Personal Finance

Personal Finance, banking

Audit Materiality 

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The auditor uses the idea of Materiality to assess the risks of material misstatement and determine the nature, timing, and scope of risk assessment methods. This approach is crucial to the audit process as a whole. Thus, Materiality is an essential aspect of auditing.  This article will cover everything about the materiality concept in audit, its types, why it is necessary, and what factors are responsible for affecting Materiality. What is Audit Materiality? Choosing a benchmark that has been utilized to effectively ensure that if the auditor does not discover any accounting error, it won’t materially mislead the clients of the financial statements is known as “audit materiality.  International Financial Reporting Standards (IFRS) asserts that any transaction can be regarded as substantial if its exclusion or misstatement from the financial statements can potentially affect the decision of the various stakeholders. Materiality in audit refers to quantitative and non-quantitative disclosures and amounts in financial statements. For instance, the user of financial information may be influenced economically by the lack of or insufficient exposure to accounting policy for a significant portion of the financial statement. Factors Affecting Materiality Following the firm’s guidelines or a general rule of thumb is not sufficient for calculating Materiality. For reference, a team of engagement experts determines Materiality as 10% of adjusted earnings before tax after eliminating extraordinary items. The choice of Materiality would still need a great deal of professional judgment, even if the firm had materiality standards restricting the engagement team’s selections. How did the engagement team determine, for instance, that 10% was suitable and that net income was a convenient base? To Ascertain the overall Materiality: The auditor’s decisions are influenced by the degree, nature, or combination of the misstatement and the company’s circumstances. The general financial data needs for users as a group, rather than the particular requirements of each user, are considered when making decisions about items that are material to users of the financial statements. How to Determine the Audit Materiality? There is no concrete structure for determining the audit materiality of any transaction within the financial statements, as was already indicated above. However, auditors frequently depend on their professional judgment or specific rules (described under “Audit Materiality guidelines). Since the concept of Materiality is relative and greatly influenced by size and external factors, the auditor must have a solid understanding of how to apply it. The degree and kind of error are considered when determining whether it is substantial. Example of Audit Materiality Let’s take the case of the company Aayush Bhaskar Pvt Ltd. as an example, which requested a ₹5,00,000 loan from the bank. The bank provided the loan, but only under the condition that the business’s current ratio does not drop below 1.0. The business accepted this, and a contract with the bank was created. The company’s auditor learned about this arrangement while carrying out the audit. The company’s current ratio is only a little bit higher than 1.0. For the company’s auditor, a slight error of ₹12000 can now be significant. It can result in a breach of the contract between the business and the bank. The company’s current ratio would drop below 1.0 with the ₹12,000 error added on. As a result, given that it may result in an agreement violation, this would be considered material to the audit. It may legitimately affect how the users of the company’s financial statements make economic decisions. Why Is Audit Materiality Important? The crucial idea of audit materiality considers both quantitative and qualitative factors. Both factors affect how the company’s financial statement users make financial decisions.  Their economic decisions are greatly influenced by qualitative factors, including the company’s sufficient disclosure of contingent liabilities, related party transactions, changes in accounting rules, etc. It serves as the foundation for the auditor’s view of the company since it gives the auditor the assurance needed to determine whether or not the company’s financial statements are free of serious misstatements. Relevance of Audit Materiality The financial statements as a whole, including their content and type of testing, must be considered by the auditor when determining the Materiality level. The auditor’s conclusion is based on their assessment of the amount, nature, context, and effect on users of the financial statements due to the misrepresentation. Limitations of Audit Materiality The objective of the Materiality may be hampered if the auditor cannot set it at the appropriate level. The company’s auditor may miss the misrepresentation that impacts the company’s compliance with regulatory standards. Comparatively to the quantitative technique, the qualitative approach is typically fairly challenging to measure. Types of Materiality Materiality meaning in audit, can be divided into four types. All four types are mentioned below: Overall Materiality The auditor establishes Materiality for the entire financial statements while designing the overall audit plan. Above that point, the financial statements would be significantly misstated. This is considered overall Materiality or “materiality for the financial statements as a whole.” Performance Materiality As a “safety net,” performance in audit materiality is set below overall Materiality to reduce the possibility that all unrepaired and undiscovered misstatements will have a material impact on the financial statements. Performance materiality permits the auditor to react to specific risk evaluation (without affecting overall Materiality) and to bring the possibility that the total of unrepaired and undiscovered misstatements surpasses overall Materiality to an adequately low level. Specific Materiality The materiality level chosen to identify potential errors is known as specific Materiality. These could exist across several departments within an organization for specific types of transactions and for account balances that could influence the users of the company’s financial statements’ economic choices. Specific performance materiality Performance materiality and specific performance materiality are identical concepts; however, specific performance materiality is measured based on specific Materiality rather than overall Materiality. Some Important Points In the context of audit materiality, both the quantitative and qualitative factors are taken into account.  The quantitative factors include putting up a preliminary judgment for the Materiality, evaluating the performance materiality, calculating the number

