Direct Taxes Taxes whose impact and incidence are on the same person. The taxes levied on income, and wealth taxes are instances of direct taxes.

Discount This refers to:

1. The margin by which a security's market price is lower than its face value.
2. In security analysis, it means the adjustment in security prices consequent to the assimilation of new information about a company, or news in general. An illustration is the increase in the price of a stock following the news of the company bagging big sale orders.
3. Reduction in the sale price of goods.

Discount Rate The interest rate used in calculating the PRESENT VALUE of future cash flows.

Disinvestments The sale of shareholding by an individual or institution in order to raise cash.

Diversification The process of spreading out investments so as to limit exposure and reduce risk. Individuals do this by investing in shares of different companies or by combining stocks with DEBENTURES, MUTUAL FUND shares, FIXED DEPOSITS and other investment vehicles. Companies achieve diversification by venturing into new and unrelated business areas. 




EEFC Account This refers to the Exchange Earners' Foreign Currency Account, a scheme introduced in 1992 for exporters and residents receiving foreign exchange. A certain percentage of the earnings may be maintained in this account in order to limit exchange rate risk in case of future imports or for other specified purposes. 

Efficient Portfolio A diversified selection of stocks resulting in a least risk PORTFOLIO for a given rate of return. At that level of RISK, no other portfolio provides superior returns. Combining shares from different unrelated industries helps to neutralize the UNSYSTEMATIC RISK inherent in each security.


EOQ The acronym for Economic Order Quantity, a term that relates to INVENTORY management. It is the optimum size of order which minimizes the cost of purchasing and holding inventories.
Equity Grading A service offered by the credit rating agency, ICRA Limited, under which the agency assigns a grade to an equity issue, at the request of the prospective issuer. This symbolic indicator conveys the agency's opinion on the relative quality of equity being offered, on the basis of its in-depth study of the company and all relevant factors. It takes into account the earning prospects, risk and financial strength associated with the issuer, which reflect its managerial competence, industry outlook, competition, etc. credit rating agency, ICRA Limited, under which the agency assigns a grade to an equity issue, at the request of the prospective issuer. This symbolic indicator conveys the agency's opinion on the relative quality of equity being offered, on the basis of its in-depth study of the company and all relevant factors. It takes into account the earning prospects, risk and financial strength associated with the issuer, which reflect its managerial competence, industry outlook, competition, etc. There are 12 grades starting with ERAI (signifying excellent earning prospects with low risk) and ending with ERD3 (representing poor earning prospects and high risk). The agency also offers the service of Equity Assessment, which is at the request of an investor. This appraisal is a one-time exercise and is in the form of a report that is intended to help investors in their investment decisions.


Equity Share A security that represents ownership interest in a company. It is issued to those who have contributed capital in setting up an enterprise. Apart from a PUBLIC ISSUE, equity shares may originate through an issue of BONUS SHARES, CONVERTIBLE securities, WARRANTS, GDRS, etc. An alternative term that is sometimes used is 'COMMON STOCK' or simply, 'STOCK'.

Escrow Cash, securities or other valuable instruments that are held by a third party to ensure that the obligations under a contract are discharged. The escrow mechanism is a technique of mitigating the risk to lenders and it is used typically in infrastructure projects such as power, roads or telecom. For example, an escrow account can be set up at a bank for depositing the payments of electricity bills.

Euro The common European currency that will come into being with the formation of the European Union. This economic union has given birth to the European Monetary Union tht will be characterized by a common CENTRAL BANK and MONETARY POLICY, besides the common currency. Elimination of exchange rate risk and reduction of transaction costs between members are seen as major benefits of the common currency. The circulation of the Euro is slated to take place in 2002 and it is expected to emerge as an important international currency. More specifically, it will compete with the US dollar as a reserve currency.

Euro Issue An issue of securities to raise funds outside the domestic market. Euro issues by Indian companies have been by way of GDRS or EUROCONVERTIBLE BONDS. The advantages associated with Euro issues are :

1. Reduced cost of capital owing to lower interest rates and floatation costs.
2. Efficient pricing that maximizes mobilization.
3. No immediate dilution of voting control.
4. Greater visibility due to international exposure.
5. Inflow of foreign currency funds.

Euro issues must conform to the guidelines issued by the Central Government. Among other thing, prior permission for an issue must be obtained from the Ministry of Finance. (See GDR and FOREIGN CURRENCY CONVERTIBLE BOND). 

Euro bond A bond denominated in a currency different from that of the country in which it is sold. 

