Category: FInance

ICT in Financial Inclusion, Taxation, Excise and Finance – Abhishek Pandit

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Supply Chain Finance Versus Factoring

What are the advantages of supply chain finance and why is it better than factoring? How can a bank learn more inside information about a corporations strategic operations so that it can be made a contributor to the model for corporate business?

Even though supply chain finance or SCF has been given the status of a product category which is fully-fledged a lot of banks and other financial institutions still have a very long way to go in order to set a standard for the procedures related to supply chain finance and the way it is handled.
For example, lately there has been some confusion related to the use of the term reverse factoring when it comes to supply chain finance. For the financial institutions which run both financial operations and the more contemporary banking divisions this dispute related to simple terminology is not trivial at all.

When it comes to very high levels, the form of supply chain finance which is most common is the financing of certain receivables after acknowledgement of debt that is provided by the buyer. This operation shares several important characteristics with the so-called controversial reverse factoring. When the transaction is disclosed the buyer needs to confirm that the invoices which are represented are actually valid and the supplier has not fabricated them. If we examine this in more detail there are certain important differences between factoring and supply chain finance that should not be underestimated.
Trade and cash come together

When it comes to supply chain finance, the financial aspects are very often combined with the requirements for cash management of the buyer. The corporate treasurers seek banks which are able to receive very big amounts of data about the payables and then turn them into discounted payments for a supplier. In case the financing offers are not accepted or are not offered, the funds should be disbursed punctually at maturity.

The processes offered by the banks need to be highly efficient and the account of the buyer should be handled the way they want it to be handled if requested specifically. The mechanism for exchanging payments should be very good. This means that the bank should play the role of the payer and give the money to the seller instead of the buyer having to give it to them at the time of the purchase. This way any payment risks are usually avoided and the money can later be collected by the bank from the buyer when the clients receive their goods and pay for them. In some cases even the bank becomes the one to handle the clients and get the money from them when the time comes. Factors such as over dues and dilutions which are common for other kinds of transactions are eliminated when it comes to supply chain finance and so they are no longer a problem that needs to be acknowledged. The process is highly efficient and the benefits from it for the businesses and the banks are great.

Introduction To Financial Modeling

Financial modeling in Excel is one of the most versatile and powerful finance skills today. This skill is often a sought-after add-on to well-known financial designations such as CFA, CPA, CA, CMA and CGA. In a nutshell financial modeling is a process of building a multi-year forecast of a companys financial statements: income statement, balance sheet and statement of cash flows. The projected time period varies from one model to the next, the norm being 5 to 10 years.

Why is financial modeling so important? It is used in a variety of finance applications such as investment banking initial public offerings (IPO), secondary financings, mergers and acquisitions (M corporate banking; private equity; venture capital; equity research; corporate strategic planning and budgeting; and numerous other important applications. Below are just a few financial modeling application examples:

An investment banker builds a financial model of a mobile telephony software company that is going through an IPO process. The main outputs of the model will be metrics used in valuation: unlevered free cash flows (UFCF), earnings and net debt calculations. The financial model will be used in discounted cash flow (DCF) valuation. DCF, together with comparable trading and transactions valuation will be used in the companys ultimate valuation. The end goal of this modeling process will be to value the per-share offering price of the companys shares once they are listed on the stock exchange.

A credit-focused financial model is being built by the commercial lending unit of a major bank. This is a part of processing a large commercial loan application filed by a manufacturing company which is looking to expand its operations. The models emphasis is on the debt servicing ability of the company in question. The most important outputs that the commercial bankers will look at are debt to equity ratio, interest coverage and fixed charge coverage ratios.

An equity analyst builds a financial model of a company that his firm decided to initiate coverage on. The focus of the model is on DCF valuation and unlevered free cash flows generated by the company. Based on the models results the analyst will issue buy/sell/hold recommendations on the stock based on the relationship of his target stock price and the current market stock price.

A private equity firm is considering a 50% acquisition of an early stage pharmaceutical company that needs capital for sustaining its research and development (R&D) program. The private equity firm sees value and significant upside in this situation given the target firms pending patent applications. The purpose for building the financial model is to determine the price at which the private equity firm is willing to purchase the 50% stake, given the hurdle IRR (internal rate of return) rate of 35%.

A pulp and paper companys CFO prepares a detailed multi-year budget of the company. She uses Excel financial modeling techniques to achieve her goal. The model will contain a 5-year projection of the companys income statement, balance sheet and cash flow statement and help the company assess future financing, staffing and operational needs. The multi-year budget will be submitted to the company CEO for review.

The financial modeling process is as much an art as it is a science. Solid financial modeling training through seminars and courses is a must for people seeking careers in many finance areas. These skills are further honed and advanced through the real-life work experience of building financial models.