Cash Budget
Personal Finance, savings

Cash Budget – Method of Preparation 

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A precise statement that shows projected forecasts of the cash revenues and payments for a given period is known as a cash budget. It is an operating budget that is helpful for an organization’s financial management.  A cash budget, often known as the “Nervous System of Budgetary Control,” is crucial for businesses. Additionally, it goes by the name “Cash Flow Plans.” It primarily relies on cash receipts and payments to function. These elements are determined by examining the flow of funds within and beyond the company. What is Cash Budget? A cash budget forecasts a business’s cash flows over a specific period. The budget could cover a week, month, quarter, or year. The entity’s ability to maintain operations for the given period is assessed using this budget. It also helps determine an optimal cash allocation (and any surplus) by providing a company with information about its financial requirements. Cash budgets are typically evaluated in either the short or long term. Short-term cash budgets concentrate on cash requirements for the next week or months, while long-term cash budgets concentrate on cash requirements for the next year to several years. Objectives of the Cash Budget The main goal of the cash budget is to forecast a company’s future cash position so that management can determine when additional funding will be needed to ensure smooth business operations. It is also prepared to assess whether there is any available surplus cash; if so, it must invest it wisely to maximize its benefits to the business. Moreover, they are equipped to forecast the cash surplus and deficit for the given time frame. Cash Budget Format There are four sections in the cash budget format: It lists all cash inflows, excluding money received for financing, under “Cash Receipts.” All cash payments, excluding principal and interest payments, are referred to as cash disbursements. It determines whether the company will need to borrow money or whether it will be able to return money that has already been borrowed. The financing section describes the estimated borrowings and repayments throughout the budget period. budget period. Details and particulars Month 1 Month 2 Month 3 Opening Balance Receipts Cash Sales Collection from Debtors Call money on Shares Loan Received Sale of Capital Assets Other Receipts ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. Total (A) xxxx xxxx xxxx         (B) Payments: Cash Purchases Payment to creditors Salaries and Wages. Payable & Interest Capital Expenditure Loan Repaid Taxes Dividends ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. ….. Total (B) ….. ….. ….. Closing Balance( A-B) …. ….. ….. A cash budget example Consider XYZ Clothing, a shoe manufacturer, which projects $200,000 in sales for June, July, and August. The company predicts monthly sales of 5,000 pairs of shoes at a retail price of $60 per pair. According to XYZ, 70% of the money from these sales will be paid out in the month that follows the sale, while the remaining 20% will be paid out two months later. The beginning cash balance for July is anticipated to be $20,000, and the cash budget anticipates collecting $140,000 (70% of $200,000), or 70% of the sales from June. XYZ also anticipates receiving $200,000 in cash from earlier-year sales. XYZ also needs to figure out the production expenses necessary to make the shoes and satisfy client demand on the expense side. Five thousand pairs of shoes must be produced in July to meet the company’s expectations. If the manufacturing cost is $50 per pair, XYZ will incur $250,000 ($50 x 5,000) in July. In addition, the company anticipates spending $60,000 on expenses like insurance that is not directly connected to manufacturing. XYZ calculates the cash inflows by adding the receivables collected in July to the starting amount, which is $360,000 ($20,000 for the beginning of July plus $140,000 from June sales collected in July plus $200,000 from previous sales). The business then subtracts the money required to cover production costs and other outlays. $310,000 is the total ($250,000 for the cost of goods sold and $60,000 for additional expenses). The final cash balance for XYZ for July was $50,000, meaning $360,000 in cash inflows less $310,000 in cash outflows. The Method of Preparing Cash Budgeting A cash budget is prepared in three ways. Cash budget methods are explained below: Receipts and Payment Method Utilizing receipts and payments is the most popular and simple method for developing a cash budget, particularly a short-term budget. The receipts and payment mechanism add all anticipated receipts to the opening cash sum. After completing the preceding computations, the expected receipts and any balance represent the closing cash balance. All projected cash payments then reduce the total opening cash balance. Adjusted Profit & Loss Method The basis for preparation under this system is the profit and loss account. This model assumes that each gain and reduction in the cash balance represents a profit or loss for the company. When creating a profit and loss statement, losses on asset sales, depreciation,  goodwill write-offs, and other costs that don’t involve actual cash transfers are subtracted from the business’s income. It is added to other earnings, such as the profit from the sale of fixed assets, to arrive at the company’s net profit. Moreover, to create a cash budget using this method, all non-cash expenses are added to the net profit, and all non-cash incomes are subtracted. The sum is multiplied by the opening cash balance to arrive at the cash balance. Then adjustments are made to capital receipts and payments, working capital changes, and financing-related flow changes. Balance Sheet Method A budgeted balance sheet is prepared under this method, which includes all assets and obligations except the cash balance. The balancing figure is thought to reflect the monetary balance. If the liabilities exceed the assets, the balance is a conventional