Financial Futures These are contracts guaranteeing delivery of specified financial instruments on a future date, at a predetermined price. The financial instruments traded in the U.S. futures markets consist of foreign currencies and debt securities e.g., TREASURY BILLS, long-term U.S. Treasury BONDS, COMMERCIAL PAPER, etc. The futures contracts on debt securities are commonly known as interest-rate futures. They offer companies, banks and institutions a means to insulate themselves from adverse interest rate movements through HEADING. The objective behind hedging is to establish in advance, a certain rate of interest for a given time period. That apart, financial futures offer considerable profit potential which attracts speculators and individual investors too.

Financial Institution A non-banking financial intermediary (company corporation or co-operative society) carrying on any of the activities specified in the relevant section of the Reserve Bank of India Act. These activities include lending, investing in shares and other securities, HIRE-PURCHASE, insurance and CHIT FUNDS.
 In general, this term refers to the Development Finance Institutions such as IDBI and IFCI, as well as the Unit Trust of India (UTI) and the Life Insurance Corporation of India (LIC). 

Financial Leverage The ability to magnify earnings available to equity shareholders, by the use of debt or fixed-charge securities. Generally, the higher the amount of debt in relation to total financing, the greater will be the impact on profits available to equity shareholders, other things being equal. 

DFL =	Percentage change in EPS
	Percentage change in PBIT

The Money Market is that segment of the financial markets wherein financial instruments having maturities of less than one year are traded. These different instruments are listed below :

Instrument	Typical MATURITY (in days)
CALL MONEY and NOTICE MONEY	1 and up to 14
REPOS	14
INTER-BANK TERM MONEY	15 TO 90
BILL OF EXCHANGE	90
TREASURE BILL	91 AND 364
INTER-BANK PARTICIPATION
CERTIFICATE	91 TO 180
CERTIFICATE OF DEPOSIT	90 TO 364
COMMERCIAL PAPER	30 TO 364
INTERCORPORATE DEPOSIT	90

 The Capital Market is that segment of the financial markets in which securities having maturities exceeding one year are traded. Examples include DEBENTURES, PREFERENCE shares and EQUITY SHARES.


Fiscal Policy The use of tax and expenditure powers by a government. Government all over the world, are vested with the task of creating infrastructure (e.g., roads, ports, power plants, etc.) and are also required to ensure internal and external security. These responsibilities entail government expenditures on various fronts – capital outlays, the defense forces, police, the administrative services and others. Taxes are a major source of revenue to meet these outflows. Thus, the Union Government collects income tax, EXCISE DUTY, customs duty, etc., through its different arms.

Floating Exchange Rate The exchange rate of a currency that is allowed to float, either within a narrow specified band around a reference rate, or totally freely according to market forces. These forces of demand and supply are influenced by factors, such as, a nation's economic health, trade performance and BALANCE OF PAYMENTS position, interest rates and INFLATION.

Floating Rate Bond A debt security whose COUPON RATE is periodically adjusted upwards or downwards, usually within a specified band, on the basis of a benchmark interest rate or an index. These securities, also termed 'Indexed Bonds', were introduced to offer investors protection from INFLATION and INTEREST RATE RISK that are inherent in a DEBENTURE or BOND bearing a fixed coupon. When interest rates and bond YIELDS go up, the coupon is raised as indicated by the issuer. The disadvantage is when rtes fall, because the bondholder's coupon receipts will fall. Moreover, the downward revision of the coupon would also preclude any CAPITAL GAINS by way of price appreciation, accruing to the holder. In India e.g., the first such instrument was introduced by the State Bank of India in December 1993. The bonds carry a floating rate of interest for 3 percent over the bank's maximum term deposit rate, with a minimum coupon rate of 12 percent per annum; the coupon rate will be adjusted at regular intervals of six months on January 1 and July 1 throughout the tenure of the instrument.


Foreign Currency Convertible Bond (FCCB) An unsecured debt instrument denominated in a foreign-currency and issued by an Indian company which is convertible into shares, or in some cases into GDRs, at a predetermined rate. That is, the CONVERSION PRICE and the exchange rate are fixed. The BOND which bears a certain coupon enables the issuing company to economize on interest cost by tapping foreign markets and also to postpone a DILUTION in the EARNINGS PER SHARE. The advantage to the investor is the option of retaining the security as a bond till REDEMPTION, if the stock does not rise to the desired level. Moreover, the interest rate on the security is higher as compared to bonds of foreign companies. Subject to the rules prevailing, put and call OPTIONS may be attached to the instrument. The put enables investors to sell their bonds back to the issuer. The call allows the issuer to undertake REFINANCING or to force conversion. Incidentally, one dimension of FCCBs is that they add to India's external debt. Moreover, until conversion, the interest is paid in foreign currency. If the option to convert is not exercised, redemption too will entail an outflow of foreign currency. Therefore, the exchange risk, i.e., the depreciation cost, must be taken into consideration. In some respects, an 'Alpine Convertible' bond (issued to Swiss investors) scores over others; the issue costs are lower and the placement process is shorter.