The financial modeling process begins with gathering information. The analyst must become intimately familiar with the company he models, its industry and competitive landscape, its plans and prospects, and the strength of the companys management. Crucial pieces of information are the companys past financial reports, management interviews, conference call transcripts, research analyst reports, and industry publications. It must be noted that this information gathering exercise is much more challenging when modeling a private company as opposed to a public company. Private company information can often only be obtained through direct access to the company insiders.

An typical Excel financial model will consist of the following parts:

Assumptions. These are the models inputs. Assumptions are based on the companys historical information as well as its future plans and current market trends.

Historical and projected financial statements income statement, balance sheet, cash flow statement. Projections are based on historical performance and model assumptions.

Supporting schedules including working capital schedule, capital expenditures (CAPEX) schedule, debt schedule, and tax schedule.

The models outputs depend on the primary purpose for building the model. In many cases modellers focus on earnings, unlevered free cash flows, capital structure and debt capacity.

Scenario and sensitivity analyses are often incorporated into the models, including scenario managers, data tables and charts.

Financial models often serve as foundation for more detailed further analysis such as valuation, M&A merger modelling (accretion/dilution analysis), LBO analysis and Monte Carlo simulations.

So what does it take to be a good financial modeller? Accounting and finance knowledge is compulsory. In-depth understanding of financial statements and relationships between line items of the income statement, balance sheet and the cash flow statement is an absolute must. Microsoft Excel proficiency is another prerequisite. A good modeller not only knows Excel functions, tools and formats, but also is quick and efficient in using Excels numerous keyboard shortcuts. Sometimes it takes years of Excel modeling to become truly proficient at this task.

Cash Flow Problems In Business Finance Eliminate That Flying Blind Feeling

Business finance and the challenges that come with financing your company can easily make the business owner/manager feel like he or she is ‘ flying blind. So when it comes to cash flow problems business owners would welcome some ‘ positive disruption’ in their finances. Luckily a number of solutions, as well as mgmt techniques can help. Let’s dig in.

‘ All tied up ‘ is really a solid expression for the working capital/cash flow challenge – if only for the reason that your investment in inventory and receivables is in fact tied up on you balance sheet – as opposed to those funds being in your bank account

Top experts tell us that working capital performance varies greatly between SME (small / medium sized businesses) firms and larger corporations. It’s interesting that one way that larger firms improve cash flow is by using the clout they have with clients to delay payables – which is a key factor in improving cash flow!

It’s important you have a handle on a few tools that help you measure cash flow performance and needs, as well as identifying times that external financing is needed. That financing for your cash flow needs can come from a variety of traditional (Canadian chartered banks) and ‘ alternative ‘ sources. Those sources include:

Invoice Financing / Factoring/ Confidential Receivable Financing

Working capital term loans

Non Bank Asset Based Busines Lines of Revolving Credit from Commercial Finance Companies

Financing Refundable Tax Credits

P O / Contract / Sales Royalty Financing

While alternate forms of financing will always cost more they provide the capital you need to fuel your business.

Using Confidential Receivables Financing as an example a business can access 90% financing on its total receivables. With proper collection processes in place this puts cash in your bank today. The higher cost of financing can be significantly offset by using that cash to take vendor discounts or negotiate better pricing, as well as giving the owner/manager confidence that they can take on more business without the dreaded cash flow problem worries that come with growth.

Naturally every industry is different relative to cash needs – service businesses for example are less capital intensive and typical financing needs revolve around receivables only. Larger mfg firms need full blow business credit lines to cover off inventory and other asset needs. Leasing assets is a great way to offset the cash flow investment required to facilitate asset growth.

The bottom line? No matter whether your firm is a start up, SME rising, or larger corporation it’s important to ensure you’ve got access to some ‘ positive disruption’ in cash flow needs. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor, avoiding that flying blind feeling in running and growing your business.

Stan Prokop

Why Go For Financial Certifications

Most newbies wish to find out how financial certifications help them with their professional aspirations and which exam makes most sense to go for.

Considering the fact that the candidates are from different backgrounds, the answer cannot be generalized. There are some who are already, in some way are related to the finance industry, some coming with IT backgrounds, some already possess a solid knowledge of financial products and involved instruments and a good general understanding of the industry, then there are those who before going for graduation in quant degree, would like to build up a more solid foundation with an official exam.

Some of the most sought after certifications are:

Chartered Financial Analyst (CFA) offered by CFA Institute (formerly known as AIMR):

Three levels –

  • The Level I : introduction to asset valuation, financial reporting and analysis, and portfolio management techniques.
  • The Level II :asset valuation, and includes applications of the tools and inputs (including economics, financial reporting and analysis, and quantitative methods) in asset valuation.
  • The Level III : portfolio management, and includes strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions.

