Money

EXECUTIVE SUMMARY

This project as a whole can be divided into two parts. ? First part gives an insight about online trading and Dematerialization account. What is share trading and how buying and selling takes place. For trading, it is mandatory for us to have a demat or dematerialization account.

How to open a demat account and what all documents are required was part of our study. Various terms used in share market such as bears and bulls, intraday, delivery, settlement, index, etc. ? The second part of project represents the major players of India and a small comparative analysis has been done on their basis of services given by these different online trading portals with their brokerage rates, annual maintenance charges, account opening charges and customer base.

INTRODUCTION

Background of Stock Exchange of India

The emergence of stock market can be traced back to 1830.

In Bombay, business passed in the shares of banks like the commercial bank, the chartered mercantile bank, the chartered bank, the oriental bank and the old bank of Bombay and shares of cotton presses. In Calcutta, Englishman reported the quotations of 4%, 5%, and 6% loans of East India Company as well as the shares of the bank of Bengal in 1836. This list was a further broadened in 1839 when the Calcutta newspaper printed the quotations of banks like union bank and Agra bank. It also quoted the prices of business ventures like the Bengal bonded warehouse, the Docking Company and the storm tug company.

Between 1840 and 1850, only half a dozen brokers existed for the limited business. But during the share mania of 1860-65, the number of brokers increased considerably. By 1860, the number of brokers was about 60 and during the exciting period of the American Civil war, their number increased to about 200 to 250. The end of American Civil war brought disillusionment and many failures and the brokers decreased in number and prosperity. It was in those troublesome times between 1868 and 1875 that brokers organized an informal association and finally as recited in the Indenture constituting the “Articles of Association of the Exchange”.

On or about 9th day of July,1875, a few native brokers doing brokerage business in shares and stocks resolved upon forming in Bombay an association for protecting the character, status and interest of native share and stock brokers and providing a hall or building for the use of the members of such association. As a meeting held in the broker’ Hall on the 5th day of February, 1887, it was resolved to execute a formal deal of association and to constitute the first managing committee and to appoint the first trustees.

Accordingly, the Articles of Association of the Exchange and the Stock Exchange was formally established in Bombay on 3rd day of December, 1887. The Association is now known as “The Stock Exchange”. The entrance fee for new member was Re. 1 and there were 318 members on the list, when the exchange was constituted. The numbers of members increased to 333 in 1896, 362 in 1916and 478 in 1920 and the entrance fee was raised to Rs. 5 in 1877, Rs. 1000 in 1896, Rs. 2500 in 1916 and Rs. 48,000 in 1920. At present there are 23 recognized stock exchanges with about 6000 stock brokers.

Organization structure of stock exchange varies. 14 stock exchanges are organized as public limited companies, 6 as companies limited by guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock exchanges have been permanent recognition. Others have to seek recognition on annual basis. These exchange do not work of its own, rather, these are run by some persons and with the help of some persons and institution. All these are down as functionaries on stock exchange. These are

1. Stockbrokers
2. sub-broker
3. market makers
4. Portfolio consultants

Stockbrokers Stock brokers are the members of stock exchanges. These are the persons who buy, sell or deal in securities. A certificate of registration from SEBI is mandatory to act as a broker. SEBI can impose certain conditions while granting the certificate of registrations. It is obligatory for the person to abide by the rules, regulations and the buy-law. Stock brokers are commission broker, floor broker, arbitrageur etc. Detail of registered brokers |Total no. of registered brokers as on 31. 03. 2008 |Total no. of sub-brokers as on 31. 03. 008 | |9000 |24,000 | 2. ) Sub-broker A sub-broker acts as agent of stock broker. He is not a member of a stock exchange. He assists the investors in buying, selling or dealing in securities through stockbroker. The broker and sub-broker should enter into an agreement in which obligations of both should be specified. Sub-broker must be registered SEBI for a dealing in securities. For getting registered with SEBI, he must fulfill certain rules and regulation.