Cash Flow Statement vs Income Statement
Insurance, Personal Finance

Cash Flow Statement Vs Income Statement: Meaning and Differences

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 Finances are an important part of any organization, big or small. When running an organization, it is vital to keep track of them to estimate the performance and the future growth. There are many ways to determine a company’s progress.  But income and cash flow statements are the two most used methods in finance. Investors also use these two metrics while making investment decisions. After reading this blog, you will get familiar with these two financial statements and how to use them.  Cash Flow Statement Vs Income Statement What is a cash flow statement? Running an organization is impossible without knowing the amount of business a company is making or spending. And the cash flow statement helps you with this exactly. With this, you can find the amount of cash coming in and out of the organization and from where.  It helps calculate the overall liquidity in the business, which helps in estimating the current and future state of cash flows. Three components come into the picture while noting the cash flow statement. They are operational, financial, and investing activities.  Below is the complete structure of a cash flow statement –  Operating It includes all a company’s cash from its products and services. They incorporate receipts from sales of goods and services, interest & income tax payments, inventory transactions, interest payments, tax payments, wages to employees, payments for rent, etc. In gist, this compromises all the transactions done because of operational activities.  Investing Investing activities cover resources and uses of cash from a company’s investments. This category includes activities like: The purchase or sales of assets Loans given to vendors or received from clients Payments pertaining to Mergers & Acquisitions (M&A) Financing It includes cash utilized in business financing: money that goes in and out between a company and its owners & creditors. It covers transactions involving dividends, stock repurchases payments, and the corporation’s principal debt repayment (loans). Learn Fundamental Analysis From Top 1% How is cash flow calculated? There are two ways of calculating cash flow statements – direct and indirect.  Direct  The direct method totals all cash payments and revenues, including cash paid to suppliers, cash received from consumers, and salary payments. This way of calculating cash flow is more suitable for companies that use accrual accounting.  Indirect  The indirect technique calculates cash flow by altering net income by adding or removing differences deriving from non-cash transactions. What is an income statement? An income statement’s purpose is to determine a business’s profitability. In short, it tells how much profit/losses a company makes for a given period of time.  Also referred to as a Profit & Loss (P&L) statement, statement of operations, and statement of revenues & expenses, an income statement depicts a company’s financial position by calculating the income statement for a particular month, quarter, or year. How to find out net income with an income statement? Calculating an income statement is a straightforward method. To find out, we add all the revenues from operations and subtract all costs. These operations include both operating and non-operating costs.  Operating activities include all the activities related to running a business, such as purchasing, manufacturing, selling, and distributing goods and services. On the other hand, non-operational activities refer to those that are related to the sales and purchase of investments and assets. They also include payment of dividends, takes, and interest & FX gains/losses.  An income statement gives us the net come. If it is positive, then the company is in profit. However, the negative value indicates the net loss.  Cash flow statement vs. income statement Purpose  Cash flow monitors money that goes in and out of business. At the same time, the income statement determines how much profit or loss a company is in.   Format difference  We need both the income statement and the company’s balance sheet to make the cash flow statement format. In contrast, the income statement format requires various ledger accounts & records of a company. Activities   We use two activities – operations and non-operation, in finding out the income statement. On the other hand, the trio of operational, financial, and investing activities helps determine the cash flow.   The Derived System   The income statement is generated on an accrual basis, which means that the income and costs of a certain period are regarded. The cash basis is used to construct the Cash Flow Statement – how much money goes back and forth in a business.  Depreciation Depreciation is not reported in cash flow since it is a non-cash item. Still, it is recorded in the income statement. What statement should you go for? Both the financial statements are important determinants that serve a purpose in a company.  Suppose you want to measure how well the business is performing – what profits and losses are occurring. In that case, you should consider an income statement.  On the other, If you want to know anything about your business, such as how much debt your company may safely take on or how to create more cash, you should look at cash flow figures. Final Thoughts Financial statements are crucial components of any business because they help understand a company’s performance and growth. The cash flow and income statements are the two financial statements we discussed in the blog.  Cash flow helps you understand the flow of money in your business, whereas an income statement gets you an idea about the profitability of your business. FAQs How to calculate cash flow and income statement? To calculate net income, sum all operations revenues and deduct operations. These costs include both running and non-operating expenses. You can calculate cash in two ways – direct and indirect. However, a common method is to deduct your taxes from the amount of depreciation, working capital change, and operating income. What are cash and non-cash items? Any transaction involving a company giving or receiving cash is a cash item. Unlike cash items, non-cash items refer to some expenses & revenue without cash transactions.  Examples of

Hurdle Rate Vs Internal Rate of Return
banking, Personal Finance

Hurdle Rate Vs Internal Rate of Return – Explained In Details

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Two essential measurements generally used in the investing and financial world are Hurdle Rate and Internal Rate of Return (IRR). Both of them are used for varying purposes. But there seems to be no end to the confusion they’ve caused among newcomers. So, if you cannot differentiate between hurdle rate and Internal Rate of Return (IRR), this post is meant to give you clarity. Let’s find out more about hurdle rate vs Internal Rate of Return here.  Know The Difference Between Hurdle Rate Vs Internal Rate Of Return What is Hurdle Rate? Also known as the minimum acceptable rate of return, the hurdle rate is the lowest rate of return that an investment or a project must earn to offset the investment’s costs. Projects are also assessed by discounting future cash flows to the current hurdle rate to calculate the Net Present Value (NPV).  This, in turn, showcases the difference between the current value of cash outflows and the current value of cash inflows. Usually, the hurdle rate is equal to a company’s capital costs, which is the amalgamation of the cost of debt and the cost of equity.  Typically, managers raise the hurdle rate either for such projects that are riskier or when the company is comparing several investment opportunities. Understanding Hurdle Rate This metric describes an adequate compensation for the current risk level. The hurdle rate lets companies make vital decisions on whether to pursue a specific project or not. If the anticipated rate of return goes above the hurdle rate, the investment is regarded as sound. If it goes below the hurdle rate, the investment is considered riskier.  To determine the hurdle rate, some of the essential areas that should be considered are: Associated risks Cost of capital Returns of other potential projects or investments Hurdle Rate Formula To calculate the hurdle rate, here is the hurdle rate formula that can be used: Hurdle rate = Cost of Capital + Risk Premium Hurdle Rate Example  Let’s consider an example to understand more about hurdle rate. Suppose you are looking forward to buying new machinery. As per the evaluation, with this new machine, you can increase the sales of your product, resulting in a return of almost 11% on the investment. The Weighted average cost of capital (WACC) for your company is 5%. The risk of not selling additional products is low. Thus, a low-risk premium got assigned at 3%.  Then, the hurdle rate will be: 5% (WACC) + 3% (Risk premium) = 8% Since the expected return on this investment is 11% and the hurdle rate is 8%, which is lower, buying the new machine will be a sound investment for you. Read About – Exponential Growth What is the Internal Rate of Return? The Internal Rate of Return (IRR) is the anticipated annual amount of money (expressed in percentage) that an investment is expected to generate for a company above and over the hurdle rate. The word “internal” denotes that the figure doesn’t account for possible external factors and risks, such as inflation. Also, IRR is used by financial experts and professionals to evaluate the expected returns on several stocks and investments, such as the yield to maturity on bonds. Learn Finance From Top 1% Understanding IRR (Internal Rate Of Return) Basically, the Internal Rate of Return (IRR) is one such discount rate that makes a project’s Net Present Value (NPV) zero. In simple words, it is the anticipated compound annual rate of return that will be earned on an investment or a project. You can only use IRR when looking at investments and projects with an initial cash outflow and one or more inflows. Moreover, this method doesn’t consider the possibility that various projects may have varying durations.  While it is comparatively straightforward to assess projects by comparing the IRR to the hurdle rate, this approach has specific limitations in the form of an investing strategy. For example, it considers only the rate of return, in contrast to the return’s size. A $10 investment returning $100 has a higher rate of return than a $10 million investment yielding $2 million.  Once you’ve determined the internal rate of return, it is generally compared to the cost of capital or a company’s hurdle rate. If the IRR equals or exceeds the cost of capital, the company will accept the project as a sound investment. And, if the IRR is lower than the hurdle rate, it will be rejected.  IRR Formula The IRR formula is as mentioned below:   Here,  NPV = Net Present Value N = Holding Period n = Each Period CF = Cash Flow IRR = Internal Rate of Return One can do the calculation of the internal rate of return in three varying methods: Using the XIRR or IRR function in a spreadsheet or Excel programs Through an iterative process where an analyst tries a variety of discount rates until the NPV is equal to zero Through a financial calculator IRR Example Before moving ahead with understanding IRR, you’ll first have to know Net Present Value (NPV). This is because the cash that you have today is far more valuable than the one you’ll get after five years, courtesy of inflation. Thus, when you think of investing money every year, you must first check its worth today.  So, let’s assume you invested Rs. 10 lakhs in a project X today. From the next year, this project will start making cash flows without the need for further investments. You can find more information on the money that you’ve invested today and the cash flows that it will generate in the future in the below-mentioned table. Time Period (Years) Cash Flow Today Rs. – 10 lakhs Year 1 Rs. 2 lakhs Year 2 Rs. 3 lakhs Year 3 Rs. 3 lakhs Year 4 Rs. 3.5 lakhs Year 5 Rs. 3.5 lakhs Total Cash flow Rs. 15 lakhs Now, to find out NPV of the cash flows mentioned above, suppose IRR is approximately 8% for the project