Forfeiting This refers to the sale of export receivables. It amounts to DISCOUNTING receivables by a forfeiting company, but without recourse to the exporter. Therefore, it serves to convert as sale of goods on credit into a cash sale. Under this arrangement, the exporter receives the proceeds on surrendering to the forfeiter, the endorsed debt instrument duly accepted by the importer and co-accepted by his bank. Unless otherwise specified, the forfeiter bears the risk of default in payment by the importer. So, the forfeiter's fee depends on the country of the importer apart from the due date of payment. For instance, the fee for forfeiting bills accepted by an importer in Uganda could be higher than for an importer in U.K. in India, the EXIM BANK introduced forfeiting in 1992. Authorized Dealers in foreign exchange may also enter this business.

Forfeiture It means the deprivation of shares held by an investor, usually as a consequence of default in paying money, called upon allotment, to the company. As a result of a forfeiture, the investor ceases to be a shareholder insofar as the forfeited shares are concerned; however, he remains liable for the sum due.
Formula Plans These are mechanistic methods of timing decisions relating to the buying and selling of securities. There are different formula plans that include the Constant Dollar Plan and the Constant and Variable Ratio Plans. These methods are for the patient, conservative investor who seeks protection from large losses and is not confident of timing his decisions correctly.


Forward Contract A transaction which binds a seller to deliver at a future date and the buyer to correspondingly accept a certain quantity of a specified commodity at the price agreed upon, which is known as the 'Forward Rate'. A forward contract is distinct from a futures contract because the terms of the former can be tailored to one's needs whereas, the latter is standardized in terms of quantity, quality and delivery month for different commodities. In other words, forward contracts are customized contracts that enable the parties to choose delivery dates and trading units to suit their requirements. (See also COMMODITY FUTURES.)

Forward Discount The differential by which a currency is less expensive in the forward market as compared to the SPOT MARKET.
Forward Premium The amount by which a currency's forward rate exceeds the spot market rate.


Futures Market A market in which contracts for future delivery of certain commodities or securities are traded.

Goodwill The value of intangible facets of a business such as its name, reputation and location, which is reflected in the excess of its acquisition price over the fair value of its tangible assets.

Gross Domestic Product (DGP) This is a comprehensive measure of the economic activity that takes place in a country during a certain period. It is the total value of final goods and services produced in an economy in a year. The computation is on the basis of value added – the contribution of a producing enterprise is the difference between the value of its finished product and the cost of materials used.

Hence, national output is the total value added by all producing enterprises. More specifically, gross domestic product is expressed as

C + I + G + (X – M)

Where
C stands for consumption, which is the expenditure by consumers on consumption goods and services.
I is 'Gross private Domestic Investment' representing the acquisition of new capital goods (e.g., plant and machinery) and inventory additions by business enterprises, as well as construction of factories, houses, etc.
G denotes government expenditure on goods and services.
(X-M) represents the difference between exports (S) and imports (M) of goods and services.

Havala Transaction An Indian term which refers to a mode of transfering of funds out of India or into the country, bypassing official and legal channels. As an example, an individual may transfer his ill-gotten cash to a discreet bank in a foreign country. Using the havala route, he gives the rupees to an intermediary in India, who then arranges a reciprocal deposit of an equivalent amount to his account in the chosen bank. At a later date, the funds could be brought into India through another havala transaction. Since such deals circumvent official channels, there is a loss to the nation in terms of the net inflow of foreign exchange.

Hedging The action of combining two or more transactions so as to achieve a risk-reducing position. The objective, generally, is to protect a profit or minimize a loss that may result on a transaction.

For instance, a SHORT SALE could be employed to lock in a price gain on a LONG TRANSACTION. As demonstrated in Appendix II, hedging is useful with futures contracts too. A disadvantage with hedging, however, is that it results in less than the maximum profit that could have accrued.

Hire-Purchase Arrangement A transaction by which an ASSET is acquired on payment of regular installments comprising the PRINCIPAL and interest spread over a specified period. Although the asset gets transferred on payment of the last installment, the hirer can avail of DEPRECIATION and deduction of interest cost for computing taxable income.
Hundi An Indian term for a negotiable instrument that is similar to a BILL OF EXCHANGE.

Hypothecation This refers to the pledging of assets as security for funds borrowed. Bank lending for working capital involves a hypothecation of INVENTORIES and book debts. Under this arrangement, the CURRENT ASSETS remain with the borrower, but in case of default, the bank may seek recovery of the loan by instituting a lawsuit to seize the hypothecated assets, which can later be sold.

Dividend The payment made by a company to its shareholders. Legal and financial considerations have a bearing on the level of dividend to be paid. For instance, dividends may be paid out of profits alone; so also, a growing company needs funds to finance its expansion and hence may pay only a modest dividend, in order to conserve resources. 