Market Makers

Market maker is a designated specialist in the specified securities. They make both bid and offer at the same time. A market maker has to abide by bye-laws, rules regulations of the concerned stock exchange. He is exempt from the margin requirements. As per the listing requirements, a company where the paid-up capital is Rs. 3 crore but not more than Rs. 5 crore and having a commercial operation for less than 2 years should appoint a market maker at the time of issue of securities. Portfolio consultants A combination of securities such as stocks, bonds and money market instruments is collectively called as portfolio.

Whereas the portfolio consultants are the persons, firms or companies who advise, direct or undertake the management or administration of securities or funds on behalf of their clients.

THEORY OF SHARE MARKET

Stock Exchange: A common platform where buyers and sellers come together to transact in shares and stocks. Electronic Trading: Eliminates the need for physical trading floors. Brokers can trade from their offices using fully automated screen based processes. Their workstations are connected to a stock exchange’s central computer via satellite using Very Small Aperture Terminus (VSATs).

The orders placed by the brokers reach the exchange’s central computer and are matched electronically. Stock Exchanges in India: The stock exchange Mumbai (BSE) and National Stock Exchange (NSE) are the country’s two leading stock exchanges. There are 20 other regional stock exchanges connected via Interconnected Stock exchange (ICSE). Index: An Index is a comprehensive measure of market trends intended for investors who are concerned with general stock market price movements. An index comprises stocks that have large liquidity and market capitalization.

At NSE, the capitalization of NIFTY (fifty selected stocks) is takes as a base capitalization, with the value set at 1000. Similarly BSE sensitivity index consists of 30 stocks. The index value compares the day’s market capitalization vis-a-vis base capitalization and indicates how prices in general have move over a period of time. Stock: In financial market, stock refers to the supply of money that a company has raised. This supply comes from the people who have given the company money in hope that the company will make their money grow. Bears and Bulls:

Bears are cautious animals who don’t like to move too fast. Bulls are bold who might charge right ahead. An investor is said to be bearish if he or she believes that the stock market will go down. A bearish investor will buy the stock cautiously. A “Bullish” investor believes that the market will go up. He or she will charge ahead and put more money into the market. An investor can be bearish or bullish about a particular kind of stock. Likewise the term “Bear Market” describes the time the stock prices have been falling on the whole. A “Bull Market” is a period when stock prices are generally rising.

The shares move from investors account to Brokers Clearing Member account via NSDL. A Broker clearing member accounts is credited. 3. Before settlement day broker transfers shares from his clearing member account to Clearinghouse via NSDL. His account is debited. 4. On settlement day Broker receives payment from clearing house which he passes on to the investor. Intraday Based Trading: Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions will usually (not necessarily always) be closed before the market close of the trading day.

This is the opposite of After-hours trading. Traders that participate in day trading are called day traders. Delivery Based Trading: Delivery based trading involves buying shares on a market day, holding them and selling them only after receiving the delivery of those shares in demat account.

ONLINE SHARE TRADING

Online Trading involves investment activity which takes place over the internet and it does not require physical inclusion of broker. An investor has to register with an online trading portal like Sharekhan. com, India Infoline. om and many companies like that and investor gets into an agreement with the firm to trade in different securities according to terms and conditions in the agreement. As the servers of the online portal are connected all the time to the stock exchange and designated banks the order processing is done in real time and the investors can also have updates on trading. They can also check the status of their order either through e-mails or through interface that it cannot be accessed by the third party. Some options are usually given to the users such as to link their bank account, Demat accounts and Brokerage account into a single interface.

A single window is there for all exchanges and a single screen is there for the complete order routing mechanism. There are two broad models in play in the online brokerage space

• Bank-backed firms
• Entrepreneur- floated firms

Bank-backed firms: Bank-backed firms such as ICICIdirect. com and HDFC Securities have expanded on the basis of their brand name and trust of investors in them. The integrated 3-in-1 account offered by these companies help their parent bank by giving it accounts along with float income. Entrepreneurship-floated firms:

MAJOR PLAYERS OF INDIA

The following are the major players:

• A. G. Shares & Securities
• India Bulls
• India Infoline
• Karvy Share khan
• ICICIDirect
• Motilal oswal Secureties
• Religare
• HDFC Securities
• Reliance Money A. G.

KARVY GROUP

Karvy is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate in India. Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments. History of Karvy: The birth of Karvy was on a modest scale in 1981.

