Personal Finance

Introduction The Fama and French model is the updated form or has evolved from the primary Capital Asset Pricing Model (CAPM). When dealing with shares and stocks, knowing about all these related models is pertinent, which will help you analyze the returns and market values. The risk factors involved in trading the stocks and associated returns of the portfolio are calculated using such formulas of the model.  As there are two types under the name Fama french model itself, we will look at how the Fama and French Three Factor Model works. This guide will shed light on the principle and the formula with relevant examples.  Formula and Explanation The formula for Fama French Model is simple, and anyone with proper knowledge about the stock exchange will be able to understand it quickly. It is written as:  Where,  ra is the rate of return  rf is the risk-free rate  ß is the factor of coefficient for sensitivity  (rm – rf) is the market risk premium  SMB is Small Minus Big  HML is High Minus Low  α is the investment’s alpha factor and;  e is the total risk.  This innovative formula for the Fama french 3-factor model makes predicting returns and risks easier. The Principles on Which this Model Works As this is a three-factor model, it works on three aspects or factors. They are: a) market risk  b) size risk  c) value risk.  To be precise, the detailed factor it runs on is the SMB and the HML. SMB is in line with the performance of small-cap companies over the large-cap companies. In comparison, HML is under the high book-market-value company versus the low book-to-market value company. The size risk pertains to the Small Minus Big (SMB) factor. The beta coefficient in the formula can be either positive or negative. This coefficient concerns the capitalization of the company. It is believed under this model that small-cap companies can expect high rates of return when compared with large-cap companies. Therefore, the beta factor is vital for determining the risks.  The value risk is under the High Minus Low (HML) factor. The companies with a high book-to-market ratio will yield higher returns than the low book-to-market value companies. The book-to-market value is the difference between the predicted value in the book and the actual market value of the company.  If the coefficient factor is positive in the case of SMB, the returns are directed more towards a small-cap company. Similarly, if the coefficient is positive for the HML factor, the returns are more related to the high book-to-market value company.  There are two main aspects, namely the “value” and “growth.” In both cases, the returns pertain to value. If the condition is vice versa to the one cited above, the returns will be under the terms of growth and not value.  Why is this model considered the best? The Fama and French Model is the advancement of the CAPM, a traditional model. This model knows and calculates the risk factors precisely. The risk-free rate is known to be applied when there are no possible risks while receiving the returns. The market risk premium is the estimated returns where the market with risks and risk-free markets are compared. All such important factors are used in applying the Fama and French models.  The fama french 5-factor model is more advanced as it includes two more factors: profitability and investment. These two factors are used in addition to the factors of the three-factor model.  As CAPM used only a single factor to assess the market risks, this model serves the best. Determining the beta coefficient factor with just a single element is challenging. Further, the volatility of the investment alone is estimated using the CAPM, and the risk-free rates determined might fluctuate from time to time. All such drawbacks can be overcome using the Fama and French Models.  Who can find this model to be useful? Investors who are new to the field might not be able to find the model helpful as compared to experienced investors. As they might take time to understand all the terms and principles of trading, they can prefer simple methods to know the risks of returns after investment.  A professional investor can use this Fama and French model to know the intricate details of the returns. A mediocre investor can get help from an advanced analyst for investing in stocks. The analyst might then use the model to calculate the risks of the stock portfolio.  This model came into existence in 1992 and was developed by Eugene Fama and Kenneth French. The model’s name comes from their names, and there is no specific fama full form as such. Eventually, after the three-factor model, the five-factor model also developed.  Conclusion Summing it up, a wise investor will gain lucrative profits without much loss by using this model. It is preferred to use Fama and French models and the related formula to know all the stock returns and market risks involved. Moreover, the working of the model must be thoroughly understood, and the relevant values should be appropriately applied. Therefore, one must invest only after knowing and accepting the risks involved in stock returns.  References https://corporatefinanceinstitute.com/resources/knowledge/finance/fama-french-three-factor-model/ https://www.thebalance.com/what-is-the-fama-french-3-factor-model-5223585 https://smartasset.com/investing/fama-french-3-factor-model https://www.fincash.com/l/basics/fama-and-french-three-factor-model https://www.investopedia.com/terms/f/famaandfrenchthreefactormodel.asp Three Factor Model of Fama and French

While payments are an integral part of a business, you’d know that ensuring payment inflow isn’t effortless if you’ve ever chased an invoice. Thus, a bill of exchange is curated to keep everybody liable for making timely payments.  The Negotiable Instruments Act 1881 regulates the provisions for bills of exchange. As per Section 5 of this specific act, it’s an instrument in writing that contains total order signed by the maker, directing a particular individual to pay an amount sum of money to the instrument’s bearer. When such an order is acknowledged in writing, it becomes a legal bill of exchange. In this post, let’s find out everything about the bills of exchange.  What is Bills of Exchange in India? If we have to define the bill of exchange, it is a formally written IOU that cites when a specific amount of money must be paid. This is a bill that a person draws to direct another person to pay the money to somebody else. If accepted, somebody has to pay the amount; it becomes real.  Generally, the seller provides a credit period to the buyer upon selling products or services. For example, suppose A orders B to pay Rs.10,000 for 100 days after the date, and B accepts the order by signing the bill. Then, it will become a bill of exchange.  However, there are certain situations when the seller may not be in the position to provide a credit period to the buyer. And then, the buyer may not be in a position to pay instantly.  In such a scenario, the seller would ask the purchaser to give a written promise to pay the sum of money on a specific date. This written promise becomes a valuable credit instrument when properly made and stamped.  