banking, Personal Finance

Getting well-versed with the Metaverse

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Wouldn’t it be great if you could have dinner sitting next to a friend who lives miles away from you? And that too, in the streets of Paris – from the comfort of your home? Sounds kind of impossible, right? Well, this might not be the case anymore. Welcome to the Metaverse! A virtual world with endless possibilities. A 3D world of the internet that is available to you constantly. As someone who belongs to Generation Z, I have had access to the internet from a young age. And the metaverse is something that I could see my generation readily adopting. In fact, there are already such virtual platforms in place, and they have captured quite a number of users. But what is not clear is what all does the metaverse actually encompass? If I ask 10 people, “What is the metaverse?”, they would give me 10 different definitions. So, what exactly is the metaverse? Is it just a temporary buzz or is it here to stay? Let’s find out. What does metaverse actually mean? The metaverse is a three-dimensional virtual internet simulation. It will allow users to behave and carry out all functions that they do in reality. Users will be able to do so along with millions of other users, within the virtual world. The metaverse is an extension of the present-day internet, and that too, a revolutionary extension. It will inherently change the way we look at all aspects of life, literally and otherwise. The word metaverse was first coined by Neal Stephenson in his 1992 sci-fi novel Snow Crash. In the book, people use digital avatars of themselves to eat, work, play in the virtual world. They do so as a means to escape their dystopian reality. And now, Facebook, or shall we say, “Meta”, is building on this very idea, minus the dystopia, of course. The metaverse is going to drastically change the way we interact with technology in our day-to-day lives. It will be characterized by virtual worlds, combined with the features of the physical world. These virtual worlds will go on to exist, even when you are not “playing” or interacting with them. Alternatively, it could also translate into a digital economy. That is, it will be a virtual space that allows users to create, buy and sell products and/or services. It would allow users to buy cars, clothes, accessories, and move them from one platform to another. “Doesn’t this kind of technology already exist?” The above description of metaverse might prompt you to think so. We already have virtual worlds in place. One example is the game – World of Warcraft, wherein players can buy and sell goods. A similar experience is rendered by Fortnite. In the game, you can attend live concerts and exhibits, and be in your own personal virtual home. You just need to strap on a VR/AR headset and you are good to go. However, the metaverse is not just limited to this. Metaverse will be based upon Web 3.0. It is the newest internet iteration with advanced, data-driven, and open websites. Its aim will be to create a level of transparency. This will happen because individual data will not be controlled by centralized organizations, rather it will be powered and stored on blockchains. Meta CEO, Mark Zuckerberg, is betting big on the idea of the metaverse. As per his vision, the metaverse will bring enormous opportunity to individual creators and artists; to individuals who want to work and own homes far from today’s urban centers; and to people who live in places where opportunities for education or recreation are more limited. A realized metaverse could be the next best thing to a working teleportation device, he says. And not just Meta, other tech companies are also moving fast in this space. Both Microsoft and Google are not far behind in this race to crack the metaverse technology. In fact, consumer brands like Walmart, Nike, Ralph Lauren, and Gap have also expressed interest in the metaverse. They have already started working on virtual landscapes. The metaverse will be a blockchain world, built on the Web 3.0 network, cryptocurrencies, and NFTs. NFTs are unique units of data stored on the blockchain. They track a specific digital asset’s ownership and transfers. Challenges ahead The metaverse seems pretty awesome. And it has gained quite the hype amongst the newer generations. However, there are still some challenges to combat and confusions to clear. No one is really sure what are the possibilities of Metaverse. And that is my major concern here. Meta wants to use the metaverse to make virtual houses, where people can invite their friends to hang out.  On the other hand, Microsoft wants to use the metaverse to create immersive virtual meeting rooms. These rooms will allow “people in different physical locations to join collaborative and shared holographic experiences, with the productivity tools of Microsoft Teams, where people can join virtual meetings, send chats, collaborate on shared documents and more.” Another important thing is who will control what the metaverse looks like? Who will control the type of content it hosts? Because surely, an open web network is bound to attract scammers and frauds. And if this metaverse is used by the younger generation as well, we can’t very well control who they interact with, or the type of content they consume. On the face of it, virtual worlds promise liberation and escape from the real world and feel like a digital utopia. The inhibitions, hierarchies, and limitations of the real world do not restrict these virtual worlds. Users can project whatever they want to do onto their digital avatars.  But this does not necessarily mean that the virtual world is better than the real world. Existing gaming platforms with metaversal characteristics have problems like worker exploitations, gender biases, and homophobia. Unless companies make conscious efforts to take care of these prejudices and biases, how can we say that the virtual world is better than the one we