It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company, Karvy Consultants Limited. They started with consulting and financial accounting automation and carved inroads into the field of registry and share accounting by 1985. Since then, karvy utilized its experience and superlative expertise to go from strength to strength, to better their services, to innovate, diversify and in the process, evolved as one of India’s premier integrated financial service enterprise.

MOTILAL OSWAL SECURITIES

Incorporated in 1987, Motilal Oswal Securities Ltd is a well diversified financial services firm offering a range of financial products and services such as Wealth Management, Broking & Distribution, Commodity Broking, Portfolio Management Services, Institutional Equities, Private Equity, Investment Banking Services and Principal Strategies.

Company have a diversified client base that includes retail customers (including High Net worth Individuals), mutual funds, foreign institutional investors, financial institutions and corporate clients. They are headquartered in Mumbai and as of September 30th, 2009, had a network spread over 576 cities and towns comprising 1,257 Business Locations operated by them. As at September 30th, 2009, company had 5,80,667 registered customers.

Following are the features of MOSt E-Broking account:

• Easy single screen trader with instant trade confirmation similar to exchange based trading terminals.
• Access to various online reports like margin report, Demat A/c details, trades executed, turnover report, net position report with mark to market profit/loss and realized profit.
• Online transfer funds through HDFC Bank Awards

1. 2005, Asiamoney Brokers ranked MOSt the best Indian brokerage firm in India.
2. March 2006, AQ Research declared MOSt the best research house for Indian stocks.

RELIGARE

Religare Enterprises Limited is Ranbaxy Laboratories Limited promoted financial product and service provider company. Religare provide its service in three different segments including Retail, Wealth management and the Institutional spectrum. Company offers wide range of services including equities, commodities, insurance broking, wealth advisory, portfolio management services, personal finance services, Investment banking and institutional broking services. Religare retail network has more than 900 locations in 300 cities and towns in India.

Religare provides the online gateway to their investors so investor can trade online in Equities, Commodities, apply for IPOs, invest in Mutual Funds, and buy Insurance. Religare Securities Limited (RSL) is a subsidiary company of Religare Enterprises Ltd and involve in equity related services include online trading at BSE and NSE, Derivatives, commodities, IPO, Mutual fund, Investment banking and institutional broking services. People who wonder where Religare word came from, it’s a Latin word meaning ‘to bind together’. Type of Account

Religare offers its wide range of financial services though a sophisticated and customized trading platform – R-ACE (Religare Advanced Client Engine). Below are 3 flavors of R-ACE accounts available to the investors. 1. R-ACE (Basic) R-ACE (Religare Advanced Client Engine) the basic online trading account provided by Religare. Investor can trade and access their account information online and over the phone as well. This account comes with a browser based online trading platform and no additional software installation needed. 2. R-ACE Lite (Advanced)

R-ACE Lite is the advanced trading platform for the investor of Religare. This trading account provides the entire feature of R-ACE (Basic) account. In addition it also provides real-time streaming stock quotes and alerts. This trading platform is also browser based and no software installation is needed. 3. R-ACE Pro (Professional) As the name indicates this account is for high volume traders. Along with the features from above 2 accounts, this account also comes with Trading Terminal software which needs to install on your computer.

METHODOLOGY OF STUDY

Research can be defined as a systemized effort to gain new knowledge.

A research is carried out by different methodologies which have their own pros and cons. Research methodology is a way to solve research in study and solving research problems along with logic behind them are defined through research methodology. Thus while talking about research methodologies we are not only talking of research methods but also consider the logic behind the methods. We are in context of our research studies and explain why it is being used a particular method or technique and why the others are not used.

So that research result is capable of being evaluated either by researcher himself or by others. Research Methodology: Research has its special significance in solving various operational and planning problems of business and industry. Research methodology is a way to systematically analyze the research problem. Sampling Methods: A sample is the representative of the population which will predict the behavior of the whole universe While deciding about the method of data collection to be used for the study the researcher should keep two types of data. .

