1. Leaders speech: After failure of product launch...

Jim Kramer tentatively stepped out of his vehicle.  It feels strange being alone in an empty parking lot, no honking horns, and no scurrying mass of humanity rushing to beat the clock. The sun has just barely made his royal presence known, quietly but confidently rising over the horizon, conquering the vastness that is rightfully his, lording over the entire creation. Jim takes a deep breath of the crisp air and instantly felt cool, invigorated and more confident. The past few weeks have been extraordinarily toxic.  The numbers from the launch are in.  They have been analyzed and overanalyzed, and the bottom line remained the same.  Jim’s company has lost quite a lot of money and reputation over their first major launch which was clearly a failure.  So much meticulous planning had gone into the development of that program.  The man hours and sleepless nights spent for research, implementation, process creation and the cost for advertising and marketing was way too much. If it was solely up to him, scrapping the entire project to cut the losses would have been the easy way out.  But his team of 100 people and their families are looking up to him for answers, solutions and next steps.  He will have to talk to the team and be able to convince them to give the project a second chance.  A general meeting has to be called to update, inspire and rally his team. Today...

2. Teachers as Leaders – How to improve school system...

We all face this challenge one day or other – schools not only help our kids aspirations but they have considerable impact on the housing market as well. The following conversation shows how three teachers are taking the research pointers and applying it to the real world situations. The intent of the article is not blindly implement the cut off dates/ introduce the 10,000 hour rule. Its about thinking outside the box to bring in a challenging change. The article makes two points: Leaders build the capability to convert research/knowledge into pragmatic strategy Leaders don’t need a “big” title to bring in change. Title is a moot point when you are trying to bring in a change; Our brain is hardwired – only Managers/Senior Management will need to bring in change. In this article the teachers are trying to bring in a change. An amazing profession that deserves a standing ovation. Philip moved around the living room impatiently while Donna, his wife, bustled about the kitchen getting some snacks ready. Soon their friends would be arriving. Their friendship happened over a period of time as they all lived in the same neighborhood and got together periodically to watch football. However, today’s get together was not for the usual fun but with a specific purpose. The last time they had gathered the talk had drifted to the depressing school results. All of them were good and dedicated teachers but all...

3. Less or More -Understand the need...

Bill looked around the table at the other officers of Whole Foods who had arrived for the meeting he chaired as VP of Sales. Paul, as Brand Manager, was bubbling and raring to go as usual. His eyes quickly travelled to Scott the sedate and experienced Brand Manager and then Pam, the smart R&D Manager, who sat next to Scott. The debate had been raging on whether to increase the range of brands of butter and Bill had called for this meeting to take a final decision. Bill tapped on the table. “Okay everyone. Let us start with Scott.” Scott started off by saying, “As you all know butter has been one of our stable products with good sales. Shoppers who buy butter also tend to buy other dairy items so the challenge is to attract more customers and thereby increase our sales. We already have quite a range of brands and we need to broaden the range to include items such as blended butter, whey butter, flavoured butter, etc. As customers become aware of the increased choices we can anticipate greater sales.” “Thanks Scott ” Paul said getting up to speak. “What Scott said is quite logical and, on the face of it, the more choices one has the greater would be the sales. I thought so too till I read a research paper by Dr Sheena Iyengar, Professor of Business at Columbia University. She carried out a...

4. “Does IT Matter” – It does!! A Seminal piece by Nicolas G Karr...

In May 2003, Harvard Business Review published an article of Mr. Nicholas G. Carr “IT Doesn’t Matter” wherein he disputes the critical importance conferred upon information technology, which he believes is now fast becoming commercialized and too much hyped.  He further argues that IT, in its present state, no longer gives the sought-after differentiation and competitive advantage to its clients.  This seminal article stirred up a lot of controversy and has been the subject of numerous impassioned intellectual debates.  Following are some of the salient points presented in this article: IT has lost its strategic value.  Mr. Carr believes that IT has ceased to be strategic because it has be  come available to everyone and has lost its scarcity factor, making whatever profit margins negligible. I think…..Any organization can enjoy from significant and strategic and competitive benefits as long as  IT is used effectively.  Strategic advances do not come from the use of IT alone but if it is used with organizational cultures and creativity.  Thus, the strategic benefits of IT investment will be achieved through the synergy of efficient management by highly motivated and skilled individuals and a continuing initiative to disrupt innovation. IT  has been turned into a commodity that no longer offers a competitive distinction and no longer provides a competitive advantage.  Mr. Carr argues that while companies are spending way too much for IT, it no longer gives its users a unique differentiation and sustained competitive advantage over their competitors.  As everybody can have access to the technology,...