Financial Risk Manager (FRM) offered by GARP – Global Association of Risk Professionals

Two Parts –

Part I:

  • Financial Markets and Products
  • Foundations of Risk Management
  • Quantitative Analysis
  • Valuation and Risk Models Part II:
  • Market Risk Measurement and Management
  • Credit Risk Measurement and Management
  • Operational and Integrated Risk Management
  • Risk Management and Investment Management
  • Current Issues in Financial Markets

Professional Risk Managers (PRM) offered by PRMIA – Professional Risk Managers International Association

Four Exams –

  • EXAM I: Finance Theory, Financial Instruments and Markets
  • EXAM II: Mathematical Foundations of Risk Measurement
  • EXAM III: Risk Management Practices
  • EXAM IV: Case Studies, PRMIA Standards of Best Practice, Conduct and Ethics, Bylaws Then there are others like :

The Financial Services Authority (FSA), a universal British finance regulator; you can take these two exams either together or separately, and theres also certificates in Investment Management and Corporate Finance if youre going down that route. (www.sii.org.uk)

Associate of the Society of Actuaries (ASA) – focuses the fundamental concepts and techniques for modeling and managing risk

Chartered Enterprise Risk Analyst (CERA) – centres around knowledge in the identification, measurements and management of risk within riskbearing enterprises

Fellow of the Society of Actuaries (FSA) – deals with financial decisions concerning retirement benefits, life insurance, annuities, health insurance, investments, finance, and enterprise risk management are made, including the application of advanced concepts and techniques for modeling and managing risk. (http://www.soa.org/education)

The thing they all have in common is that these certifications:

help you to better equip yourself with the essential knowledge to pursue a career in finance
empower you by adding credentials to your resume
expand your professional opportunities
provides you with the ability to network with some of the worlds leading finance professionals

Lets consider what the most sought after certifications have in store for you :

Talking from curriculum perspective:

The FRM curriculum goes into the detail on areas of financial and non-financial risk while the CFA curriculum provides a broad view of financial analysis in general.

The FRM Level 1 syllabus will overlap with some part of the CFA curriculum, mainly in the areas of quantitative analysis, portfolio theory, derivatives, and fixed income securities etc.

The FRM and CFA overlap at Level 2 is minimal. Still, some concepts that are mentioned briefly in the CFA curriculum, such as value at risk, credit risk, risk budgeting, and hedge funds, are expanded upon in level 2 FRM curriculum.

Exclusive to the FRM exams are readings on operational and integrated risk management, Basel II, current issues in financial markets, and case studies in risk management.

Broadly speaking, the FRM exams tend to have more of a quantitative focus than the CFA exams.

Regarding PRM syllabus, its almost the same as FRM syllabus with an overlap of almost 80-90%.
PRM is a bit more extensive and rigorous on quantitative part. CFAs or Actuaries who want a risk management certification prefer PRM since it grants them exemption of upto 2 exams.

CFA and FRM Exam are slightly more popular among test- takers and among employers because it has a longer history, however PRM is quickly gaining ground and all three designations have come to be equally respected.

Talking about the job opportunities:
The key thing to note is that job markets are diverse.
The CFA is helpful if you want to work in equity research or, say, become a debt analyst.
The FRM/PRM would be more relevant to a risk manager.
For other Financial Services jobs (e.g., consulting, sales, management), these credentials are elements that complement your overall presentation.
Like the MBA, they dont buy you advancement per se, rather they enhance your resume.

Let me assure you that among the industry, there is NO prevailing argument for or against one of the exams.

So take a look at the syllabi, test-structure and most importantly your long term career goals to make out which one suite you the best.
Once you zero-in, take the plunge!

Essential Skills For A Finance Professional

Maximum careers in finance entail finding effectual ways to organize the wealth and cash flow of an organization. The students take up professional courses in finance in order to study the subjects like planning and management, wealth management, risk in investments, joint ventures, mergers and acquisitions, security analysis, portfolio management etc. This kind of knowledge opens door for them for a gleaming career in the finance service industry.

The organizations at the time of interview look for certain skills in their candidates. These skills are mostly inherited by the students during the time of pursuing financial planning courses.

What do the companies look for?

A study reveals that the companies look for individuals who are not only good with academics and theory, but also those who are highly motivated to work in a professional, pressure engaged environment. This can be one of the reasons that the students who dedicatedly complete the professional courses in finance tend to imbibe these skills. During their classes, mock sessions, corporate meets, internship programs, guest lectures and onsite visit programs they interact with the successful entrepreneurs and their teams. They not only learn about the work environment in these organizations but also get knowledge of what is expected of them at workplace.