REFERENCES

1. http://www. chittorgarh. com/newportal/online-stock-brokers-list. asp
2. www. indiainfoline. com
3. www. 5paisa. com
4. www. sharekhan. com
5. www. indiabulls. com
6. www. agssl. com
7. www. karvy. com
8. www. wikipedia. com

Theory essay and pop culture essay. Underline and circle key terms Islam, Post cool, psychoanalytical theory Chinese, Islam, indigenous, Hinduism, Janis, Buddhism 6 study questions Chinese Religion Question 3 -? How would you characterize Confucianism treatment of women? – Women had a critical, albeit indirect and informal role to play in government. Stores told illustrate the influence that a woman could exercise through intelligence and wisdom.

Their role is important but lesser than the man. Bed ritual Islam Religion Question 3 – What is the Curran? How is it understood in the Muslim tradition? – The Curran was revealed to the prophet Muhammad over a period of 23 years. The angel Gabriel appeared to him and gave him the verses that became the Curran. It is the word of god and is not translated, but always read in Arabic. Indigenous Religion Question 3 -? Many indigenous religions have understood religious power in gendered terms.

How are these gender divisions reflected n the traditions you have read about in this chapter? – Women are generally higher than men in indigenous religions. In Melanesia, men are very suspicious of women and perform odd rituals in order to have menstrual equality. Hinduism Religion Question 3 – What role do sacred texts play in Hinduism? They play a significant role in the religion. The Veda is the most authoritative text. Many of the ideas in this book helped establish Hinduism. The Veda is not kept in homes and its ideas are handed down from enervation to generation.

Janis Religion Question 3 -? What are the main reasons believed to be responsible for the Asseverate and Digamma splitting? Occurred after the death of Mayfair Discrepancy over ascetic practice, women, and nature of the Jinn Separation – culture reform Buddhism Religion Question 3 – What role if any do deities play in Buddhism? Do not play a major role Many deities in the religion that represent certain ideals, but Buddha preached to let go of the idea of a God in order to achieve Nirvana

Critical Race Theory – Racialism (Belief in racial superiority), racism (Power relations that grow from segregation), Hegemony (white dominance of America), intra-racial racism (racism within black community, and Internalized racism.

The main aim of Financial Management is to provide funds for the activities of corporation. Effective process of financial management leads to the maximization of organization’s wealth and its stock value while maintaining balance between risk and profitability. Firms usually acquire funds on long term basis in shape of equities and credit. The combination of credit and equities comprises the capital structure of a company. Banks also provide the business organizations through provision of credit facilities.

Business organizations acquire assets in anticipation of profit through increased value of asset. Firms can undertake profitable investment by determining the right amount, time and project to invest. The investment decisions of a business organization must be aligned with the objectives of the company. The constraints facing the company must also be considered with other variables effecting the investment decisions such as timeline risk aversion and tax structure. It is also important to choose appropriate hedging strategy. Measuring the portfolio performance also improves the worth of investment.

With the changing environment of business all over the world the need for the companies to undertake effective financial management has also increased. Effective and right decision regarding the sources of finance and capital structure needs to be adopted by most of the companies in order to increase their market share and acquiring other motives. The significance of investment appraisal cannot be denied. Usually is important for the organizations in a setting where the related executives need to immediately undertake the decision regarding different investment projects.

The study is mainly aimed at the analysis of the just discussed phenomenon of sources of finance, capital structure and investment appraisal and its pros and cons for J Sainsbury plc. The study will also unleash the effects of cultural differences on the process of decentralization in the organization at international level. Financial management is an important tool, which ekes a business organization in the process of competing in today’s volatile business environment at International level.

The paper undertakes the evaluation of financial performance of J Sainsbury Plc. It also discusses the significance of investment appraisal in undertaking the decision regarding the business ventures. The impact of alteration in capital structure on shareholders wealth and company’s performance has also been discussed. Last but not least the paper also elaborate how the wrong choice or unavailability of sources of finance undermines the business of an organization. Methodology followed: There is not very much research undertaken in the field.

In this research we will analyze the three years annual reports of the company by the application of the concepts mentioned above. Findings: There is a big room for improvement, which is required for the company in order to ameliorate their business conditions. Limitation of the study: – There is a vast area related to the topic addressed, which needs to be researched and analyzed. The comparative study of investment appraisal, sources of finance, and capital structure of different companies from different countries could also be undertaken.

