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Cost – Price – Value

Welcome back readers, Today I am writing about three terms which rules the profitability of each business rather each transaction. Cost – Facts / reality It is the amount paid to acquire, produce or maintain anything, the point to note is “amount paid”, once the payment is done it becomes a fact. Even in complex scenarios like production the facts/costs can be ascertained, of course it may include setting up a complex process to accurately ascertain the exact and complete costs, but certainly it is possible. As most of you must be aware that costs have its own behavior , costs may be fully controllable, partially controllable or not controllable at all, some are apparent, some may not be visible easily and so on. When we refer to controllable costs, it is obvious it can be controlled before actually transacting. Once the transaction happens, it becomes fact/reality. Price – Negotiation It is the amount paid to acquire, produce or maintain anything. You would say, this is exac...
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Money Value of Time

Welcome back readers, Those who are aware of financial terminology might have assumed that there is a mistake in the title, because the phrase “Time value of Money” is common in the field of finance. It deals with calculation of relative value of money at different time frames, simply putting it, Rs. 100/- in 2020 is neither same as Rs.100/- in 2010 nor same as it would be in 2030. I am not writing on Time value of money; you will find a lot of reading material on the internet to know more about it. I am writing on “Money Value of Time” and thus, the title is right. Money value of time means the value that one assigns to one’s own time. It is subjective and personal. We are free to think optimistic about value of our own time but it is essential to find a rational mean. Let’s look at a simple example – Say Mr. Arjun is a corporate trainer and quotes Rs.60,000/- for a day of training which lasts for about 6 hours. The figures enable us to immediately calculate the per hour rate an...
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Financial Management by a Left-Brain Dominant Person

Dear Readers, I discussed about Right brain dominant person in last blog, I will write about peculiar characteristics of a Left-Brain Dominant persons and their strengths and weakness in relation to Financial Management. Left brain is responsible for logic, number crunching, data, language, observation as well as intra personal intelligence. Those with dominant left brain need a lot of data before deciding on anything, they have ability to understand & analyze large data, find patterns in numbers, they are good at calculations and establishing logical reasoning in almost anything. Such persons may lack intuition and may not be able to decide unless the numbers are favorable. Such people are too objective in decision making and tend to miss the subjective or emotional component of the same. It is highly recommended for left brain dominant people to be in Finance, engineering or data analytics. Can we conclude that such people are really good at Financial management? Apparently...
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Financial Management of a Right Brain Dominant Person

  Welcome back after the weekend. As we all are aware that, we have 2 sides of the brain viz, the right and the left. Each side is further divided in 5 lobes each forming total 10 distinguishable lobes. But today’s topic is limited to Right brain in general. Each side of the brain is functional and necessary for certain specific tasks/activities. Every normal person has both the sides functional but the capacity of each side may be different thereby creating differences in behavior  and decision making. Let’s look into typical characteristics of a right brain dominant person. Right brain in general is responsible for creativity, art, abstract ideas, emotions, empathy, music, aesthetics etc. What we can make out is, abstract ideas or creativity is never bound by discipline, it cannot fit in to calculations and it cannot be measured. Thus, such people generally cannot fall in discipline, they prefer to be free and work only when they feel like. They hate the 9 to 5 culture. ...
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Knowing the person through Financial Ratios

  Let me begin with some assumptions – I am assuming a small business which may be in any formal form like proprietary, partnership or even closely held private limited company and most important - there is only one principal decision maker (PDM). I will quote actual ratios (suitably rounded up or down) of one of my clients to make the example easy to understand. (How to calculate the mentioned ratios is not part of this writeup) The client is into manufacturing of MDF furniture (Customized and standard both). Standard furniture is sold to furniture retailers on credit. Customized furniture is normally without credit, barring few exceptions. Ratio Clients Values Current ratio 1.5 (Outstanding CC included) Average Receivable period 135 Days Average Payable Period 45 Days Average Inventory Holding Period 100 Days Turnover 15Lakhs Co...
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Assets vs. Liabilities

  On reading the title you must be surprised, why am I writing about such a basic thing, but don’t worry, I will present both these terms in a different perspective. Traditionally “Asset” means property, land, building, furniture, vehicles and it also includes intangible assets like goodwill, patents etc. i.e anything on which the person has “Rights” and can execute his/her will for using, destroying or selling the same. You will find all such assets on the asset side of the balance sheet. Liabilities are the financial obligations that are to be honored  at pre-decided time or sometime. If we look at the assets and liabilities with different lenses, we will be surprised to find how many assets we hold, actually are liabilities. Liabilities are invariably the same and don’t need explanation, one must be aware of the compounding effect on our liabilities as well. Robert Kiyosaki in his book “Rich Dad Poor Dad” has given a fantastic definition of assets and liabilities. H...
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Contingency Fund – Source of Courage

W e often use the word “Contingencies” casually for defining emergencies and unexpected events while planning. Do we really provide for “Contingencies” of our life? I am not referring to having insurance, yes, it’s necessary to have insurance which will take care of financial needs of family in case of bread winner’s death or in case of medical expenses or any other mishaps like damage to car, house etc. I am talking about contingencies which do not fall in any of the insurable category. We all have experienced such a contingency recently when total lockdown of 3 weeks was announced by our PM. Many would have had the first though about how to run the show, how to meet daily household expenses and so on. Business owners were worried about how to meet the obligations of salaries and other payments. On the other hand, there also was a class of people who were not worried and enjoyed the lockdown period spending quality time with family. What was the defining distinction? It was obvi...
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