Dow Theory A theory to ascertain the emergence of a primary trend (a trend which indicates either a bullish or bearish phase) in the stock market. It seeks confirmation of whether a long-term market advance or decline is under way, by examining the movement of the Dow Jones Industrial Average in conjunction with the Dow Jones Transportation Average. These averages are summary measures of stock prices in the U.S.

Dumping The sale of goods in a foreign market at a price that is below the price realized in the home country, after allowing for all costs of transfer including transportation charges and duties. The motive may be to enhance revenues, offload surplus stocks or a predatory intent of killing foreign competition. Earnings Per Share (EPS) The net profits of a company expressed on a per (EQUITY) SHARE basis. It is arrived at by dividing the figure of profits after taxes and DIVIDENDS paid on PREFERENCE SHARES, if any, by the number of equity shares outstanding. Therefore, it does not reveal the potential impact of dilution in earnings on account of securities such as convertibles or warrants that may be outstanding. Moreover, an improvement in EPS does not necessarily indicate a more productive use of the total amount of funds available with a firm.

Economic Value Added (EVA) A tool for evaluating and selecting stocks for investment, and also used as a measure of managerial performance. An American consultancy firm, Stern Stewart is credited with the development of this tool in the late eighties. It is calculated by subtracting the total cost of capital from the after-tax operating profits of a company.

EVA = After-tax Operating Profits – Total cost of capital

Efficient Portfolio A diversified selection of stocks resulting in a least risk PORTFOLIO for a given rate of return. At that level of RISK, no other portfolio provides superior returns. Combining shares from different unrelated industries helps to neutralize the UNSYSTEMATIC RISK inherent in each security.

Bank Rate The rate of interest charged by the Reserve Bank of India (RBI) on financial accommodation extended to banks and FINANCIAL INSTITUTIONS. The support is provided in the form of a bills rediscounting facility and advances or REFINANCE against specified ASSETS (e.g. TREASURY BILLS and DATED SECURITIES) or PROMISSORY NOTES.


Bear A person who expects share prices in general to decline and who is likely to indulge in SHORT SALES.


Bond A long-term debt instrument on which the issuer pays interest periodically, known as 'Coupon'. Bonds are secured by COLLATERAL in the form of immovable property. While generally, bonds have a definite MATURITY, 'Perpetual Bonds' are securities without any maturity. In the U.S., the term DEBENTURES refers to long-term debt instruments which are not secured by specific collateral, so as to distinguish them from bonds


Bonus Shares The issue of shares to the shareholders of a company, by capitalizing a part of the company's reserves. The decision to issue bonus shares, or stock DIVIDEND as in the U.S., may be in response to the need to signal an affirmation to the expectations of shareholders that the prospects of the company are bright; or it may be with the motive of bringing down the share price in absolute terms, in order to ensure continuing investor interest. Following a bonus issue, though the number of total shares increases, the proportional ownership of shareholders does not change. The magnitude of a bonus issue is determined by taking into account certain rules, laid down for the purpose. For example, the issue can be made out of free reserves created by genuine profits or by share PREMIUM collected in cash only. Also, the residual reserves, after the proposed capitalization, must be at least 40 percent of the increased PAID-UP CAPITAL. These and other guidelines must be satisfied by a company that is considering a bonus issue



Book Value It is the amount of NET ASSETS that would be available per EQUITY SHARE, after a company pays off all LIABILITES including PREFERENCE SHARES from the sale proceeds of all its ASSETS liquidated at BALANCE SHEET values.




Break-even Point The point where the revenues from a business operation equal the total costs (FIXED COSTS = VARIABLE COSTS). Thus, a profit accrues when revenues exceed the break-even point. The break-even volume is computed by dividing the fixed costs (FC) by the difference between the selling price per unit (SP) and variable cost per unit (VC). For instance, if FC is Rs.4,000, VC is Rs.60 and SP is Rs.85, the break-even volume is 4,000/(85-60) = 160 units of output.



Budget A financial plan that projects receipts and payments of an entity covering a specific period of time, usually one year. Its primary purpose is to achieve financial control. Budgets could be distinguished on the basis of time span, function and flexibility. For instance, budgets may be short-term or long-term; similarly, there are Sales Budgets, Cash Budgets, Capital Expenditure Budgets and other to cover different functions.

Bull A person who expects share prices in general to move up and who is likely to take a long position in the stock market.