Often, banks accept these written instruments, and you can withdraw money against them. Moreover, you can also endorse the instrument, meaning you can pass it to somebody else.  Parties to a Bill of Exchange A bill of exchange has three different parties, such as: Drawer A drawer is the creator of the bill of exchange They have to sign the bill A creditor who is permitted to get payments from the debtor can draw the bill Drawee Drawee is somebody upon whom the bill is drawn He is the debtor who should pay the drawer A drawee is also called an Acceptor Payee The payee is somebody to whom the payment should be made The payee could be either the drawer himself or the third party Example of Bills of Exchange Let’s take up an example here to understand bills of exchange in a better way. Suppose Mr Sharma has drawn a bill on Mr Bansal for three months for Rs.1,00,000. The bill is payable to Mr Gupta on 17th June 2022.  Mr Sharma ordered Mr Bansal to pay Rs.1,00,000 to Mr Gupta. If Mr Bansal accepts the order, he will write a bill as follows: Accepted Mr Bansal Delhi 17th June 2022 When the drawee pens down this type of acceptance on the bill, it turns into a bill of exchange. In the example above, Mr Sharma is the bill’s drawer, Mr Bansal is the acceptor, and Mr Gupta is the payee. In the end, Mr Bansal will pay the money to Mr Gupta. Features of Bills of Exchange Here are the features of bills of exchange: It comes with the date by which the money should be paid. The amount is payable to the person whose name is mentioned on the bill or to their bearer. A bill of exchange should have a revenue stamp. The bill payment should be in the legal currency of the nation. Format of a bill of exchange Here is a format of a bill of exchange   Stamp                                                                          Name and address Amount                                                                          Date              One month after the date pay to (name and address of payee) or order, the sum of (mention the amount) for value Accepted     Drawer (Signed)     (Signed) Drawee’s name     Drawer’s Address Drawee’s Address Types of Bills of Exchange Jotted down below are the types of bills of exchange for your reference: Documentary Bill: Here, the bills of exchange are supported by related documents that validate the authenticity of the transaction or sale between the buyer and the seller. Supply Bill: This is a bill that a contractor or a supplier withdraws from the government. Demand Bill: This bill is due when it is demanded, as the name implies. There is no set payment date on the demand bill. Thus, it should be cleared whenever put forth. Trade Bill: This type of bill is relevant only to trade. Usance Bill: This one is a time-bound bill. It means the payment must be made within the given time. Accommodation Bill: An accommodation bill is the one that is sponsored, drawn and accepted without conditions. Inland Bill: It is payable only in one nation. In this bill, both the acceptor and the drawer live in the same country.  Foreign Bill: Opposite the inland bill, this one can be paid outside the country. For instance, import bills and export bills. Clean Bill: This bill doesn’t have any documented proof. Thus, the interest is higher as compared to other bills.   Discounting Bills of Exchange A payee could sell a bill of exchange to a different party for a discounted price to acquire funds before the payment date that is put on the bill. The discount signifies the interest cost that is related to being paid early.  Difference

Some business dealings are negligible to warrant mentioning in a financial report. The idea of materiality is used to determine what information should be included in a financial statement and what information should be omitted so that the statement is as concise and unified as possible for use in an external study of the company’s financial health. Let’s check out the Materiality Concept in accounting. What is Materiality Concept? For purposes of putting up the financial statements, “material” means that the information can change the view or opinion of a reasonable person, and so is essential.  In brief, when putting together the company’s financial statements, care must be taken to include all relevant financial data that could sway the opinion of an informed reader. A related term for the materiality idea is “materiality constraint” in accounting. The corporation need not include non-material information in its financial statements. Materiality is a relative term in accounting, depending on context and the magnitude of the transaction. It means that one company’s financial data could be considered material by another, yet the same data could be irrelevant to a third. This facet of materiality becomes more apparent when contrasting businesses of different sizes, such as a major corporation with a small one.  Compared to the company’s size and revenue, a similar cost may be considered a significant expense by a small business yet insignificant and minor by a huge business. Auditors, shareholders, investors, etc., are all examples of potential recipients of financial statements. Therefore, the materiality concept’s primary goal in accounting is to determine whether or not the information at hand substantially affects the viewpoint portrayed by financial statement users.  Principles of Materiality Under GAAP and FASB General Accepted Accounting Principles and Concept of Materiality According to GAAP (Generally Accepted Accounting Principles), the most important criteria for determining materiality are – According to current GAAP, the “materiality principle is a concept when material items in a financial report are omitted or misstated. These have an impact on the viewpoint of the users of that report; it may have a likely impact on judgment and reliability.” The FASB’s Materiality Principle Conversely, the Financial Accounting Standards Board’s (FASB) key rule for determining materiality is- When considered in context, the scope to which an accounting information omission or misstatement is likely to have caused a reasonable person’s judgment to be affected. Importance of the Accounting Concept of Materiality and Its Applications It is important to note that concept of materiality is a relative term that directs a business to identify and disclose only those transactions that are sufficiently big relative to the company’s operations and might cause concern to users of the financial statements.  According to the materiality notion, if a transaction involves a significant amount of money, the corporation must report it by generally accepted accounting rules. Moreover, a misrepresentation occurs if accounting principles are not followed, and materiality is quantified in terms of dollars. Therefore, businesses must learn to identify what factors are most important to their operations and invest in a sufficient number of workers to keep their books in order.  Several factors may influence the materiality determinations: The nature of the business,  The state of the economy The authority of the person reviewing the financial statements.  