Stock Exchanges in India
banking, Personal Finance

Stock Exchanges in India – All You Need To Know

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A stock exchange is a focal place for investors and traders to buy and sell different financial securities such as stocks, Exchange-traded Funds (ETFs), and derivatives like options and futures. It brings buyers and sellers together under one roof to trade and profit from market inefficiencies (different between buying and selling prices). With advancements in this space, investors can trade across the country as well as globally with ease. In this article, we will talk about Indian stock exchanges, their history, different stock exchanges in India and more.  What is a stock exchange and how did it begin in India? In technical terms, a stock exchange is a platform permitted and authorized by the government that lets a company list itself and provides a marketplace for investors/traders to transact a company’s shares. In India, the Securities and Exchange Board of India (SEBI) regulates this space. In terms of market maturity, India is considered an emerging market because.  Established on August 31, 1957, the Bombay Stock Exchange (BSE) is India’s first official stock exchange. However, the history of the stock market in India is more vivid than this and dates back to the 19th century. The Native Share and Stock Broker’s Association was a known institution around 1875 for trading. It later became known as the predecessor of the Bombay Stock Exchange.  The Ahmedabad Stock Exchange began in 1894. However, it had the purpose to trade shares of textile mills; Ahmedabad was quite popular back then for its textile business. Followed by that, in different parts of the nation, new stock exchanges started to form, leading to where we are at present.  The stock market in India has its fair share of ups and downs, and as a result, in 1992, the regulatory body SEBI was established to ensure fair conduct and protect investors.  Learn Finance From Top 1% How many stock exchanges are there in India at present? 1. BSE (Bombay Stock Exchange Limited)  Established in the year 1875, BSE is India’s first official stock exchange platform. It is situated on the famous Dalal Street in Mumbai. 5500+ companies are listed on BSE, making it the 10th largest stock exchange globally. 2. NSE (National Stock Exchange of India) Inaugurated in 1992 and started functioning in 1994, NSE is a competitor of BSE. NSE is also India’s first electronic exchange. Because of that, investors across the country could buy and sell shares with more accessibility to the stock market. Since its inception, NSE has improved a lot on its tech part and innovations to provide better services to investors. 3. CSE (Calcutta Stock Exchange Limited)  CSE began in 1830 when a bunch of brokers gathered under a neem tree to seal their deals. This practice continued and in 1908, it officially became Calcutta Stock Exchange. Electronic trading was introduced at CSE in 1997; it is the second oldest stock exchange in the South Asia region. CSE is no longer in use, but the case against terminating is still pending in court which makes it an active exchange in India. 4. INDIA INX (India International Exchange) For international trading, INDIA INX leads the pack. Established on January 9, 2017, It is based in GIFT City, Gujarat at the International Financial Services Centre (IFSC). Investors can directly purchase and sell individual stocks on this exchange of nations such as the US, Canada, Australia, and Japan. INDIA INX has the Eurex T7 platform which is considered the most advanced tech in the world. 5. National Stock Exchange IFSC Limited Quite similar to INDIA INX in location and functioning, this exchange is a subsidiary of NSE. It was launched to help the nation attract better investment opportunities and expand its market size. 6. MCX (Multi Commodity Exchange of India) MCX, established in 2003, was initially formed under the Forward Market Commission and later merged with the SEBI. It is India’s first commodity exchange and is situated in Mumbai. It has also been ranked 7th in the largest commodity exchanges in the world. From gold to crude oil to wheat, a majority of commodities can be traded in MCX. 7. NCDEX (National Commodity and Derivatives Exchange) Established on April 23, 2003, NCDEX is an online commodity exchange having headquarters in Mumbai. NCDEX’s ownership is majorly divided between institutions, companies and large public banks. It is open 5 days a week between 10 am to 11:30 pm. 8. MSE (Metropolitan Stock Exchange of India Limited) MSE began its operations in 2009. Currently, there are 1500+ companies listed on this exchange. Just like BSE and NSE, investors can buy or sell individual stocks on MSE. It offers trading in various segments including debt, equity, derivatives, and more. 9. ICEX (Indian Commodity Exchange Limited) ICEX is a commodity derivative exchange which is regulated by SEBI. It was established in August 2017 and is located in Mumbai. It allows trading to registered brokers for trading contracts across the nations. It is a permanently recognized exchange in India and is completely unique as it allows the trade of diamond derivatives as well.  How do companies get into a stock exchange? There are two ways for a company to get itself on a stock exchange.  i) IPO (Initial Public Offering): When a company decides to get listed on a stock exchange (go public), it offers IPO in the primary market. Investors apply for IPO and those that get allotments, receive the shares of that company. ii) Trading on the secondary market: All the shares are traded on the secondary market. Once the shares are offered under an IPO, it gets traded on exchanges like BSE, NSE, etc.  Final Thoughts Stock exchanges provide a medium for companies to get funds and investors with opportunities to get returns. With time, technology has advanced and stock exchanges have evolved with innovations, becoming more transparent and seamless. Investors can choose any exchange as per the instruments they want to trade via registering themselves on a broking platform and opening a Demat account.