5. Essence of Motivation – Sadhu, Strangers and the Van Driver...

What moves you… what drives you to take a certain path or do an action in a certain way?  Your motivation can carry you through some tough ethical and moral dilemmas or pull you down in a cesspool of guilt trip for as long as you live.  Let us take the case of the Sadhu and compare it with five strangers in Manhattan.   In 1997 while on Sabbatical from his work, Buzz McCoy went on a 60-day trip to Nepal that would take them to an 18,000 feet pass to the ancient holy place for pilgrims called Muklinath. He was with his anthropologist friend, Stephen, a “committed Quaker with a deep moral vision” as Buzz described him. There were other groups that were with them on the trek, a New Zealander, Japanese and a Swiss group.  While on the trek, one of the New Zealanders came back from his ascent struggling with a limp body of a Sadhu, an Indian holy man that is almost stripped naked, already weak from hypothermia.  However, he just sort of dumped the body on Buzz’s group and continued with his scheduled task of climbing the summit.  The responsibility of what to do with the Sadhu fell upon Buzz.  He too would not want to miss a once-in-a-lifetime experience and is now torn between helping the near-death Sadhu and continuing his ascent to the summit.  Stephen who was starting to suffer from altitude...

Financial Accounting & Reporting

CPA FAR EXAM REVIEW MCQ AND SIMULATION   These Simulations are not the run of the mill questions. Do these questions many times before going for the exam. Government Accounting – 1 Leases:  Sale Leaseback simulation Share Based Compensation Bonds  ...

Hospital Accounting – An Accountants perspective

The following article shows the tip of the iceberg of hospital accounting. I have assumed some aspects to make it easier to elaborate on some topics. In real world some of these aspects explained below may be handled differently based on the situation and the hospital policies. See how bad debt is different than charity care – this tweak pertains to healthcare industry. 1.      Accounting Period                                        While it may preferably be a Continuous Period of 12 months, thirteen continuous four-weekly periods or fifty two continuous weekly periods are also practiced by some hospitals. 2.      Accrual Basis of Accounting                              Accounts are kept on the accrual concept. For example, all revenue earned for in-house patients up to the last day of the accounting period should be accounted as revenue for that period irrespective of whether paid or not. All revenues may be appropriately classified into accounts the specific revenue centers in which they arise. Any reductions from amounts already billed to patients on account of discounts allowed, credit...

Import Export business – Case Study

The client is a reputed clearing and forwarding agency providing shipment and storage solutions to importers and exporters. The company procures requirements from its customers and then schedules deliveries and storage to match these. The total market can be categorized as import and export business. The supply chain works as enumerated below: Exporter/Import                              Client                                    Warehouse/CFS                               Shipping Line Shipping Line                                     Warehouse/CFS                               Client                                    Importer The client has seen decline in profits over the last two years. It is trying to identify the reasons for this decline and procure solutions to reverse these trends. Market Information to be provided if requested: Although, there are several smaller agencies in the business, the recent crises have resulted in their closing down operations. The client is now among the few companies offering such services and all agencies charge industry-standardized prices. 2010 2011 Market Size ($) Client Sales ($) Industry Price ($) Market Size ($) Client Sales ($) Industry Price ($) Export 10,000,000 3,000,000 15,000 8,000,000 1,200,000 13,000 Import 5,000,000 1,500,000 8,000 4,000,000 800,000 6,000 Analysis: Based on the above market information, the following conclusions can be arrived at: Both the import and export market segments have declined based on the total size in...