But if the expense of following the accounting principles seems to outweigh the expected advantage, the corporation may abandon them. Subjectivity’s Role in the Concept The idea of what constitutes “materiality” in financial statements is a well-established accounting norm. The historical cost convention is a similar notion that is adhered to by businesses. These are the subjectivity factors:  Keep track of purchases using the market rate at the time of purchase. Value assets at their initial investment. Note that confirming charges incurred in the past is typically carried forward. This means there is essentially no doubt about past prices. But materiality evaluations might be subjective and ambiguous.  The issue concerns the potential weight that particular data might have on a choice. Therefore, there may be some subjectivity involved in concluding materiality. Because of this, there will always be a range of possible interpretations. It should come as no surprise that opinions on what truly matters can vary among the following: The company’s board of directors. Management positions in a company. Top management. Potential collaborators in business. Accountants. Auditors. Possible financiers. Shareholders. If the organizations’ interests, motivations, and goals are different, there is a greater likelihood of conflict.  Consequences of Accounting’s Misuse of the “Materiality” Concept Misusing the materiality principle in accounting might have severe repercussions. For the most part, “rules of thumb” are used by auditors and courts to assess cases of material abuse.  However, neither GAAP nor FASB has been willing to provide a precise range for error sizes that would constitute materiality abuse. But there are other considerations besides error magnitude that the reviewers who make materiality abuse rulings should consider.  Considerations for the materiality principle concept: These two considerations are the reason for the mistake and how seriously the user will likely take it. They also consider the following two variables: The Reason and Intention Behind the Mistake If auditors or a court can show that the defendant intended to do any of the following, a finding of abuse is more likely: Hold stock prices at inflated levels. Income should be inflated. Don’t give the complete picture of the asset base’s worth. Exert improper pressure on merger or acquisition choices. The Influence It Will Most Likely Have On The Opinions And Views Of Users. Audit Materiality Example To state a Materiality example, here is the explanation for the same. A mistake in the section containing the income would be placed in a section that should not. Let’s assume that “Manufacturing indirect labor expenses” for this period are very high. Consider the possibility that these are incorrectly filed under “Direct Manufacturing Labor.”  Probably not a case of material abuse, just a simple oversight. Because both types of expense add to the cost of products

Franchising is when two parties agree to come under a contract that allows one party to provide the license or rights to another party. The party who provides rights is called the franchisor, whereas the one receiving rights is called the franchisee. The license and right can allow the other party to sell the franchisor’s goods, services, or products by paying a fee. The brand name & trademark of the franchisor is free to use by the franchisee.  A franchisor receives a commission or a one-time fee paid by the franchisee. Marketing is also another way they are benefitted that helps their business grow. The franchisor has full access to provide the rights to one or more people or companies. The person holding the rights has the exclusive right to sell their products or services. The parent company provides trade secrets, services, technical work, and products.  What is international franchising? International franchising is a strategic way to diversify a brand globally & create new revenues and profit centers because it reduces its dependence on domestic demand. This franchising involves low risk, requires minimal investment, and offers huge upside potential in scaling a business to new heights. Structure of international franchising Master franchising The simplest structure for expanding a franchise internationally is a master franchise. In this situation, the franchisor grants master franchise rights to an appropriate indigenous people or organization (master franchisee) in the target country, often in exchange for a significant investment. Direct Franchising If the franchisor can provide support, he can opt for a Country Direct Franchise, be directly in charge of recruiting, training and supporting the network of franchisees, by directing remotely from headquarters, or opening a subsidiary in the target country, or hire a designated agent. Area development In some businesses or industries where sub-franchising is not allowed and franchisees must own brand new branches that are opened, the entire country may not be the most efficient size for a license, so regional franchises and regions are similar to franchises and regions divided. When sub-franchising does not occur, this practice is usually called community development franchising. Regional franchising In some countries (such as the United States), one master franchisee may not be able to control an entire region. The regional franchise approach divides the target country into regions. For example, divide the US into states and treat them as mini-master franchises. Franchisees in these regions should work together on national initiatives such as marketing. Types of franchising Business format franchising This type of franchise facilitates the expansion of the franchisor’s business by allowing individuals to purchase the business under an established brand name. New business owners are often supported in the early stages of their business and continue to be supported in running their business. The best example of this type of franchising is the fast-food industry. Product franchising This type of franchise model focuses on individuals selling products or providing services in a particular segment of commerce or industry. Product franchises are a top-notch choice for first-time commercial enterprise owners, impartial contractors, and domestic businesses. Example: Independent contractors investing in franchises with an established name and reputation in their field. Conversion franchising It is a method of building a franchise where a franchisee enters a relationship with an existing business and transforms it into a franchised entity. Franchisees inherit the parent company’s brand, marketing and promotion programs, training systems, and customer service protocols. This type of franchise includes electricians, real estate agents, etc. Job franchising This is generally a low-investment (often home-based) franchise that can operate alone or with minimal staff (less than 5 people). Franchisees only need to pay franchise fees and minimal upfront costs such as equipment, basic materials, and possibly vehicles. Numerous industries can be franchised and commonly serve in this manner. For example, vending machines. Investment franchising This is typically