banking, Personal Finance

cheques

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Introduction In today’s time, everybody who has a bank account have seen and used cheques and they play an important part whenever you need to transact money from these bank accounts. A cheque is a fundamentally important document that an individual, company and others use to withdraw or transfer money. There are various types of cheques available in our banking sector which have different requirements. So, let’s learn more about types of cheques. What is a cheque? A cheque is a document/paper which orders the bank to transfer money from the bank account of an individual or an organisation to another bank account. A cheque is a common form of a negotiable instrument. You need to have a savings bank account or current account in a bank, in order to issue a cheque in your own name or in favour of other parties, thereby ordering the bank to pay the said amount to whoever named in the cheque. It is one of the safest and convenient modes of payment transfers and you can transfer a high-value transaction without any hassle which would be very difficult if hard cash was used instead. This transaction needs to be handled very delicately as it can lead to some serious banking fraud. Parties to a cheque The parties that are involved with a cheque are:  Payee: The person named in the cheque who is to receive the payment  Drawee: The specific bank on which the cheque has been drawn   Drawer: The person who writes the cheque, who can be the account holder or the customer. The payee and drawer can be the same person.  Endorser: When the right to take the payment is transferred by the payee to another party, the payee is called an endorser. Endorsee: When the right to take the payment is transferred by the payee to another party, the party to which the right is transferred is called the endorsee. Features of a cheque    Cheques can be issued against savings or current accounts       A cheque is always drawn on a specified banker       It is an unconditional order       The payee of a cheque is fixed and certain and cannot be changed       The payment will only be made in the name of the payee/beneficiary       It is an instrument that is payable on demand ·        A cheque will be considered invalid if does not contain the date Types of cheques Open cheque An open cheque is a kind of leaf that a bank account holder can use to order the bank to make a payment to another party or deposit in his very own account. Bearer cheque In a bearer cheque, the money is made to a person who’s appearing on behalf of the payee/beneficiary, in whose name the cheque has been issued. In the leaf, it is a must to include the word ‘bearer’  in this kind of cheque. Self-Cheques A self-cheque is a cheque drawn in one’s very own call, because of this that the drawer and the payee are the same. You might write the word ‘’self’’  in the area for the drawee’s call at the cheque. It can simplest be encashed in the drawer’s financial institution. A self-cheque is to be used in conditions while you need to withdraw cash out of your very own account. It must be considered if one of these cheque falls in incorrect hands, it could be misused by any man or woman to withdraw cash from the financial institution from which the cheque is issued, so a self-cheque ought to be stored safely. Account Payee Cheques An account payee cheque is a bearer’s cheque that has the words ‘’account payee’’ written at the top left-hand side, within parallel lines, and crossed twice. This is also called a ‘’crossed cheque’’. It is the most secure way to issue a cheque as the amount written can be transferred only to that specific person’s account. Post-dated cheque A post-dated cheque is an account payee or crossed cheque that has a future date with a purpose to meet a financial obligation in future. It is legitimate for up to a few months from the date of the cheque’s issuance. Banker’s cheque Banker’s cheques are cheques which are issued by the bank so it guarantees payment. Traveler’s Cheque A traveler’s cheque is used when travelling as it is difficult to carry cash and coins and it is a more secure way. It may be encashed while travelling overseas wherein overseas forex is required. Stale Cheque A cheque in India is valid for 3 months from the date of issue. Any cheque which has been deposited three months after the date of the cheque being signed becomes a stale cheque. Blank Cheque A cheque which has all the fields blank except for the drawer’s signature, then it is called a blank cheque. Various parts of the cheque One needs to understand the different elements of the cheque to make sure that the cheque is written correctly. Here are some of the essential parts of the cheque-   Name of the bank is also called the drawee bank or payee bank  If there is a crossing on it and written a/c payee only, it is a directive to the bank to pay in the account of payee only.     In the pay section, you need to mention the name of the payee for whom you are making the cheque. Make sure that the name is spelt correctly. It is advised to draw a line on the space after writing the payee’s name so that no changes can be made.     In the date section, mention the date on which you want the money to be debited or transferred.     You should always cross the or bearer option so that if the cheque is stolen, it cannot be paid.     Mention the amount in words here and