Practical implications: The study is a fair effort to help the individuals and the professionals attached to the field to understand the benefits attached to the concepts of investment appraisal, sources of finance, and capital structure. Value of the research: In this volatile era of increasing quality demands from customers and fierce competition the study highlights the importance of Financial Management in effectively addressing these challenges. Observation:

In today’s globalize world where the firms have to face challenges of availability limited resources available and the increasing demand for improved performance, business organizations can only respond to these challenges by becoming more volatile, more target oriented, and more responsive. These challenges have increased the need of leadership with the endurance to undertake timely and effective sometimes crucial financial decisions. The challenges therefore for the organizations alike are to help build effective, conducive, and visionary financial management mechanism.

Financial Management has a crucial role to play for business managers throughout the organization not only today but also in the next generation of managers that will be running the different corporate units in the future. The mechanism alone wouldn’t solve the case. The key is to use that mechanism at right time and in right direction. J Siansbury is no doubt a very sound organization with a high potential. It won’t be unwise to say that J Sainsbury can dominate the supermarkets industry in the near future.

But for that the management of the company will have to take some important decisions for which the recommendations are presented in the last section of the paper. Definition of Problem: To understand the need and measure the importance of sources of finance, capital structure and undertaking investment appraisal through out the whole organization at international level in order to have smooth and responsive business operations in presence of other variables. Company Profile:

J Sainsbury plc is the third largest chain of supermarkets in the United Kingdom. It’s the longest standing food retailing chain, which opened its first store in 1869. Experiencing expansion at high pace the company now operates 504 supermarkets and 319 convenience stores. Provision of high quality grocery is an accentuation of the Super market chain. In the rankings published by Taylor Nelson Sofres in January 2008, Sainsbury’s market share was estimated at 16. 4% making it the third largest after Tesco having a share of 31.

5% and ASDA with 16. 7%. In the annual report of 2008 the company reported its share to over 14. 8% and claimed no. 2 position in the food retailing industry. With the UK grocery retailing market being valued at ? 123. 5 billion in 2005/06 it is an anticipation that growth will be at an average annual increase of 2. 8 percent increasing the value of market to ? 141. 5 billion by 2011. Comparing from the year 2007 Sainsbury experienced a mixed trend of growth in all the regions it operates.

The imposition of regulations and planning regimes on store development will adversely effect the growth of Sainsbury but effective strategic planning supported with competent financial management will help the company in achieving its aims. As we know financial management is concerned with the acquisition, financing and management of assets in order to achieve the goal of profit maximization. The decision function of financial management can be divided in to three major categories: investment, financing and asset management. Due to globalization the complexities in the business world have been increased.

The finance managers of organizations like J Sainsbury at international level are faced with the challenges of increased corporate competition, technological change, volatile inflation and interest rates all over the world, difference in economic and market structures, lack of resources and difference in ethical standards. Below we will analyze how different financial phenomenon such as investment appraisal, source of capital, and capital structure help organizations like J Sainsbury in effectively undertaking its business financial decisions at right time and in right manner.

Capital Structure: Looking at the capital structure of the Sainsbury has the following sources of funds that can be used. There are two forms of financing and they include; debt capital and share capital Debt Capital These are two forms of debt capital that can be used by Sainsbury to finance their operations, which include short term and long term. Each of this that can be used has advantages and disadvantages. This will also depend on the type of debt capital, in normal practice long debt capital is considered to be a source long-term capital.

But to some companies they may finance long-term assets using short term and medium term debt depending on the nature of their business. For the case of J Sainsbury they can used only long-term term debt for the proposed project as their financial position can not support short term debt for a long term project. However they can use short term financing for current assets this will help them improve profitability. (a) Long-term debt The importance of long term debt to the Sainsbury capital structure can be seen through the effects on financial leverage, the cost of capital, and capital structure.