a large deal that requires a large capital investment (which is huge compared to other franchise options). Franchisees are large investors who provide funding and management teams and sometimes even hire their franchisees to run the business. This type of franchise is primarily used to generate a high return on investment with little personal effort and capital gains upon exit. Example: large restaurants. The Bottomline: Advantages and Risks of Franchising Advantages  Capital Although much less capital is required to expand, the risk is largely limited to the capital invested in developing the franchise business. This amount is often less than the cost of opening an additional company-owned location. Growth potential Franchising allows the franchisor not only financial leverage but also the use of human resources. Franchising allows companies to overcome competition, thus saturating the market before companies can react. Profits Franchisors typically have much leaner organizations (and often leverage existing organizations to support their business operations). The result, therefore, is that franchise organizations can be more profitable. Low Risk Franchisees are largely exempt from liability for employee disputes because they run equipment, vehicle, and physical location leases and are responsible for what happens within the unit itself. You can grow to hundreds or thousands of units with limited investment without spending your capital on unit expansion. Risks Badly documented franchise Franchisor adherence to poorly documented standards can also be a source of conflict with the franchisor. This is because it is very difficult to follow rules that are simply unclear and unprofessional. Franchise Fraud There are so many franchise opportunities these days, and they all have very similar publicity, that it’s easy to be misled by a “fake” franchisor. The franchise that doesn’t exist (which is pure fraud) or that is unprofessional and built on untried and unproven business models. The best way to avoid “fake” franchises is to thoroughly analyze all information about the franchise that you may receive from the franchisor, other franchisees, and public sources. Unrelated Business Model Some of the franchise’s underlying business models may, under certain circumstances, simply be irrelevant in certain markets. For example, different countries have very different demands for a particular product

What Is The Amortization and How Does It Work Did you know that the word amortization means ‘kill’? So, when used in a financial context, amortization means the process of killing and erasing off a debt.  What is the meaning of amortization? Amortization is a method of reducing the book value of a loan or intangible asset over time. On an asset, amortization is similar to depreciation. A loan’s amortization is the process of deferring repayment. The term “amortization” describes two distinct circumstances. First, amortization is a method of paying down debt over time by making regular principal and interest payments. An amortization schedule is used to lower the present loan debt.  Second, for accounting and tax reasons, amortization can refer to the spreading out of capital costs connected with intangible assets over a specific period—typically the asset’s useful life. Importance of Amortization Amortization is essential in helping organizations realize the benefits and estimate expenses over time. In the case of debt repayment, the amortization schedule shows how much of a loan payment is interest and how much is the principal repayment. This can be advantageous for tax purposes, such as deducting interest payments. Amortizing intangible assets is particularly important since it reduces a company’s tax liability and, as a result, its tax burden while simultaneously providing investors with a better picture of its underlying profitability. Amortization Of A Loan Amortization is the process where you pay off your loans over a period of months in regular interest and principal payments that are enough to pay off the loan in full by the end of its term. Early in the loan, a bigger percentage of the flat monthly payment goes toward interest, but as the term progresses, a more significant portion of the payment goes toward the loan’s principal. You may use financial calculators, Microsoft Excel, and online amortization calculators to calculate amortization. The outstanding loan balance is the first item on the repayment plan. The interest payment is determined by multiplying the monthly interest rate (annual interest divided by 12) by the outstanding loan balance to arrive at the monthly payment amount. The entire monthly payment (a fixed sum) minus the interest of that month equals the amount that goes for principal repayment. The outstanding loan balance for the next month is computed by subtracting the previous month’s outstanding loan balance from the preceding principal payment. The interest payment is computed using the new outstanding balance. The procedure repeats until all principal payments are completed, and the loan balance is zero at the end of the cycle. Calculation of Amortization of Loans Here’s the formula to calculate monthly principal on an amortized loan:  Monthly Principal Payment= Total Monthly Payment−(Outstanding Loan Balance × Interest Rate/12 Months) Usually, when you get a loan, you know how much you’ll pay each month. If you’re trying to estimate or analyze monthly installments based on a set of variables like loan amount and interest rate, you’ll probably need to compute the monthly payment as well. For any reason, you might need to figure out how much you’ll pay each month. Total Payment = Loan Amount * [{(i*1+i/n)/(1+i/n)}-1] Where i is the monthly interest  And n is the number of payments.  For example, the loan amount is Rs. 5,00,000 with an interest rate of 8% p.a. for ten years. To find out the monthly interest rate, you need to divide the annual interest rate by 12. For instance, if the interest rate is 8%, then the monthly interest rate would be 8%/12 = 0.67% If you want to find the number of payments, you simply need to multiply the number of years of the loan term into 12. So, if your loan term is ten years, the number of payments would be 120.    In this case, the monthly payment that needs to be made is Rs. 6,066. To calculate the interest portion in the first month’s EMI, we need to use the formula to figure out the monthly principal amount.  =  6,066 –(500000*0.67%)  =Rs.2,733 We need to subtract the principal paid from the initial principal to calculate the outstanding principal amount.   Here’s what the amortization schedule would look like for the first few months. Month and Year Starting Balance Interest Paid Principal Paid EMI Outstanding Principal Balance Mar 5,00,000 3333 2,733 6,066 4,97,267 April 4,97,267 3315 2,751 6,066 4,94,516 Apr 4,94,516 3297 2,769 6,066 4,91,747 May 4,91,747 3278 2,788 6,066 4,88,960 May 4,88,960 3260 2,806 6,066 4,86,153 June 4,86,153 3241 2,825 6,066 4,83,328 Jun 4,83,328 3222 2,844 6,066 4,80,484 July 4,80,484 3203 2,863 6,066 4,77,622 At the end of 10 years, the borrower would pay the entire principal amount.  