Insurance, Personal Finance

The Popularism of NFTs

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We live in a world where every aspect of our daily life, be it education, shopping, meetings, and of course, playing games, etc. is shifting online. Hence, it was only a matter of time before ‘creative’ expression would also transition to the virtual world. Well, the blockchain art market is up and running – zooming, in fact. It has taken the world by quite a storm. There are a maddening number of people across the world who are investing in ‘digital art’ through the process of tokenization. These tokens are referred to as NFTs or Non-Fungible Tokens. However, this is not as simple as it sounds. Though NFTs have been grabbing media headlines left and right for quite some time now, many critics are doubtful of the ‘art’ underlying these NFTs. Art like, digital avatars of penguins, cats, apes, and the likes currently dominate a major share of the NFT market. On the other hand, many artists and consumer brands have also launched their ‘limited collection’ NFTs. They are selling digital files of their work for millions of dollars on the blockchain. It seems that NFTs are the way forward for the concept of revenue generation in the world. What really is an NFT? As mentioned earlier, NFT stands for Non-Fungible Token. Non-fungible refers to something which is unique and cannot be duplicated. NFTs represent such one-of-a-kind digital assets, like songs, drawings, stickers, etc. They are cryptographic tokens hosted on a blockchain. Typically, NFTs were hosted only by Ethereum, but other cryptos like Solana have also joined the bandwagon, and many others are also working towards the same. These NFTs attract investors or rather ‘collectors’ for the same reason a Van Gogh painting does – because there is only one of them. But this is where lines start getting a little bit blurry. Because, in essence, you can copy and download a digital file as many times as you want. And you can do the same for the art underlying an NFT. Well then, why are people spending millions of dollars buying an NFT? This is because buying an NFT gives an investor something that can’t be copied – ownership of the work. But the artist can still claim copyright and reproduction rights, just like with physical art. It’s a one-of-a-kind trading card. For instance, we have Pokémon cards – wherein you can only exchange one card for another, or buy it off someone for a higher price. The same goes on with NFTs, and the original artist gets a royalty every time his NFT art swaps hands. Many feel that NFTs could become like art collecting. Grimes sold a 50-second video last year for $39 million. Another artist, Beeple (an American digital artist) auctioned off one of his works at Christie’s for $69 million. This is $15 million more than what an original Monet painting fetched, back in 2014. NFT Communities Just like in any other commodity trading, NFTs have also started having their own, dedicated communities. The first such community, called CryptoPunks, was founded in 2017. It is a series of 10,000 pixelated characters, each worth millions of dollars. This paved the way for the next community – the Bored Apes Yacht Club – a group of 10,000 cartoon apes. Each of these cartoon apes now sells for an average of $45,000. The latest community to jump on the train is the ‘Pudgy Penguins’. This community hosts a collection of 8,888 unique penguins with different combinations of clothing, facial expressions, and accessories. Community NFTs typically entitle buyers to exclusive benefits, like membership of a Discord server, or access to a private Telegram channel, where you can socialize with other fellow buyers. The biggest perk, however, is being able to flex your NFT as a digital avatar on your Twitter profile picture. Plus you get to be a part of an elite crowd. NFTs are quickly becoming a status symbol, especially community NFTs. This is primarily because they offer social standing and connections to buyers, along with a potentially profitable investment. Buying and Selling NFTs Dealing with NFTs is nothing complex. There are many NFT marketplaces now, where you can register yourself and buy or sell NFTs. OpenSea is the oldest NFT market and the most popular one. If you’re an artist and wish to list your NFTs, you can upload your artwork on this marketplace, ‘mint’ it to your profile, and list it for sale. You will also need a crypto wallet compatible with the blockchain you are using. The minting process is as simple as uploading your files, inputting your work’s description, making your profile, determining your royalty fees, and completing the listing. Every time the NFT changes hand, you will earn a royalty. So, if and when, your work becomes popular, you will also receive some of its benefits. Just like in cryptocurrency, to buy an NFT, what you need is a digital wallet to store your investment. Ethereum is the most widely accepted crypto in the NFT world. NFTs can also work as speculative assets. That is, you buy them with the hopes of selling them in the future for a higher price. NFTs are here to stay! Brands across all sectors are entering the NFT space. And they are not doing so just to be a part of the trend. NFTs can enable brands to increase their revenue opportunities by a manifold. From celebrities to startups, everyone is coming up with their category of NFTs. Brands like Coca-Cola, Marvel Comics, McDonald’s and Gucci are not just selling NFTs, but auctioning them off. In India, popular celebrities like Amitabh Bachchan, Ritviz, Sunny Leone, Sonu Nigam, Nucleya, Yuvraj Singh, have launched their own NFTs in 2021. In fact, T-Series, which is Asia’s largest music label, is also foraying into the NFT market. Initially, they will launch digital arts for popular movies, in collaboration with Hungama, which is developing its own metaverse of entertainment. All in all, NFTs are the future of commodity trading. And all

Personal Finance, Technical Analysis

Modified Internal rate of return

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Introduction You must have come across the term MIRR. MIRR is an acronym for Modified internal rate of return and is a commonly used finance term in capital budgeting and valuation of loans. MIRR is a measure to rank a particular investment’s alternative options in capital budgeting. MIRR is a modification of the Internal rate of return (IRR), which solves the issues revolving around IRR. Before diving further into this topic, let us first understand what MIRR is: Definition of modified internal rate of return: Modified Internal rate of return (MIRR) is a revised version of the Internal rate of return (IRR). MIRR calculates a reinvestment rate and accounts for even or uneven cash flows. It assumes that the positive cash flows are reinvested at the firm’s cost of capital and the financing cost as the discount rate for the firm’s negative cash flows, whereas the traditional internal rate of return (IRR) assumes cash flow from a project is reinvested in IRR itself. The MIRR thus more accurately reflects the cost and profitability of a project The major difference between IRR and MIRR is that IRR assumes that cash flow is reinvested at the same rate at which they were generated, whereas, In MIRR positive cash flow is reinvested at the reinvestment rate. An investment should be considered/undertaken if the MIRR is higher than the expected return. If the MIRR is lower than the expected return, the project should be rejected. Between two projects the one with higher MIRR should be considered. How do you calculate MIRR? To calculate the MIRR formula of a project we need to know three things: a) Future value of a firm’s positive cash flow discounted at the reinvestment rate. b) Present value of a firm’s negative cash flows discounted at the cost of the firm. c) The number of periods Mathematically, the calculation of MIRR is expressed using the following formula: MIRR =   n(FVCF/PVCF) -1 FVCF- Future value of positive cash flows discounted at the reinvestment rate PVCF- Present value of negative cash flows discounted at the financing rate  n – the number of periods MIRR is tedious to be performed by manual calculation, calculating it in spreadsheets is fairly easy. In applications like MS excel, it can be calculated using the following function  =MIRR (cash flows, financing rate, reinvestment rate). MIRR Example: There are two mutually exclusive projects X and Y and we have to decide which one is more profitable than the other. Project X has a life of 3 years with a cost capital of 12% and financing cost of 14% Project Y has a life of 3 years with a cost of capital of 15% and financing cost of 18% The estimated cash flow is as follows: Year Project X Project Y 0 -1000 -800 1 -2000 -700 2 4000 3000 3 5000 1500 Calculating the future value of positive cash flows discounted at the cost of capital. Project X: 4,000 x (1+12%) x1+5,000=9,480 Project Y: 3,000x (1+15%) x1+1500=4,950 Calculating the present value of negative cash flow discounted at the financing cost: Project X: -1,000+(-2,000)/ (1+14%) x1= -3,000 Project Y: -800+(-700)/ (1+18%) x1 = -1,500 Calculating the MIRR of each project Using the formula: MIRR  =   n(FVCF/PVCF) -1 Project X:   MIRR = 3(9,480/3,000) -1 = 0.467  Project Y: MIRR = 3(4,950/1,500)    – 1= 0.488 Therefore, Project Y should be undertaken as it has a higher rate of return Let us now talk about some of the advantages and disadvantages of MIRR: Advantages of MIRR: MIRR can be used to assess projects with inconsistent cash flow MIRR takes into consideration, the practically possible reinvestment rates  MIRR can be used to calculate project sensitivity as it measures variation between the cost of capital and financing cost. Disadvantages OF MIRR: MIRR demands computing an estimate of the cost of capital, which can be flawed as it is not subjective and can vary depending on the assumptions made. MIRR does not quantify the various impacts of different investments in absolute terms, it may also fail to produce optimal results in case of capital rationing. How MIRR solves the multiple IRR problems MIRR improves on standard IRR by adjusting for differences in assumed reinvestment rates of initial cash outlays and subsequent cash inflows.In a project with different periods of positive and negative cash flows, the IRR produces more than one solution which creates ambiguity. MIRR solves this problem by providing only one solution. Conclusion: MIRR is excellent to assess projects with a mix of positive and negative cash flow. It can also be used to compare the different investment projects of unequal sizes. MIRR also solves the issues associated with IRR having multiple solutions for the same project. It helps an individual to make a definite investment decision. MIRR also provides flexibility, allowing the project managers to change the assumed rate of reinvested growth from stage to stage in a project. If there are a series of investments at different times having different interest rates, then MIRR can offer more accurate results compared to IRR. To sum it up, although MIRR has certain disadvantages like its complexity, and assumptions considering the cost of capital. But its clarity and its ability to produce a single solution make it an attractive option for measuring investments.