The presence of debt in Sainsbury’s capital structure will provide financial leverage, which will magnify the effects of increased operating profits, thus the shareholders returns. Since debt is normally the cheapest form of long-term financing, due to the tax deductibility of interest, it is a quite desirable component of the firms’ capital structure. The presence of long term debt in Sainsbury’s capital structure also will lower the firms cost of capital, thereby permitting the firm to invest in the proposed project since it is one of the sources that is not exploited as per the current capital structure

Long term debt financing can be obtained in two ways. One way is to borrow the money directly. These term loans with varying requirements are available from a number of major financial institutions. A second method of raising long-term debt can sell small parts of the total debt financing to various purchasers. Preference share: Is a form of financing whereby shareholders are paid a fixed rate of dividend after creditors but before ordinary shareholders. This can be cumulative preference shares where shareholders are paid a fixed amount of dividends and arrears accumulate.

Non-cumulative where they receive a fixed rate of dividend but arrears does not accumulate. Sainsbury has not exploited this form of capital therefore it should use it as part of the financing. The advantages and disadvantages of this source include; Advantages (i) Cheap – because is less risky, debenture holders can expect a lower rate of return. (ii) Cost is limited to the stipulated interest repayment. (iii)There is no dilution of control where debt is offered since no voting rights. Disadvantages (i) Interest is a compulsory default will mean selling the company securities or the company will go under receivership.

(ii) It is limited since the shareholders are concerned that a geared company can not pay its interest and still pay its dividend and raise the rate of return that they require from the company to compensate for this risk. (iii) Provision must be made for the repayment of debt with fixed maturity rate. (iv) If the general interest rates fall, fixed rate interest payments may prove to be a burden. (b) Short and Medium Term Financing Short -term is a form of financing whose period of repayment is up to one year. Medium – term is a form of financing from one year to seven years.

This form of financing is best when the finance raised is to meet a specific current requirement, which is not expected to continue indefinitely. A bank loan is obtained when the company is trying to avoid circumstances under which they use long-term debt for financing her operations. Bank loans also provide funds to pay off immediate and urgent expenses. In this case the company obtains a bank loan to enable sort out necessary expense. Bank loans can be long-term or short term and this case there is no bank loan in the Sainsbury capital structure. This has the following advantages and disadvantages;

Advantages (i) They are risky since they can be paid on demand or within the stated period and normally the duration is short whereas others can be terminated any period depending on the financial position of the company for example bank overdrafts and loans. (ii) During winding up of the company, they are given last priority since they are not secured. (iii) They have no voting rights in the company’s general control. (iv) Flexibility – they can be sued as required for instance bank overdrafts can be sued so long as the company does not exceed the required limit.

In addition, credit period can be extended depending on the goods or services supplied. (v) Liable – any company can easily access this facility so long as it meets the requirements. (vi) Not expensive – interest rates are usually above the base rate and are tax deductible. Disadvantages (i) Risky since they are legally repayable on demand or within a certain stated period depending on the financial position of the company. (ii) Security is usually required by way of fixed or floating charges on assets or sometimes in private companies by personal guarantees from owners. (iii) Interest costs vary with bank base rates.

The effect of debt capital on cost of equity According to Modigliani-Miller the expected present value of a firm’s future operating income is independent of the leverage ratio of debt to firm value. Using the therefore, the use of debt capital brings the cost of overall cost capital to come down to the level that is considered optimal. This is because debt capital introduces to interest saving thus increasing the retained earnings for the fir. This will eventually translate to increase in the share capital of firm providing funds to be utilized within when financing any capital investment project. The cost of capital

Agree or disagree with ” the most important investment for a company is to spend money to improve the work skills of its employees. In contemporary society, high level employees paly an indispensable role in the rapid development of companies. Therefore, Form where I stand, devoting money to improvement of its’ employees has been the most important investment for a company.

First of all, skilled employees, to a large extent, are conductive to reduce a large amount of cost in companies. They employees who are well trained equipped with more energy and skill, so that they accomplish their jobs more efficiently and effectively. If a company afford for improvement of workers’ ability, the employees are more likely finish their work in a comparatively short time, and they are capable of digging their potentials. So their company just only hire fewer employees than in the past to save a large amount of money. In addition, the skilled employees may produce more high qualitied products, and they made less mistakes during the work time. Companies are more likely to make good use of materials,for example, skilled workers decline the number of low-qualitied products that need to return to assembly lines and to consume materials and human resources. It is obvious that the if companies get their employees trained, they will gain more profits owing to lowing costs.