Amortization Of Assets Amortization can also be used to talk about the amortization of intangibles or non-physical assets, like patents. In this example, amortization refers to the process of depreciating the cost of an intangible asset over the asset’s expected lifetime. It calculates how much an intangible asset, such as goodwill, a patent, a trademark, or copyright, has been consumed. Amortization is computed similarly to depreciation for tangible assets, including equipment, buildings, cars, and other assets susceptible to physical wear and tear and depletion of natural resources.  To make sure the cost of an asset is in line with how much money it makes in the same accounting period, businesses that amortise their costs over the same accounting period.  A corporation, for example, gains from the utilization of a long-term asset over some time. As a result, the expenditure is written off throughout the asset’s useful life. Accounting and tax standards give accountants guidelines on how to account for asset depreciation over time. However, the amortization of intangible assets is a tad more difficult than tangible assets. The real cost and value of items like intellectual property and brand awareness are not constant, so it is potentially more challenging to measure. Amortization vs Depreciation Amortization and depreciation are both ways to figure out how much it costs to own an asset over time. However, the

Overview It is true that investors are looking for the best investment that can yield them the most profit. They want to know what their return on investment will be and that it’s worth taking the risk. Return on Investment (ROI) is an easy way to calculate this by looking at the expected value of an investment or how much money you expect to have from that investment after all costs are deducted. This article will provide a basic introduction to the concept of Return on Investment. The reader will learn what ROI means and how to use ROI analysis as part of their investment decision-making process. What is Return on Investment? To begin with, it’s important to note that “return” means profit, and “investment” is money put into one or more assets. Therefore, return on investment is the percentage of profit from an investment that’s generated as a percentage of the total investment. ROI plays an important role in analyzing the success of an investment and whether or not it was worth it. It is crucial to be able to analyze how much profit is generated as a percentage of the overall investment. Therefore, return on investment is a very useful tool for predicting the profit gained from a potential investment. How to calculate ROI? With the easy definition out of the way, let’s look at how to calculate ROI. To do this, it’s important first to understand what an ROI formula is and how to implement it into your analysis. ROI can be calculated by dividing the net return on investment by the amount of money invested, in the mathematical format: ROI = Net Return on Investment/Cost of Investment X 100% To better understand this formula, let’s use an example. Assume an investor has $1,000 to invest and is considering investing that money into a new project or idea. This investment is expected to promote the generation of a profit of $500 after one year. The ROI can be calculated by dividing the net profit of $1500 by $1,000, which gives a 50% return on investment. In this example, if the investor invested $1,000 and earned a 50% return on investment, it means that they would make an overall profit of $500 (50% of the investment). Therefore, with this easy formula, an investor can see exactly how much money they will make as a percentage of their initial investment. Why is it important to calculate ROI? The ROI formula generates a very simple and clear factor to use when looking at potential investments. The ROI factor shows the performance of any investment and the amount of profit is generated. With this, an investor can then judge the success of any investment by looking at the ROI. Following are some of the benefits associated with using ROI: Better Measure of Profitability: It is easy to look at the amount of money earned as a percentage of the investment, thus allowing investors to determine how much money they made as a percentage of their investment. This allows an investor to determine if they made enough profit from the investment by looking at the ROI. Comparative Analysis: ROI analysis allows investors to find out how well a certain investment will perform against other potential investments. By doing this, an investor can determine which investment is more profitable. This allows investors to best allocate their resources based on the most profitable opportunities. Time-Saving Tool: ROI analysis allows investors to quickly determine the profitability of investment by looking at several factors. Included in these factors are the rate of return on investment and the amount of time that it takes to make a profit. This allows investors to save a substantial amount of time in analyzing investments. Ease of Use: ROI analysis is a simple way to calculate investment performance. By looking at the ROI percentage, an investor can determine the profitability of an investment and its success. This makes ROI analysis a very useful tool for even beginning investors or those that are not so good in math. In light of all these benefits associated with using ROI. It is evident why it’s important for investors to calculate ROI on every investment they consider. ROI analysis is an effective formula for determining the success of various investments. FAQs Q. Does ROI guarantee success? Generally speaking, no, it doesn’t. ROI is a great tool for measuring investment success, but it does not guarantee this by itself. Other factors will impact the success of a certain investment as well. However, measuring ROI will give you an excellent idea as to how profitable a certain investment can be. Q. How can ROI help in comparing potential investments? ROI can help investors compare investment prospects across industries and sectors. By looking at the ROI, investors can estimate which industry or sector will generate a higher ROI. For example, an investor can look at two different companies, one in the technology sector and another in the aerospace industry. Let us say the technology company generates an ROI of 20%, and the aerospace company generates an ROI of 10%. Investors can conclude that the technology sector is more profitable. Q. What are the factors when considering ROI? Factors can be different based on the industry. Some of the factors considered are risk, competition, and technological changes. Thus, assessing the ROI is a very crucial part of every investment decision. Summing up, return on investment is a good way to assess the profitability of an investment. It is crucial to be able to predict how much money will be earned from an investment in the future. With this information, investors can judge how much of their money should be spent on a particular project or idea and thus save money for other good ideas. Thus, by understanding how to calculate ROI, investors will be able to make better investment decisions.

