usually takes the form of stock, and thus the term “stock equity.” One of the factors of capital is the factor of production, debt capital; the cost is the interest rate that the company must pay in order to borrow funds. For equity capital, the cost is the returns that must be paid to investors in the Continue reading