Moreover, companies should improve the abilities of employees to adjust to progressions of society. The quickening pace of society require people to endow with more knowledge and skills. It is wise for a company to promote the staff’s various abilities by training. Take my mother’s company for example, 20 year ago, companies introduced new equipment, computers, however, most of employees could not master those computers. The company hire a computer expert to taught them to use computers. It turned out that my mother’s company develop more rapidly than those whose staff could not handle computers, since the employees already have been able to apply to the advanced technology. What’s more, at present, numerous machines are widely used in companies or factories, and skilled people are required to operate them. It is no exaggeration to say that companies with highly skilled staff will easily gain core competence in modern society.

Admittedly, there exists other investments besides enhancing employees’ work skills, such as employing a eminent leader and introducing more state-of -the-art machines. However, the merits of improving staff overshadow that of other methods because of saving cost and adjusting to the development of society. Therefore, I reinforce my view that improving the abilities of its staff is serves as the most important investment for companies.

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The property costs IPPP, OOH 3 years ago, and was carried on the promoters’ books at Pl 50,000. Jan. 31 Issued 30,000 shares of convertible preferred stock at Pl 50 per share. Each share can be converted to five shares of common stock. The corporation paid IPPP, OOH to an agent for selling the shares. Feb.. 15 Sold 9,000 shares of common stock at IPPP per share. The corporation paid issue costs of p 75,000. May 30 Received subscriptions for 12,000 shares of common stock at IPPP per share. Gag. 30 Issued 2,1 00 shares of common stock and 4,200 shares of preferred stock in exchange for a building with a fair market value Of Pl, 530,000.

The building was originally purchased for Pl, 140,000 by the investors, and has a book value of IPPP, OOH. In addition, 1,800 shares of common stock were sold for IPPP, ooh cash. Novo. 15 Payments in full for half of the subscriptions and partial payments for the rest of the subscriptions were received. Total cash received was Shares of stock were issued for the fully paid subscriptions. Deck. Declared a cash dividend of Pl O per share on preferred stock, payable on December 31 to stockholders of record on December 1 5, and PEP per share cash dividend on the common stock, payable on January 15, 2006, to stockholders f record on December 15.

 QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2005:

           1 . Common stock

• a. IPPP,ooh p 144, 000.
• c. IPPP, ooh.

           2. Paid-in capital in excess of par value of preferred stock

• a. P 1.
• b. Pl 275,000.
• d. Pl 86,000 AP-5901 Q Page 2 of 5 Paid-in capital in excess of par value of the common stock.

The Perseverance Corporation has requested you to audit its financial statements for the year 2005. During your audit, Perseverance presented to you its balance sheet as of December 31, 2004, containing the following capital section: Preferred stock POI par; 60,000 shares authorized and issued, of which 6,000 are treasury shares costing PEP, OOH and shown as an asset Common stock, par value PA; 600,000 shares authorized, of which 450,000 are issued and outstanding Additional paid-in capital (PA per share on preferred stock issued in 2000) Allowance for doubtful accounts receivable Reserve for depreciation.

Reserve for fire insurance Retained earnings IPPP,ooh 300,000 12,000 840,000 198,000

Additional information:

1) Of the preferred stock, 3,000 shares were sold for P 18 per share on August 30, 2005. Perseverance credited the proceeds to the Preferred Stock account. The treasury shares as of December 31, 2004, were acquired in one purchase in 2004.

2) The preferred stock carries an annual dividend of Pl per share. The dividend is cumulative. As of December 31, 2004, unpaid cumulative dividends amounted to AS per share. The entire accumulation was liquidated in June 2005, by issuing to the preferred stockholders 54,000 shares of common stock.

3) A cash dividend of Pl per share was declared on December 1, 2005, to preferred stockholders Of record December 1 5, 2005. The dividend is payable on January 15, 2006.

4). On December 31, 2005, the Allowance for Doubtful Accounts Receivable and Reserve for Depreciation had balances of PEP, ooh, and Pl respectively.