What is CIBIL Score? Is it a number? Is it your score on a test? Or from a game you played as a kid? Well, it’s not really any of these. You see, CIBIL stands for Credit Information Bureau India Limited and is used by Indian financial institutions to compute your credit score. This score is generally referred to as the CIBIL Score. The numbers range from 300 to 900, and the higher you are, the better it is. What is a credit score? This is a three-digit number that goes from 300 to 900. It determines your credit risk or creditworthiness, i.e., how likely you are to pay your EMIs and credit card dues on time.  Credit bureaus such as TransUnion CIBIL, Equifax, and Experian publish credit reports and credit score that helps financial institutions to help assess the creditworthiness of the loan or credit card applicant.   There is nothing to worry about if you don’t know how to check your credit score/CIBIL score. You can go to the official CIBIL website to check your credit score.  Payment history, the debt amount, and the credit history timeline can be found in your credit report, impacting your credit scores.  What is CIBIL Score? Your CIBIL score is the primary thing any lender will look at to evaluate your loan application. A good credit score means that you have responsibly handled credit. A CIBIL score ranging from 700 to 900 is considered a good credit score.  This makes future lenders confident that you will be able to pay back the dues on time.  Here’s how the CIBIL Credit score is segregated:   <600 Low 600-649 Difficult 650-699 Possible 700-749 Good 750-900 Excellent As per the CIBIL website, there is a 90% chance that individuals with a CIBIL of above 750 will be granted loans.  Importance of good credit score  We have seen that a CIBIL score above 700 is considered to be a good CIBIL score. But what is the importance of a good credit score? Let us find out in this section.  Better chance of getting a loan  It is important to understand that other variables play a role when applying for a new credit card or loan. Lenders also analyze vital variables such as the income, existing debt of an applicant.  So, having a good CIBIL score isn’t the only parameter. However, having an excellent CIBIL score can make you more confident while applying for a loan or credit card.  Get the best interest rates  Individuals with high CIBIL scores can qualify for the best interest rates. It is because lenders see the individual as a financially responsible person who can pay the dues on time. So, the low interest rates help people with good CIBIL scores save money on their loans.  Ability to bargain  Having a good credit score means that you will pay less for a credit card or a new loan. If you need extra negotiating leverage, you can use other appealing offers based on the credit score that you’ve gotten from other financial institutions. Creditors are unlikely to compromise on the loan interest rate if you have a poor credit score as you may not have any alternative credit offers or possibilities. Get approval for higher limits  Your borrowing power is based on how much money you make and how good your credit score is. Banks are more probable to let you borrow more money because you have shown that you pay your debts on time. Having a good credit score is one of the benefits of having a good credit score. How to improve CIBIL Score? We have seen the importance of a good CIBIL score. Having a good CIBIL score is an important element of adult life. But what if your CIBIL score is low? Let us know how you can improve your credit score.  Check CIBIL Score: Checking your CIBIL Score and Report should be the first thing on your to-do list. It is because checking your CIBIL report can help you to understand the reason behind your poor to average CIBIL score.  Your CIBIL score may have taken a toll due to a wrong entry, or someone might be misusing your personal details. You can figure out the problem areas after carrying out a detailed analysis of the credit report.  Not applying for multiple loan products You may be tempted to apply for a loan at a different bank or NBFC if a financial institution rejects your loan request. But, hold your horses.     When you apply for personal loans, credit cards, home loans, or any other type of debt, financial institutions do a hard pull to review your credit record to make a subsequent loan decision.  Multiple hard inquiries have a basic problem in that they cause lenders to build a bad image of your credit behavior. Too many hard inquiries in a short period of time portray you as a credit-hungry consumer with a high-risk quotient. When presented with high-risk profiles, most lenders would either reject the application or give a ridiculously high rate of interest, which is simply not what you are looking for.  Pay loans on time  If everything looks fine, late payment of loans or credit card dues can impact your credit score. So, if you are prone to postponing payments to the last moment, opting for auto-payment of credit card bills and loan EMIs can be a better option. Moreover, many credit card holders fall for the minimum required payment. It is nothing but deferring your payments to a later date, which means that you cannot pay your dues on time, which might impact your credit score. Payment history makes up 30%, the highest percentage, of the credit score. So, you need to focus on timely payment if you want to increase your credit score. Set up alerts, automatic payment, and pay your credit card dues completely to improve your CIBIL score.   Mix of debt  Another critical factor that affects your credit score is the mix of debt.

You’ve probably heard the word “bookkeeping” used multiple times in relation to business and finance. To give you a gist, bookkeeping is essential for every business, regardless of the company’s transactions, industry, nature and size.  Whenever you are commencing a business, maintaining proper records is essential. So, to help you understand the concept of bookkeeping, this post covers everything about it.  What is Bookkeeping? Bookkeeping is a comprehensive process of recording a company’s financial transactions into organized accounts every day. It can also include diverse recording methodologies and techniques used by businesses.  Bookkeeping is an integral part of the accounting process for various reasons. You can generate correct financial reports that measure business performance by keeping the transaction records up to date.  Moreover, when you have kept detailed records through bookkeeping, it will be helpful during tax audits.  Importance of Bookkeeping In most circumstances, those intending to come up with a business generally overlook the need for bookkeeping for various reasons, including expenses. And then, several small companies don’t hire full-time accountants to work either.  Instead, they typically hire a bookkeeper or outsource this task to a professional bookkeeping firm. Correct bookkeeping offers companies a reliable measure of their performance.  Not just that, it also offers information to come up with general strategic decisions. It acts as a benchmark for the income and revenue objectives. All in all, once you have an up and running business, investing extra money and time to maintain records properly is essential.  Records the Transactions’Transactions’ SourceBookkeeping is a source of all a firm’s transactions as it records everything from payment notes, invoices, receipts, and more. It helps track records, sales, purchases, receipts, and payments of every transaction made by and from the business.  The financial statements or other business reports are summarised from the books of accounts. Hence, every business needs to have it in place.  Assists in Decision Making A proper and correct bookkeeping process offers firms a precise measure of performance. It also provides information for making fundamental strategic decisions and a foundation for its revenue and income goals.  