Personal Finance

Ichimoku Cloud Definition and Uses

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There can be two ways of evaluating a company’s stock while investing: technical analysis and fundamental analysis.  When discussing technical analysis, there are various methods to decide whether it is an excellent time to sell or buy a stock, especially in the case of intraday trading.  Today, we will talk about one of the most popular methods of technical analysis, Ichimoku Cloud. In this article, we will understand Ichimoku cloud, Ichimoku indicator, Ichimoku cloud indicator, Ichimoku trading strategies, Ichimoku trading, and Ichimoku cloud trading strategy.  What Is the Ichimoku Cloud? The Ichimoku Cloud is also known as Ichimoku Kinko Hyo. It is an adaptable indicator that defines support and resistance, identifies trend direction, gauges momentum and provides trading signals while conducting technical stock analysis.  Ichimoku Kinko Hyo, which means “one look equilibrium chart,” is a Japanese term. Journalist Goichi Hosoda created the indication, which was then made available in his book in 1969. Chartists can see the trend at a glance and search inside it for potential signs. The Ichimoku Cloud is a relatively simple indicator; the concepts are clear, and the signals are well-defined, even though it may appear complicated when examined on the price chart. In comparison to the traditional candlestick chart, it offers more data points. While it may appear complicated at first, individuals who know how to interpret charts frequently find it simple to comprehend with clear trading signals. A crucial component of the indication is the cloud. The trend is downward when the price is below the cloud. The trend is upward when the price is higher than the cloud. If the cloud moves in the same direction as the price, the aforementioned trend signals are strengthened. For instance, the cloud’s top moves upward during an uptrend and its bottom move downward during a decline. The Formulas for the Ichimoku Cloud There are five plots that make up the Ichimoku Cloud indicator. Their names and calculations are: TenkanSen (Conversion Line): (High + Low) / 2 default period = 9 KijunSen (Base Line): (High + Low) / 2 default period = 26  Chiku Span (Lagging Span): Price Close shifted back 26 bars  Senkou A (Leading Span A): (TenkanSen + KijunSen) / 2 (Senkou A is shifted forward 26 bars)  Senkou B (Leading Span B):  (High + Low) / 2 using period = 52 (Senkou B is shifted forward 26 bars) How to calculate? The highest and lowest prices recorded throughout the period—in the case of the conversion line, the highest and lowest prices recorded over the previous nine days—are the highs and lows. If you wish to compute it manually, you can add the Ichimoku Cloud indication to your chart. Here are the following steps that you need to follow: Calculate the Conversion Line and the Base Line A positive signal is generated during an uptrend when the Conversion Line crosses above the Base Line. Similarly, a negative signal is given when the Conversion Line crosses below the Base Line during a downturn. Calculate Leading Span A based on the prior calculations Span A is a 26-period ahead-plotted leading indicator. It is determined by taking the average of the tenken and kijun values over the previous 26 periods. Since it takes a short time to calculate, this indicator mainly slants with the prices rather than remaining flat. Calculate Leading Span B This indicator is calculated by averaging together the last 26 periods. Since it takes a while to calculate, it is usually flat; therefore, it can be used as a line of support when prices are above it and a line of resistance when prices are below it. Plot the closing price 26 periods in the past on the chart to get the lagging span. The cloud is drawn by colouring in the difference between Leading Spans A and B. Color the cloud green if Leading Span A is higher than Leading Span B. Color the cloud red if Leading Span A is lower than Leading Span B. This is how you can calculate Ichimoku Cloud to make a technical analysis of a stock. What does it indicate? Now that we know everything about Ichimoku cloud trading strategies, let’s understand what Ichimoku cloud indicates.  How should you assess the trend’s persistence and corrective actions? Price crossing the cloud signifies an upward trend. A downtrend is indicated when the price drops below the cloud. A sideways trend is indicated by price moving within the cloud. A cloud shifting from green to red indicates a correction during an uptrend. A cloud turning from red to green indicates a correction during a downtrend. How to assess support and resistance levels through Ichimoku trading? The first support line for an uptrend is provided by Leading span A. A second support line for an uptrend is provided by leading span B. A downtrend’s first resistance line is provided by Leading span A. For a downtrend, Leading span B acts as a second resistance line. How to recognize buy/sell signals  When the conversion line crosses Base line up from below, it is a signal to buy When the conversion line crosses Base line down from above, it is a signal to sell Limitations  There are always two faces of one coin, advantages and disadvantages. While pursuing Ichimoku Cloud trading strategies, you need to remember a few limitations it has while trading.  There are three main limitations that you need to keep in your mind; The Ichimoku Cloud’s reliance on historical data is one of its drawbacks. It’s possible that historical patterns won’t repeat themselves as traders might anticipate. The Ichimoku Cloud may generate erroneous indications like any other technical indicator.  Also, the indicator might not consider patterns that extend over a long period of time.

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