Investment Valuation in India

Sales are the lifeblood of any company, and getting a reasonable estimate of sales revenue scale and growth is highly critical in any ensuring business planning exercise, such as capital investment decisions, hiring of staff, expansion of business operations and allocation of operating budgets, etc. Hence, forecasting demand for a company’s products and services, and the resulting revenues accrued is probably the most critical step a financial analyst needs to undertake when building a financial model. In order to arrive at a realistic and reasonable revenue forecast for a business, a good financial analyst should conduct a detailed revenue modeling / demand analysis of a company’s products and services, by examining its usage potential and a customer’s willingness and ability to pay. A demand analysis would entail determining current demand and using assumptions for demand build up to predict future demand over the time period of the financial model. There are a number of qualitative ...

An Equity-Linked Note (ELN) is an instrument that provides investors fixed income like principal protection together with equity market upside exposure. An ELN is structured by combining the economics of a long call option on equity with a long discount bond position. The investment structure generally provides 100% principal protection. The coupon or final payment at maturity is determined by the appreciation of the underlying equity. The instrument is appropriate for conservative equity investors or fixed income investors who desire equity exposure with controlled risk. An Equity-Linked Note (ELN) is a debt instrument that differs from a standard fixed-income security in that the coupon is based on the return of a single stock, basket of stocks or equity index (the “underlying equity”). An ELN is a principal-protected instrument generally designed to return 100% of the original investment at maturity, but diverges from a standard fixed-coupon bond in that its coupon is determined by ...

Impact of Inflation on Financial Statements Fixed Assets under historical Cost accounting – Since the fixed assets are valued at historical cost (in most countries), the assets are stated at a much lower figure than their current replacement costs. This makes the company vulnerable to takeover bids and leads to lower valuations for the shareholders. Depreciation – Since the assets are undervalued, consequently the depreciation on such assets are also undervalued. This leads to distortions in the make or buy decisions of the assets. This consequently overstates the profit of the enterprise. In case of inflation, the cost of raw materials and goods purchased for re-sale are rising. Under the cost concept only cost of purchase is taken to the Income Statement. Generally, in case of Inflation, the fair value is greater than the cost and this difference between the cost and the fair value of such goods is also taken to the Income Statement as Holding Gains. Consequently the profit is agai...

Flat rate of interest Very often banks offer flat rate of interest to their consumers on products like credit cards and personal loans or other smaller loans. Flat rate of interest sounds good because the rates quoted by the banks are lower than the reducing balance interest rates and an average consumer understands the flat rate very easily. The simplest explanation - when you take a flat rate loan, you are asked to pay interest on the whole amount (principal) during the whole tenure of the loan even when the principal is gradually reducing during the term of the loan. Suppose you take a loan of 1 lakh rupees at 15% flat rate of interest for 1 year. The EMI or equal monthly loan installment that you pay consists of both interest and a part of the principal. So, as you pay the EMIs, the principal goes on reducing. However, even as the principal is reducing, you are still paying the interest on the whole amount (1 lakh rupees). Flat rate of interest is the interest charged on the full a...

Gone are the days when the investors had the option of investing only in Equity markets, and if there was any diversification needed, they had the option of Debt, Bullion, Commodities and at the very best, Real Estate. But we all have known the constraints of investing in them. High investment, low liquidity in the markets and long term lock in periods. Then came Mutual Funds which are still considered amongst the best options for investors. Let me talk about "Structured Products", the secret of how the investment managers (Yes, of Mutual Funds also) manage to generate high returns or at least, maintain the returns. Investment managers across the globe continuously strive towards designing products that suit various investor requirements. Asset managers in the developed markets (now penetrating in emerging markets like India and China) have been offering structured products across asset classes like equities, debt, forex and commodities for a long time now. However, in In...

This is in response to the queries I received on whether ECB or FCCB is more convenient/liberal/less regulated. For guidelines on each of them, please refer to the links attached in the respective articles. FCCB http://www.icai.org/icairoot/publications/complimentary/cajournal_nov05/703-708.pdf . ECB http://www.icai.org/icairoot/publications/complimentary/cajournal_may04/p1216-19.pdf As regards which is more convenient, it always depends on the company raising funds. Historically, companies prefer ECBs over FCCBs . The RBI data for the month of December 2007 showed only 7 of 44 companies raising funds through FCCBs automatic route and all 7 companies preferring the ECB over FCCB through approval route. http://rbidocs.rbi.org.in/rdocs/ECB/pdfs/83662.pdf Government has said that it is contemplating relaxing norms governing external commercial borrowings (ECBs) to enable Indian corporates access higher foreign capital at low cost. Besides, a review is underway to remove restrictions on fo...

Look for any security on BSEINDIA.COM or NSEINDIA.COM and u'll find this term called VaR mentioned. I always wondered what it is. I just had a vague idea that its a measure of risk. And then, as I m crazy about finding out things that interest me, I ventured to quench my thirst to know what is VaR. Read on and am sure u'll find it interesting too. Lots of technicals though, but for analysts/CAs/Portfolio Managers/Risk managers and those in the capital markets... its imperative to know what is VaR. Introduction to VAR Define VAR VAR summarizes the predicted maximum loss (or worst loss) over a target horizon within a given confidence interval. Consider a trading portfolio. Its market value in Rupees today is known, but its market value tomorrow is not known. The investment bank holding that portfolio might report that its portfolio has a 1-day VaR of Rs 1.7 million at the 95% confidence level. This implies that under normal trading conditions the bank can be 95% confident that a ...