Bookkeeping is a dependable source for firms to evaluate their financial performance. One of the primary reasons for bookkeeping is maintaining all the business’s financial records that display the financial position of each account or head of expenditure and income.  Provides Information to Create Financial Statements Bookkeeping completely summarises the income, expenditures and other ledger records frequently. Since bookkeeping keeps a record of and tracks all transactions, it turns the commencing point of accounting. In case the bookkeeping of a firm isn’t proper, the company’s accounting will not be exact.  Bookkeeping offers information to come up with financial reports that mention certain information about the business on how much profits have been generated at a specific time.  Types of Bookkeeping There are two different types of bookkeeping systems. A business entity is free to select any of these types. However, some companies also use a combination of both types, to each their own.  Single-Entry Bookkeeping The single-entry system is a foundational system that helps either generate daily or weekly reports or record daily cash flow receipts. Under this system, a bookkeeper must record one entry for every financial activity or transaction.  Such a single-entry bookkeeping system comprises recording just one side of the activity or transaction. When it comes to maintenance, it handles the following data: Sales Payments Cash receipts Purchases Primarily, the single-entry system of bookkeeping is used by small businesses that are involved in minimal transactions daily.  Double-Entry System of Bookkeeping The double-entry bookkeeping system mainly records a double entry for every financial transaction or activity. This system offers checks and balances as it records the conforming credit entry for each debit entry. This is not a cash-based system; transactions get entered when debt is incurred, or revenue is earned. Moreover, this bookkeeping method is based upon the duality concept, meaning every financial transaction impacts two accounts.  Hence, every debit entry to an account has a matching credit entry in another account and vice versa. This system is adopted universally and regarded as appropriate for recording financial or business transactions. Difference Between Bookkeeping and Accounting The bookkeeping and accounting careers are somewhat similar. Often, both of them have to work side by side. Also, both of them need a variety of same attributes and skills. But there are several differences between bookkeeping and accounting regarding work and objectives.  Here are some points highlighting the difference between both: Bookkeepers generally record the daily financial transactions of a company. By contrast, accountants concentrate more on the bigger picture.  Bookkeepers have to stay involved in a lot of details and should give their keen attention to everything. Meanwhile, accountants use the inputs of bookkeepers to analyze and review financial information and create financial statements frequently. They also conduct audits and foresee future business requirements.  Bookkeepers should be good with numbers and have significant attentiveness toward details. One should be able to shift their focus quickly and catch hidden, tiny mistakes in invoices or budgets. As an accountant, one must have sharp, logical skills and should possess problem-solving capabilities.  While the job of a bookkeeper is to ensure small pieces are fitting into place properly, an accountant has to use those pieces to come up with broader and significant conclusions. Wrapping Up By now, it is clear that every business should be on the ball as far as bookkeeping is concerned. In such a scenario, the size of the company doesn’t matter. At the end of the day, the way you keep your bookkeeping records plays an integral part. So, if you are thinking of handling the daily accounts of a company, make sure you are abreast with everything related to this concept. 

Brief on Fundamental Analysis Traders and investors need to make every move consciously and carefully. If you are a trader, you must follow specific methods to analyze and decide how to take the next step in trading. You can follow this principle either by fundamental analysis or technical analysis.  While there are many controversies against the first method, it has helped thousands of traders succeed. Here you should study various elements affecting the trade, analyze the expected result, and apply that to your trading. All the aspects like economic, social, political, and several other factors must also be thoroughly researched and analyzed in the process of fundamental analysis. In this article, let us examine the need for fundamental analysis, methods, and application.  Why should the fundamental analysis be followed? Any newbie trader will take time to understand the basics of trading to gain a lucrative sum. Though you may find it difficult initially, you can learn how to trade with the help of financial models and methods like fundamental analysis.  The fundamental analysis of stocks will help you know the companies’ current status and market value. More precisely, it tells about the factors that might affect the price of stocks.  You can also analyze the future value of the stocks and understand the financial health of a company and all their cash flow in recent times with the help of this method.  You can easily understand the market’s intrinsic value, which helps in rightly moving the stocks. Moreover, this method is relied upon for carrying out even forex trading. That is why fundamental analysis is key to successful trading, and many professional traders and analysts use this technique.  How to carry out fundamental analysis First, you should know in detail about the instrument that has to be traded. Updating yourself with the current market value, the competing companies, and the factors impacting quantity and quality are all crucial steps. There are various strategies for approaching the stock fundamental analysis, such as top-down analysis, bottom-up analysis, balancing trading rate and interest rate, knowledge of demand and supply, and so on. Let us see in detail about the different approaches. Bottom-up Analysis: This method is opposite to top-down analysis. You should concentrate on the minute factors of the company that influences the trade. The revenues and basic structure on which the company functions is crucial in this approach. Apart from that, you can also analyze the microeconomic aspects like individual stock instruments.  Top-down Analysis: The top-down method works by analyzing macroeconomic factors. Such elements are social factors like the growth of the overall economy relating to trade.  For instance, the employment status of the whole society will impact the trade and you must analyze this function. This approach, therefore, impacts the market on a large scale.  EIC Analysis: EIC known as the Economic, Industry, and Company analysis is a traditional method in trading. You must first analyze the large economy level and the related events affecting the fluctuations in trading. Second is to know which industry is on the upper hand in trading. You will come to know about the flourishing industry and can predict the future value of that industry market. Lastly, the company in which you invest the stocks must be studied. The transactions and the cash flow are the factors under this category.  Make sure to concentrate on the company’s strengths and weaknesses first and then invest accordingly. The company’s debt, cash inflow, revenue, expenditure, and many more factors will directly influence the stocks you invest in. Accordingly, you can calculate the rate of return.  