5) On March 1, 2005, the Reserve for Fire Insurance was increased by PEP, OOH; Retained Earnings was debited. 6) On December 31, 2005, the Reserve for Fire Insurance was decreased by PEP,000, which represents the carrying value of a machine destroyed by fire n that date.

The points related with the asset, debt, and equity structure of Lucent Technologies that was found in the common size statement are stated below: ? It is clearly evident that the assets of the Lucent Technologies have declined significantly between 2003 and 2004. ? It is a good sign that company maintains its current assets at 49% both in the year 2003-04 with respect to its total assets. Although the business environment is worst in condition but the management of the Lucent Technologies hasn’t adopted an effective asset management policy in order to uplift its total assets.

? Inventories have increased slightly from 4% to 4. 8% in the year 2004. Due to the activity in the year 2004, working capital has increased in response to which inventory has also increased. The increase in inventory volume makes a significant impression over the growth and the future of the company. The slight improvement of 4. 9% in the year 2004 in the inventory discloses the fact that management is working on better inventory management policies (Annual Report, 2004).

? Company is primarily financing their activities through debt and it is good sign that proportion of debt has decreased from 31% to 26%. It is also evident that Lucent realized that high debt proportion also raises the distress cost which makes a negative impact on the net income of the company (Annual Report, 2004). ? Shareholder equity has slightly shrunk in the in the year 2004 in additional paid-in capital and accumulated deficit, respectively.

The sole reason behind which is the ineffective business conditions that makes its deficit more volatile. Lucent Technologies is not heavily dependent on equity financing which has made a positive impression on the stock prices and also there is a hint that in the years to come the management of the company might issue less number of shares in order to overcome its deficit problem. 3. What concerns would investors and creditors have based on only this information?

The concerning points of both investors and creditors are stated below: ? The most worrying part for both the stake holders is the decrease in cash and cash equivalents which makes an impression on the company’s cash operating cycle and it indicates that the management has not opted for the right strategy towards managing its working capital. ? Another thing is that Lucent Technologies is loosing value of their assets which indicates that company can’t utilize its assets properly and some of it remains idle.

Moreover, the assets of Lucent Technologies are not in a position where they can generate more revenues or profit which in the end makes an impression on the company’s profit, company’s credit worthiness, stock etc. ? Although the company is less dependent on debt in the current year this is a good sign for the company’s future perspective but in the long run the financial and leverage cost might manipulate the company’s net income. This will affect the company’s goodwill and makes the accumulated deficit more tentative. 4. What additional financial and non-financial information would investors

and creditors need to make investing and lending decisions for Lucent Technologies? The information is stated below: ? Adopting strategies that can positively impact the sales and net income because in this particular line of business changes come in very quickly, and new products and services need to be introduced sooner than later. ? High cost of sales make a negative impact on the gross profit and also increases the variable and fixed costs, which cuts down the profit. ? Cash reserve is decreased primarily because of expansion in business volume and also because of debt financing.

? Company should try to ensure that no asset remains idle, or atleast maximize their asset utilization. ? Lucent Technologies’ negative point is its operating cycle which does not help in boosting the business volume. Lucent should opt for strategies to generate a more rapid operating cycle. ? Government’s policies and tax rates, competitors’ strategies also impacts the business, so the management should chose and decide wisely as business operating policies makes an impression on both, the company itself and the stake holders. Reference Lucent Technologies Inc (2004). Annual Report

Present Value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.

Present Value of annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the beginning of each period; For an annuity due. PVoa = PMT [(1 – (1 / (1 + i)n)) / i] Future Value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

There are two ways to calculate FV: For an asset with simple annual interest: = Original Investment x (1+ interest rate *number of years)) 2) For an asset with interest compounded annually: = Original Investment x ((1+interest rate)^number of years) Future value of annuity is the value of a group of payments at a specified date in the future. These payments are known as an annuity, or set of cash flows.

The future value of an annuity measures how much you would have in the future given a specified rate of return or discount rate. The future cash flows of the annuity grow at the discount rate and the higher the discount rate, the higher the future value of the annuity. The current value of a set of cash flows in the future, given a specified rate of return or discount rate. The future cash flows of the annuity are discounted at the discount rate, and the higher the discount rate, the lower the present value of the annuity.