Capital Adequacy Ratio A requirement imposed on banks to have a certain amount of capital in relation to their ASSETS, i.e., loans and investments as a cushion against probable losses in investments and loans. In simple terms, this means that for every Rs.100 of risk-weighted assets, a bank must have Rs. X in the form of capital. Capital is classified into Tier I or Tier II. Tier I comprises share capital and disclosed reserves, whereas Tier II includes revaluation reserves, hybrid capital and subordinated debt. Further, Tier II capital should not exceed Tier I capital. The risk weightage depends upon the type of assets. For example, it is zero on government guaranteed assets, 20 percent on short-term bank claims on 100 percent on private sector loans. (Risk weights on GOVERNMENT SECURITIES are being introduced.) The capital adequacy ratio is percentage of total capital funds to the total risk-weighted asset



Capital Reserves The reserves created in certain ways, that include the sale of FIXED ASSETS at a profit. These amounts are regarded as not available for distribution as DIVIDENDS.

Cash Reserve Ratio (CRR) A legal obligation on all SCHEDULED COMMERCIAL banks excluding REGIONAL RURAL BANKS to maintain certain reserves in the form of cash with the Reserve Bank of India (RBI). The reserves, to be maintained over a fortnight, are computed as a percentage of a bank's net demand and time LIABILITIES. Banks earn interest on eligible cash balances thus maintained and it contributes to their profitability. However, such interest payment tends to attenuate monetary control, and hence these outflows need to be moderated if the situation so demands. An alternative that has been suggested is to fix a lower level of reserves and pay a modest interest. 


Commercial Paper (CP) A short-term, unsecured PROMISSORY NOTE issued by BLUE CHIP companies. Like other MONEY MARKET instruments, it is issued at a DISCOUNT on the FACE VALUE and is freely marketable. Commercial Paper may be issued to any person including individuals, banks and companies. The Reserve Bank of India (RBI) has laid down certain conditions regarding issue of CPs. The issuing company must have a certain minimum tangible NET WORTH, working capital limit, asset classification, etc. and the paper must have a CREDIT RATING of P2, A2 or PR-2. Moreover, the rating must not be over two months old at the time of issue. From November 1996, the extent of CP that can be issued by all eligible corporates has been raised to 100 percent of the working capital credit limit. As for restoration of the limit consequent on redemption of CP, banks have been given freedom to decide on the manner of doing so.


Commodity Futures A standardized contract guaranteeing delivery of a certain quantity of a commodity (such as wheat, soybeans, sugar or copper) on a specified future date, at a price agreed to, at the time of the transaction. These contracts are standardized in terms of quantity, quality and delivery months for different commodities. Contracts on certain commodities such as pepper and coffee are already traded in India. Moreover, the Kabra Committee in 1994 recommended that futures trading be permitted in several other commodities including rice, cotton, Soya bean and castor oil. Further, in an interesting development, a committee appointed by the Reserve Bank of India under the chairmanship of R.V. Gupta has recommended that Indian corporates be allowed to hedge in offshore futures and OPTIONS markets in a phased manner. The committee submitted its report in November 1997.


Cost of Capital The weighted average cost for long-term funds raised by a company from different sources such as term loans, DEBENTURES/BONDS, PREFERENCE SHARES, EQUITY SHARES and retained earnings.

Cost of Goods Sold Alternatively called the Cost of Sales, it is the sum of total input costs associated with a certain quantity of goods sold. The total input costs include materials used, direct and indirect labour, utilities, and other manufacturing expenses including DEPRECIATION.

Coupon Rate It is the rate of annual interest on the PAR VALUE of DEBENTURES or BONDS that an issuer promises to pay. In India, till a few years ago, coupon rates were subject to a ceiling stipulated by the Controller of Capital Issues. With the removal of the ceiling, issuers have fixed their coupon rates by taking into consideration, market perceptions and expectations. The rate may be fixed or it may be floating in relation to some benchmark.

Credit Rating The exercise of assessing the credit record, integrity and capability of a prospective borrower to meet debt obligations. Credit rating relates to companies, individuals and even countries. In the case of a company's debt instrument, such formal evaluation with the aid of quantitative and qualitative criteria, culminates in the assignment of a letter rating to the security. The instrument could be a DEBENTURE, FIXED DEPOSIT OR COMMERCIAL PAPER. The rating represents in rating agency's opinion at that time on the relative safety of timely payment of interest and principal associated with the particular debt obligation. This opinion rests on the agency's assessment of the willingness and capability of the issuer to meet the debt obligations. The methodology is to examine key factors like the business, the management, regulatory environment, competition and fundamental aspects including the financial position. A high credit rating can help in reducing the interest cost and also facilitate placement of the debt security. The rating agencies in India are Credit Rating and Information Services of India Limited (CRISIL), ICRA, and Credit Analysis and Research (CARE)


Cross Currency Option An instrument that confers a contractual right on the purchaser of the OPTION to buy (call) or sell (put) a currency against another currency, e.g., Yen for U.S. dollar. For this privilege, the purchaser pays a cost termed PREMIUM. Incidentally, the terminology applicable to cross currency options is similar to the one for stock options. For instance, the STRIKE PRICE is the contracted exchange rate at which the option buyer buys or sells a currency. The advantages with a cross currency option, (introduced in India in January 1994) as compared to forward and futures deals are that the option buyer is under no obligation to exercise the right; moreover, the maximum possible loss, it at all, becomes known to the option buyer at the outset. Thus, when the direction of a currency's movement is uncertain, a cross currency option may be preferable to a FORWARD CONTRACT.