Insurance Company – Case study

An auto insurance service provider incurred losses to the tune of $25 million this year. Last year the profits were recorded at $50 million. The company has hired you as the consultant to identify the reasons causing these losses and find solutions to overcome the situation. The company provides auto insurance coverage only in one region and faces competition from several competitors. The primary source of income for the client is through premiums received at monthly, bi-annually, and annually. Claims are provided to the customers as deemed appropriate. To simplify the situation, it can be assumed the profits = Earned premiums – claims+ Other Income -Expenses. Presently, the client has a customer base of 3 million and approximates about 25% of the total market. The revenues, costs, and profitability are measured on per customer basis. How would you go about identifying possible solutions to address the declining profitability? Recommended Approach: This is a profitability case with an added section of problem solving to find the causes affecting its profitability. You must focus on trying to identifying the reasons that are leading to decreasing profits. Determine the revenues (price*quantity) and costs (fixed as well as variable costs). This should help...

Income Statement & Balance Sheet in Energy Sector...

Some Important metrics/key figures to ask or know : Electricity production External electricity sales volume External gas sales volume External revenue EBITDA Operating result Income before tax Net income/shareholders’ share in income Recurrent net income Return on capital employed (ROCE) Weighted average cost of capital (WACC) before tax Value added Capital employed Cash flows from operating activities Capital expenditure Property, plant and equipment and intangible assets Financial assets Free cash flow Number of shares outstanding (average) Earnings per share Recurrent net income per share Dividend per share Income Statement: Revenue (including natural gas tax /electricity tax) Natural gas tax /electricity tax Revenue Other operating income Cost of materials Staff costs Depreciation, amortisation, and impairment losses Other operating expenses Income from investments accounted for using the equity method Other income from investments Financial income Finance costs Income before tax Taxes on income Income   Balance Sheet: Non-current assets Intangible assets Property, plant and equipment Investment property Investments accounted for using the equity method Other non-current financial assets Financial receivables Other receivables and other assets Income tax assets Deferred taxes Current assets Inventories Financial receivables Trade accounts receivable Other receivables and other assets Income tax assets Marketable securities Cash and cash equivalents Equity and liabilities Equity Non-current liabilities Provisions Financial liabilities Other liabilities...

Balance Sheet and Income Statement Comparison...

Birds eye-view of the Balance Sheet and Income statement. Please remember its very high level comparison.   Balance Sheet and Income Statement Comparison Manufacturing Financial Services Assets Cash Cash Accounts Rec Investments Inventory Loans Fixed Assets Bldg’s Liabilities Accounts Payables Deposits Long Term Debt Savings Equity Other Borrowings Capital  Inc/Exp Sales Total Int. Income COGS Total. Int Exp Gross Margin NII Oper. Exp (-) Non-Int Income (+) EBIT Non-Int Exp (-) Int Exp (-) Provision for Loan Losses (-) EBT Operating Inc (pre tax) Tax (-) Securties (Gain/Loss) Income Tax (-) Net Income Net Income   Retail World: Net Sales = Invoiced Sales – Sales Discounts Controllable contribution = Gross Profit – Direct Expenses Profit before taxes = Controllable contribution – Indirect Expenses Extended Cost = Unit Cost * total # of units bought in a single order High Level Account Hierarchy in Financial Services Organization: Total Rollup All Accts Net Income Pre tax Net Income Fed Taxes Current Provision SFAS133 Balance Sheet Assets Real Estate Accrued Int. Rec Prepaid Exp & Deferred Charges Net Other Assets Cash on Hand Earning Assets Liabilities & Capital Stat Accounts   Healthcare Industry: Income Statement: REVENUES Net patient service revenue Other revenue     Total revenues EXPENSES Salaries and wages Fringe benefits Interest expense...

County Services – Case Study

You are hired as a Management Consultant from McKinsey with some recognition among prestigious accounting and costing circles. Here is the run down of the case….. Union County serves a populace of around 40,000 citizens, and carries out certain welfare services for its citizens such as a recreation facility complete with gymnasium, a library, children’s park, fire service, ambulance service etc. While a few selected services are provided free, most services are charged for at subsidized rates. You are asked to provide well informed answers to three questions pertaining to the County/Municipality’s Ambulance Service. The three questions are: (i)         What is the total cost of providing the ambulance service in Union county? (ii)         To what extent are the current service costs covered by fees charged? (iii)          An outside ambulance service provider has offered to run this service for the Municipality for an Annual fee of $ 180,000, beginning from Year-05. Does it stand to gain by accepting this offer?  The framework to attack this case: Probe for more info/clarify given data, structure the framework, analyze and conclude. Assume reasonably. Don’t forget contra-accounts such as depreciation. Gathering Information: 1.1   Let’s set about this process of gathering information in a logical step by step basis. While the 3 questions above comprise the area...