Calculative ability:

As a student we all learn about the algebra, profit and loss, simple interest formulas, statistics, calculus etc. During financial planning courses we learn their real life implications. These tricks and formulas that we learnt in primary stages are used to solve various complicated financial market troubles every day.

Accounting:

Accounting is a subject that majorly deals with the cash inflows and outflows on day to day, monthly and yearly basis. The quarterly and annual results of the companies are declared on the basis of calculations of accounts of the company. For this reason, accounting becomes an integral part of the financial planning courses.

Economics:

With the study of economics, a candidate becomes equipped with the knowledge pertaining to the needs and wants of the firm. There are two branches in economics at the basic level microeconomics and macroeconomics.

The firms behaviour such as business to business dealings, business to customers dealing, impact of financial decisions on the success of the firms etc. all comes under micro economics while impact of global turmoil on a state or countries economy or a particular industry are dealt under macroeconomics.

Consumer Behaviour:

One major skill which plays an important role in the selection of any candidate during interview is the understanding of consumer behaviour. A successful finance professional faces umpteen challenges while trying to introduce any new strategy or plan from the company side into the market. All these plans respond generally in accordance with the expectations of the finance professionals provided he or she is a pro at the understanding of consumer behaviour and can mould their customers by showing the positive side of their new strategy in a certain manner. The professional courses in finance lay a major emphasis on the study of consumer behaviour. Even though it is a subject of marketing division, the finance professionals are also made to learn it during their course.

Innovative Financial Advisors Pvt. Ltd. Reviving Benaras Art Of Handloom

Innovative Financial Advisors Pvt. Ltd. – History validate the rich culture and art of Varanasi, better known as Benaras or Kashi. From temples, mosques, ghats to the intricately embellished banarasi sarees, the city holds a historical significance. Since the time of it being the capital of Kasi kingdom, the place is believed to have bloomed into a handloom textile hub. Scripted in Buddha Sutra and Jataka Puran, the place has been a significant center for silk and cotton fabrics. Towards the 5th and the 6th centuries, the woven cotton and silk fabrics gained recognition among various markets across the globe.

In 1603, the weavers from Gujarat migrated to Benaras. A new society, environment unveiled new avenues for these weavers to innovate new techniques and better designs. By the end of the century, the city had gained recognition as the textile capital of the region. During the period when Emperor Akbar reined the region, brocade and zari work further developed and was much acclaimed and recognized across the globe. Inspired from the Moghul art and culture, golden and silver zari and brocade textiles became its specialty. One can find the first mention of the city in the scriptures of 19th century.

In advancing centuries, the weavers started innovating intricate designs inspired from the Victorian motifs, style, colors and patterns. Traditionally knit through hand, the jacquard looms are now knit with the help of technology through power looms, with lesser effort and with quality standards maintained throughout.

A weaver from the clan, Azizur Rahman, invested his savings of a lakh and fifty thousand rupees to purchase a power loom. Rahman and his entire weaver- family had long dreamt of having their own power loom machine. Today, Rahman is delighted to witness reduced labor and increased output. The Uttar Pradesh government has given him and many of his weaver colleagues a subsidy on electricity to operate these machines. On the other hand, the technological development has led him to invest lesser efforts and make much lesser money per product. A handloom saree, which used to generate an income of rupees 20,000, when produced through power loom, today fetches rupees 2,500. Out of this, rahman is able to earn even a smaller fraction of the selling price as rest has to be shared with the middlemen who supply the raw material including cards, yarns etc. A power loom brings down the effort, and increases production volume states Innovative Financial Advisors Pvt. Ltd.. A number of families are now following the same and manufacturing products with the power machinery. An increasing trend has been witnessed in a number of families transforming from handloom to power loom. This has raised concerns amongst the policy makers at Udyog Bhawan including ministry textiles. They are concerned about taking necessary steps for the handloom industry facing survival crisis.

Prime Minister Shri Narendra Modi believes that there exists an inverse relationship between the inflating prices and the earnings of the handloom weavers. However, he suggests, this shall be curbed by integrating the fashion industry with the weavers directly. This would not only provide better opportunities to help sustain the industry, but also benefit 43 lakh weavers, and indirectly benefit a crore people. The Prime Ministers plan also includes inviting students studying fashion designing to visit the handloom cluster in Varanasi as a part of their industrial visits.

The government of India plans to create a new brand India Handloom to segregate the handloom products from power loom products. It has chosen two design houses – Sai Creation and Rinku Sobti Fashions through tendering process, which shall work with the handloom weavers to provide them with more than 2,200 new designs in two years and a buy back guarantee of finished products worth rupees 4.4 crores. This being a pilot project, the government shall remunerate the selected design houses with a reasonable fee and further replicate it in other places as well.

Importance Of Finance- Useful Hints Against Importance Of Finance

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