Current Assets The assets which are expected to be converted into cash or consumed during the 'Operating Cycle' of a business. The operating cycle is the time taken for the sequence of events from the purchase of raw materials to the collection of cash from customers for goods sold. Hence, it is also known as the 'Cash Conversion Cycle'. However, if raw materials are bought on credit, then the cash conversion cycle is shorter than the operating cycle by the period of credit available. Examples of current assets are cash, short-term investments particularly MONEY MARKET securities, raw materials, work-in-process, finished goods, and ACCOUNTS RECEIVABLE. 

Current Liabilities The claims against a company that will become due within a year. These are mainly LIABILITIES on account of purchase of materials or services rendered to the firm. Examples include accounts and PROMISSORY NOTES payable, as well as taxes and loan repayments falling due within the year. Current Ratio This ratio is a measure of a company's ability to pay its short-term debts as they become due. It is computed from a BALANCE SHEET by dividing CURRENT ASSETS by CURRENT LIABILITIES. In India, the general norms for this liquidity ratio is 1.33 Debenture A debt security issued by companies, having a certain MATURITY and bearing a stated COUPON RATE. Debentures may be unsecured or secured by ASSETS such as land and building of the issuing company. Debenture holders have a prior claim on the earnings (coupon) and ASSETS in the event of liquidation, as compared to PREFERENCE and equity shareholders. 

Debt Service Coverage Ratio (DSCR) A ratio used to assess the financial ability of a borrower to meet debt obligations. While appraising loand requests, lending institutions ascertain the debt servicing capacity from financial projections submitted, by computing the ratio of cash accruals plus interest payments (on term loans) to the sum of interest and loan repayments :

DSCR =	Profits after taxes – DEPRECIATION + Interest charges
	Interest charges + Loan repayments

Deflation A phenomenon of falling prices in an economy, which may be due to a contraction in MONEY SUPPLY.


Depreciation An accounting process by which the cost of a FIXED ASSET, such as a building or machinery, is allocated as a periodic expense, spread over the depreciable life of the ASSET. The term also means the amount of expense determined by such a process. Sometimes, it is called AMORTIZATION when the ASSET is intangible or 'depletion' when the asset is a natural resource, such as minerals. There are different methods of depreciation such as the Straight Line Method and the Written Down Value (WDV) method


Depression An economic condition that is characterized by a severe contraction in economic activity, which is manifested. In numerous business shut-downs, widespread unemployment, and declining investment in plant and equipment on account of falling sales.
Derivative A financial contract that derives its value from another ASSET or an index of asset values. These underlying assets maybe foreign exchange, BONDS, equities or commodities. For example, FORWARD CONTRACTS relate to foreign exchange; futures to commodities, debt instruments, currencies or stock indices; and OPTIONS to equities. Derivatives are traded at organized exchanges and in the over-the-counter (OTC) market. 


Devaluation The lowering of a country's official exchange rate in relation to a foreign currency (or to gold), so that exports compete more favorably in the overseas markets. Devaluation is the opposite of REVALUATION.

Acceptance The drawee's acknowledgement of the LIABILITY on a BILL OF EXCHANGE, in writing on the instrument itself. A bill may also bear the co-acceptance by a bank, which is a guarantee to honour the instrument in the event of default by the drawee.

Accommodation Bill A BILL OF EXCHANGE without any consideration, or quid pro quo. In this case, a person signs a bill and makes himself liable, without receiving any value in return, such as, an advantage or a benefit. The purpose of accepting such a bill is to accommodate the drawer who is temporarily in need of funds. The acceptance enhances the LIQUIDITY of the instrument, which can be discounted by the drawer with a bank.

Accrual Basis A method of accounting that recognizes revenues and expenses as they accrue, even though cash would not have been received or paid during the accrual period.

ADR An acronym for American Depository Receipt. It is an instrument traded at U.S. exchanges representing a fixed number of shares of a foreign company that is traded in the foreign country. By trading in ADRs, U.S. investors manage to avoid some of the problems of dealing in foreign securities markets. The ADR route enables companies to raise funds in the U.S. financial markets, provided they meet the stringent regulatory norms for disclosure and accounting. (See also GDR.)

Allotment The acceptance of an application subscribing to the shares or other securities of a company. Such allotment establishes the contractual relationship that underlies an investment through public subscription.

Amortization The reduction f an amount at regular intervals over a certain time period. This term is used to refer to the reduction of debt by regular payment of loan installments during the life of a loan. It is also used to described the accounting process of writing off an intangible ASSET.