Treasury: Basel/Cash flows/Credit Ratings/Collateralized Financing...

Continuing from previous Treasury Article ……. 1.4   Cash flows from Operating, Investing and Financial Activities Traditional methods of cash flow analysis with emphasis on net earnings and net assets have little meaning to global banks except for identifying some macro trends within their businesses. These banks evaluate funding and liquidity positions and policies quite differently as already described above with emphasis on tracking loans from origin to maturity, along with portfolios of investment securities and other receivables.   1.5  Credit Ratings Generally, such factors as earnings, market position, business mix, capitalization, ownership, financial strategies, policies and practices including risk management, future prospects for the financial industry as a whole and even the composition of the management team figure in arriving at a credit rating for a bank. Although a bank’s credit rating may not be severely affected by retail and private deposits, availability, finding, and the cost of obtaining unsecured external funding, certainly would.   A downgrading in credit rating could result in increase in funding costs, reduced access to capital markets, having to post additional collateral, or risk the termination of some contracts on collateralized financing and derivatives by relevant counter-parties. This would ultimately lead to reduction in liquidity and thus adversely affecting performance and financial status.  ...

Treasury Management: Liquidity, Funding, Risk...

The central management of funding, liquidity, capital and foreign exchange exposures in a global operations bank come under the preview of its Treasury.  These activities are overseen by a Capital Allocation and Risk Management Committee  or a similar group which generally includes the Chief Executive, Chief Financial Officer, Chief Risk Officer and the Treasurer. Monitoring the Capital Position comprising these activities together with the interest rate risk (which includes defining the risk limits and its monitoring to ensure that the bank is operating within those risk limits) is the responsibility of the the group. Two other important activities for which the Treasury assumes overall responsibility are funding (current and prospective) and exposures to foreign exchange. 1.1         Liquidity and Funding Management The planning and implementation of the funding and liquidity strategies of a bank greatly enhances its abilities at effective management of potential risks on these vital areas. This includes timely adjustment of liquidity and funding levels to tide over stressful times. A bank’s liquidity and funding profile should portray its overall operating environment including the business activities, markets, strategies and its risk appetite. The Global Trust Bank (GTB, changed name to posit in this article), a well-known global bank with operations in USA, and parts of Europe and Asia...

Programming Models in Sales force

 Sonia Marciano makes a very forceful comment on selling a product or service. This would apply even to commodities if you can elevate the spirit in some way; how about guaranteeing the delivery time, giving access to technical support, making it easier to return the products…… “We each sell a little piece of happiness. You are elevating someone’s spirit in some way, and to do that you have to understand the source of their angst and then you have to frame your product as a solution.”  ― Sonia Marciano Today’s clients are knowledgeable and well informed.  Thus, Sales Representatives should come prepared, armed not only with a full knowledge of their products but a deeper understanding of his client’s wants & needs as well.  An instinctive sales person will always be at the right place at the right time to provide that need and close the sale.  Whoever is able to provide the solution stands to gain the client’s gratitude and trust because he just gave the client a little piece of happiness.  The Sales team has to be armed with timely and accurate information so they can efficiently invest their time on the right market, hitting the nail right on the head.  The information fed to Sales will have an effect on...

Healthcare Guidelines & Marketing Principles...

Healthcare service development covers the deployment of innovative technologies, newer services and even different organisational models. Traditionally, these have been done by a top-down process by forcing clinical guidelines on practitioners. Industry has faced similar situations when it launched new products or services and there is a lot that the healthcare industry can learn from the way companies leverage their marketing efforts to gain success.  Successful marketing focuses on the needs of the customer along with the excellence of the product design. A healthcare parallel would be to view marketing as the development of appropriate “knowledge products” customized to the needs of different practitioner segments that results in the successful deployment of the healthcare service.  The problem can be studied by the tough challenges faced by clinical guidelines, which results in their slow incorporation into actual practice. In order to improve this, NHS now requires researchers to consider implementation aspects from the outset. One can look at how marketing can help in the successful deployment of new clinical guidelines. Traditional marketing requires six key activities: Opportunity Analysis Target  selection Strategy Design Program Planning Organisation Strategic Framework Opportunity Analysis: At the outset, the probability of success of the clinical guideline should be assessed using earlier efforts, market research, current knowledge...