Moreover, knowing about the competitor of the company and their economic status will help predict the stocks’ future. For example, by analyzing and investing in an established company with vast capitalization, you will know that there are equal risks and profit potential. There is much more to be studied regarding fundamental analysis like an expert. Application of fundamental analysis in day trading As day trading involves buying and selling stocks the same day before the market closes, the fundamental analysis of the stock market comes into play. When you’re engaged in day trading, the company’s financials must be analyzed first. You must follow the primary economic data of the company daily from different sources.  Moreover, you must plan well ahead of doing day trading. Know about the company’s previous week’s economic calendar, which might help predict the market value of the upcoming week. Accordingly, the stocks can be bought and sold through day trading.  But mostly, technical analysis is practiced in day trading as fundamental analysis works for a long-term trade. Even after this, you can easily analyze the fluctuation and volatility of the stock value using fundamental analysis. When you continuously practice this method, you will get a hold of it, thus further increasing the success rate in trading. Apart from that, the history of fluctuating value of the stocks will help in applying technical analysis where the graphs are almost the same.  Difference between the technical analysis and fundamental analysis When you get into trading, you can practice technical analysis or fundamental analysis for speculation about the stock exchange.  Technical analysis differs from fundamental analysis as it tells you when to make the next move, while the latter deals with knowing how to trade.  The technical analysis world is based on past events and accordingly predicts when the stocks will be priced high.  While understanding what fundamental analysis is and analyzing the fluctuations of the company takes a long time, technical analysis works in a much shorter period.  You needn’t put much effort into conducting the technical analysis as it can be applied to trading by just reading the market value charts. However, fundamental analysis takes time and effort to make a proper investing decision.  Therefore, you might use technical analysis if you need a quick profit. However, for long terms gains, fundamental analysis is something that you should look upon. Conclusion To sum up, only experienced traders practicing fundamental analysis

Any company that wants to go public will propose its shares for the public to buy. The rate at which the company offers its shares is called an Initial Public Offering (IPO).  When investors think of investing or purchasing shares in an IPO, they look for the ones that give a good return. Grey Market Premium is an unofficial way to know which IPO might provide a good return.  Let’s dive into IPO Grey Market Premium, Kostak rate, and Subject to Sauda rate. What is IPO GMP? When a company comes up with an IPO, the calculated information based on the company’s demand is called Grey Market Premium (IPO GMP). IPO investors use GMP to comprehend the estimated price an IPO might list when it is announced.  IPO grey market starts in an unregulated market once the IPO date and price bands are publicized. GMP is affected by various factors like the existing market conditions, share subscription numbers, and demand.  Investors mostly look for this premium to gain a fixed return from the stock they purchase.  Grey Market premium increases when the demand for the IPO is high. This, in turn, increases the return of the investors. For example, if XYZ Company is going to issue its IPO in the next 20 days, at Rs 200 per share.  Some investors would not want to wait for these 20 days as they’d wish for the shares as soon as possible. This makes them buy and sell the shares prior to the issuance of the IPO. As a result of this, the Grey Market evolved for the IPO.  What’s the Kostak Rate? The amount an investor pays for an IPO application before the IPO listing to the seller is known as the Kostak rate. Kostak rates react to the demand for an IPO just like the Grey market. An investor can buy or sell their full IPO application on Kostak rates outside the market to fix profits. When the Kostak rate is applied to the IPO applications, even if the investor has not received the IPO allotment, the buyer must pay the Kostak rates for the IPO.  Theoretical examples like Kostak rates and public issue gives the likelihood of allocation. It also allows earning good profits. What’s Subject to Sauda Rate? When an investor purchases a share for the firm in the IPO listing, the amount decided in their application is called subject to the sauda rate. In simple terms, the rate at which an investor gets his IPO allotment for his application is Subject to Sauda rate.  If the investor doesn’t get an allotment, the sauda is canceled.  Like Kostak rates, investors cannot fix profits at the sauda rate. Subject to sauda is like a deal. The deal is valid if the investor gets an allotment during the listing. Say, for example, two investors have agreed on a deal to buy or sell shares after the listing at Kostak rates.  If the allotments are given, the buyer is liable to pay the extra amount over the Sauda rate to the seller.  If the buyer does not get any allotment, he is not liable to pay any extra amount. It is also said that the Subject to Sauda rate is directly associated with the Grey market during the IPO listing.  For example, a company called ABC is coming up with an IPO at Rs 100 per share. IPO Shares are expected to list in 20 days. A seller can sell their Retail IPO allocation of Rs 2 lakhs at Rs 5000 on ‘Subject to Sauda.’ If the seller obtains an allotment, they will get Rs 5000. If the seller doesn’t acquire an allotment, they won’t get anything. How to Calculate IPO GMP? Let’s say the IPO of a company is fixed at ₹ 200. If its IPO Grey Market Premium is operating at ₹ 65, then that company will be listed at ₹ 265. This is done so that the investors get up to IPO GMP 65% of the profit on the day of listing.  If the investor trades his shares on a listing day, he earns a profit, and if he keeps it for a long time, it confirms to be beneficial in the long run. Latest IPO GMP rates IPO NAME IPO GMP IPO PRICE LISTING GAIN RAINBOW Medicare IPO ₹10 ₹516-₹542 ₹400 Adani Wilmar IPO ₹24 ₹218-₹230 ₹500 Past GMP rates (Closed 2021) IPO NAME PRICE BAND LISTING GAIN Data Patterns ₹320-₹330 ₹4000 Medplus Health IPO GMP ₹150-₹160 ₹2500 Metro Brands Metro Brands ₹0 MapMyIndia IPO GMP ₹690-₹700 ₹900 Shriram Properties IPO GMP Discount ₹0 Past GMP rates (Closed 2021) The grey market transactions are unofficial. No authorities are part of this. It relies on the trust between both parties. Subscribe only by viewing the Fundamentals of the companies. Trading or investing in Grey Market Premium is risky, and you must take some safeguards. The IPO grey market premium of any company is specified by its Demand. Buying and Selling in the Grey Market As the grey market is unofficial, the parties involved need to trust each other while making deals. No authorities are involved in this market, and the lawsuit would be difficult to make if something goes wrong.  Investors make their risks while trading in this market. The fluctuations in this market are high, which again may seem like a risk factor for investors.  IPO GMP is mostly for gaining profits that come with huge risks. Grey Market – Legal or Illegal? The Grey market may not be termed an illegal market. But as no officials or businesses are involved here, and all transactions happen between brokers, buyers, and sellers, the market has huge risks.  Trading in primary markets after the IPO listing is one of the safest options.  It is not about whether the market is legal or illegal as it doesn’t come under government or anyone’s possession. Rather, it can be said that this market is mainly for generating profits, which comes with its