Annual Report A yearly publication that contains particulars relating to the operating data of a company, and which is published and distributed by the company to its share-holders, as per the requirement of the Companies Act. The important contents are the profit and loss statement and the BALANCE SHEET. These statements show a company's performance in terms of sales and earnings during a financial year, and also its year-end financial position in terms of ASSETS and LIABILITIES. It also contains the directors' report, a notice to the shareholders about the proposed business agenda of the annual general meeting and the auditor's report.

Arbitrage The simultaneous purchase and sale transactions in a security or a commodity, undertaken in different markets to profit from price differences. For example, an arbitrageur may find that the share of The Tata Iron and Steel Company (TISCO) is trading at a lower price, at the Vadodara Stock Exchange compared to the exchange at Bombay. Hence, he may simultaneously purchase TISCO stock in Vadodara at, say Rs.250, and sell in Bombay at a higher price, say Rs.256, making a profit of Rs.6 per share less expenses.

Asset Management Company (AMC) A company set up for floating and managing schemes of a MUTUAL FUND. An AMC earns fees by acting as the PORTFOLIO manager of a fund. The AMC is appointed by the Board of Trustees, which oversees its activities. Thus, a mutual fund is generally established as a trust by a SPONSOR, which could be a registered company, bank or FINANCIAL INSTITUTION. Also, a custodian and a registrar are appointed to ensure safe keeping of the fund's securities and to deal with investors' applications, correspondence, etc.

At-the-Money The term relates to trading in listed OPTIONS. An option is said to be trading "at-the-money" when the STRIKING PRICE and the market price of the underlying share are equal. 


Balance of Payments A statement that contains details of all the economic transactions of a country with the rest of the world, for a given time period, usually one year. The statement has two parts: the Current Account and the Capital Account. 

Abbreviations used in bookkeeping -
· a/c – account
· B/S – Balance Sheet
· c/d – carried down
· b/d – brought down
· b/f – brought forward
· Dr – Debit record
· Cr – Credit record
· G/L – General Ledger: (or N/L – Nominal Ledger)
· P&L – Profit & Loss
· TB – Trial Balance

The Accounting Equation
Now let us discuss the accounting equation, which keeps all the business accounts in balance. We will create this equation in steps to clarify your understanding of this concept. In order to start a business, the owner usually has to put some money down to finance the business operations. Since the owner provides this money, it is called Owner’s equity. In addition, this money is an Asset for the company. This can be represented by the equation:

ASSETS = OWNER’S EQUITY

If the owner of the business were to close down this business, he would receive all its assets. Let’s say that owner decides to accept a loan from the bank. When the business decides to accept the loan, their Assets would increase by the amount of the loan. In addition, this loan is also a Liability for the company. This can be represented by the equation:

Assets = Liabilities + Owner’s Equity

Now the Assets of the company consist of the money invested by the owner, (i.e. Owner’s Equity), and the loan taken from the bank, (i.e. a Liability). The company’s liabilities are placed before the owners’ equity because creditors have first claim on assets.
If the business were to close down, after the liabilities are paid off, anything left over (assets) would belong to the owner.


Financial Statements
In order to manage your business effectively you need reports that tell you how your business is performing. For example, you may want to know the value of your assets like, Cash you have on hand,Cash in bank, and Inventory in stock. In addition, you would like to know the value of your liabilities, loans, income earned, and expenses incurred. Accountants prepare financial statements that summarize these transactions. Two of the most important reports for managing your business are Income Statement and the Balance Sheet.

Income Statement
An Income Statement is also called a Profit and Loss Report. In addition, the word Revenue is often used in place of the word Income. An Income Statement is used to inform you about the income earned, expenses incurred, and the total profit or loss in a particular period. Two common periods for creating an income statement are monthly and annually.
This report summarizes all Income (or sales), the amounts that have been or will be received from customers for goods delivered or services rendered to them, and all expenses, the costs that have arisen in generating revenues. To show the actual profit or loss of a company, the expenses are subtracted from the revenues to show the Net Income – profit or the “bottom line”.
Income Accounts: These accounts are used to track income earned during the process of operating your business. The income of a business comes from sales to customers or fees for services or both. Some of the common names for income accounts are:
• Income from Sales
• Income from Freight
• Other Income
Expense Accounts: These accounts are used to track expenses incurred during the process of operating your business. Expenses include both the costs directly associated with creating products and general operating expenses. Some of the common names for expense accounts are:
• Cost of Sales
• Office Supplies
• Utilities