Risk and Funds Transfer Pricing

Assuming the risk measures to be adopted are specified, how would you proceed to allocate them to different department of the Organization? A Bank may pursue an income rate risk strategy of organizing its cash flows so as to generate cash to its shareholders in a similar manner as a sequential investment in (say) a three month treasury bill would do. This investment would be turned over in three monthly cycles. In this type of scenario, the bank income rises and falls keeping in line with the market interest rate fluctuations. This will however not affect the stock price of the bank which will remain stable and never reach zero. As such, the bank is in no risk of going bankrupt. An alternative strategy that the bank may exercise comprises of locking its net income at a fixed level equal to the coupon rate of a 30 year treasury bond. In this case, the bank stock price may stay volatile while its net income remains unchanged. However, here too, since the bank’s stock price will never close in on zero, any risk of the bank becoming bankrupt does not arise. In both scenarios above, the argument that the bank’s stock rate will never reach zero can be compared to...

Risk Measurement – Traditional Banks vs Investment Banks...

What should be the basis of measurement? Should we base it on the volatility of the mark-to-market value of a given portfolio, or else in terms of net income volatility? Before we try to answer the question it is important to appreciate that the approaches that banks take for a specific risk measurement differ from that of investment management companies in their approach to the identical risk.    Before moving on to the aspect of measurement itself, we will take a closer look at the investment portfolio structure and activities of a large investment management company. They carry large dollar and yen fixed income portfolios; and under them we find investments in Credit Card receivables, Reverse Repos, Euro/dollar deposits and Mortgage-backed Securities, among others. They also usually carry Collateralized Mortgage Obligations with fixed and floating rates linked to such indexes as LIBOR of 1 month, 3 months, 6 moths, 1 year etc.,  Constant Maturity Treasury Rates of 1, 3 and 5 years respectively, Prime Rate and 11th District Cost of Funds Indexes. The reason for tying up to many indices is that some indexes yield better results when applied over  fluctuations in interest rates over longer periods while some give more accurate results over the short term. LIBOR is...

Funds Transfer Pricing in a Financial Institution...

Before we launch into the heart of the current topic involving usage of Funds Transfer Pricing, let me take you through a very brief introduction.  Figure 1 below depicts one of the simplest forms of a hypothetical FTP scenario of a bank operating with just a single (2%) deposit on the liabilities side and a single (5%) loan on its assets side. Figure 1 – A Simple FTP Scenario  With the Bank Paying 2% on its deposits and issuing loans at 5%, it operates with a 3% Net Interest Margin.  This is also called the Treasury Contribution. We will now introduce to this picture a specific Market Based Pricing Curve (from several available) where the going rates for deposits and loans are 2.75% and 4.25% respectively. The bank is presently sitting above the current market average prices for both aspects of receiving funds, and lending or investing. (Note that it is paying less than the market average to depositors and issuing loans at a higher rate than the market average.) The difference between the actual and market average for receiving funds or deposits (0.75% in the above case) is called the Liability Contribution (liability spread). The difference between the actual lending rate and the market average for same (which...

Strategic Marketing: Pricing/Positioning/Business Model...

In the last article we saw how to use Competition/Partnerships/Distribution. In this article we will explore Pricing, Positioning and Business Model. 4. Pricing Price is the most important tool of the Marketing Mix and the one which generates revenue. Pricing has a tremendous impact on the business model and it is important that it is fully understood. Pricing should achieve an acceptable level of profitability; make sure you are able to see your P&L through the lens of allocated costs. Secondly, it should also be appealing in the marketplace and affordable by the target customer base. Finally, Pricing should be able to support the costs of the requisite support, necessary product or service quality and promotion. If you really want to serve the most profitable customers and have a stable customer base, then you should be able to say to “NO” to certain customers who can erode your profits.   The following are the important attributes of an effective pricing model Value and Price External Factors Selecting the appropriate pricing model A set of pointed questions would help make the right decision keeping the customer’s point of view in mind. The first and most important question is how important is the product to the customer’s business and how many viable...

« Previous Entries

Financial Accounting & Reporting