 
Companies act sections

Sections
1. Short title, commencement and extent
2. Definitions
2A. Interpretation of certain words and expressions
3. Definitions of "company", "existing company", "private company" and "public company"
4. Meaning of "holding company" and "subsidiary"
4A. Public financial institutions
5. Meaning of "officer who is in default"
6. Meaning of "relative"
7. Interpretation of "person in accordance with whose directions or instructions directors are accustomed to act"
8. Power of Central Government to declare an establishment not to be a branch office
9. Act to override memorandum, articles, etc.
10. Jurisdiction of courts
10A. [Omitted]
10B. [Omitted]
10C. [Omitted]
10D. [Omitted]


INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

11. Prohibition of associations and partnerships exceeding certain number
12. Mode of forming incorporated company
13. Requirements with respect to memorandum
14. Form of memorandum
Page 2 of 332
15. Printing and signature of memorandum
15A. Special provision as to alteration of memorandum consequent on alteration of name of State of Madras
15B. Special provision as to alteration of memorandum consequent on alteration of name of State of Mysore
16. Alteration of memorandum
17. Special resolution and confirmation by Company Laws Board required for alteration of memorandum
17A. Change of registered office within a State
18. Alteration to be registered within three months
19. Effect of failure to register
20. Companies not to be registered with undesirable names
21.Change of name by company
22. Rectification of name of company
23. Registration of change of name and effect thereof
24. Change of name of existing private limited companies
25. Power to dispense with "Limited" in name of charitable or other company
26. Articles prescribing regulations
27. Regulations required in case of unlimited company, company limited by guarantee or private company limited by
shares
28. Adoption and application of Table A in the case of companies limited by shares
29. Form of articles in the case of other companies
30. Form and signature of articles
31. Alteration of articles by special resolution
32. Registration of unlimited company as limited, etc.
33. Registration of memorandum and articles
34. Effect of registration
35. Conclusiveness of certificate of incorporation
36. Effect of memorandum and articles
37. Provision as to companies limited by guarantee
38. Effect of alteration in memorandum or articles
39. Copies of memorandum and articles, etc., to be given to members
40. Alteration of memorandum or articles, etc., to be noted in every copy
41. Definition of "member"
42. Membership of holding company
43.Consequences of default in complying with conditions constituting a company a private company
43A Private company to become public company in certain cases
44. Prospectus or statement in lieu of prospectus to be filed by private company on ceasing to be private company
45. Members severally liable for debts where business carried on with fewer than seven, or in the case of a private
company, two members
46. Form of contracts
47. Bills of exchange and promissory notes
48. Execution of deeds
49. Investments of company to be held in its own name
50. Power for company to have official seal for use outside India
51. Service of documents on company
52. Service of documents on Registrar
53. Service of documents on members by company
54. Authentication of documents and proceedings

• The SEBI Act, 1992
• The SC(R)A, 1956
• The Depositories Act, 1996
• The Companies Act, 1956.
• The Banking Regulation act,1949
• The Reserve Bank of India Act,1934
• The Income Tax Act 1961
• The Finance Act, 1994
• The Contract Act, 1872
• The Transfer of Property Act, 1882
• The Sale of Goods Act, 1930
• Securitisation and Reconstruction of Financial Assets And Enforcement of Security Interest (SARFAESI) Act, 2002
• Foreign Exchange managenment act,2000
• Prevention of money laundering Act,2002
• The Insurance Regulation And Regulation Act,

These were the acts to be followed for the finance

HR acts as there are many these were followed accordingly on the basis of the company

• The Trade Unions Act,1926 And The Trade unions (Amended) Act 2001
• The Industrial  Employment (Standing Orders) Act 1946
• The Industrial Disputes act, 1947
• The payment of wages act,1936
• the minimum wages act, 1948
• the workmen compensation act 1923
• EMPLOYEES' STATE INSURANCE ACT, 1948

well to the side of the accounting,
the recording and summarizing is done by passing  journal entries and ledgers as you all know how they are passed by basing on the principles of accounting and then to Trail balance, P&L, & Balance sheet. They are all done and reported as prescribed by the Institute of Chartered Accountants of  India.

In the financial management it deals with mostly with the Depreciation & Taxes and Now on we would discuss with it

methods to deal with

Financial Management & Human Resources Management
Financial Management
It deals with the process of managing the overall profitability of the company many methods are there to implement and to deal with the financial and HR but i do believe the most of the practical applicability and the way we deal with it
of the all lets start with my favorite subjects Accounts, Finance, and Taxes. to deal with financial management we have to learn with the accounts first with the Indian system of accounting.
 there are 3 types of accounts classified and determined by there principles they are as follows
1)Personal a/c's: Principle Debit the receiver  credit the giver

2)Real a/c's :      Principle Debit What comes in Credit what goes out
3)Nominal a/c's  Principle Debit  expenses and losses credit all income and gains.

 These were Known as GAAP (Generally accepted accounting principles) And the regulations stipulated by the Chartered Accountants Institute of India there are 29 Standards determined  also known as the AS Standards.