Restarting useless stock knowledge

Hello everyone,

I have not posted anything on this for a long time. Since the last post, I have moved to US and will be posting related to stocks in the US.

Recently started investing in the US market and this year has been an exceptional year with stocks going up and down big time. I will start posting some things to this blog now. 

Manufacturer Rebates....

With so may manufacturers offering rebates for their products, I sometimes wonder about the logic behind these rebates. The reasons, manufacturers offer rebates in my opinion are

1. Cheap Credit -

Essentially, Rebates are a form to borrow from the Customer rather than the Financial Markets. A lot of times it is cheaper to borrow from the customer than the Financial markets. Consider the example below

When a Manufacturer offers say $100 mail in rebate over a $800 laptop, you still pay $800 and the associated tax to the seller. These mail in rebate checks can take up to three months for processing. The Seller in this case is borrowing $100 per laptop sold at nearly zero percent interest rate for 90 days. Nearly zero percent, because Rebates have their own management costs associated with them.

2. Tax Avoidance

I am not sure about this, but Manufacturers are not supposed to pay tax over the interest accrued over the Money that they need to send back by rebates. So, if it takes 90 days to process a rebate, Manufacturer can earn tax free interest on the rebate amount.

3. Attract more customers and get rid of Inventory

By offering rebates over products, Manufacturers are able to attract more customers couple with the fact that this gives them access to cheap credit as explained in the point above.

4. Not everyone redeems their Rebates

I was not able to get some statistics on what percentage of rebates are never redeemed. Some people forget to turn in their rebates, some rebates will get lost in the mail, all this is free money for the Seller.

Layoffs vs Pay Cuts

What things would you take into consideration, if you need to decide between having a pay cut across the board or laying off people. I came across this article which gives good explanation about both options and how his company was able to achieve its goals with pay cuts.

http://leaderchat.org/2009/01/30/layoffs-or-pay-cuts-how-would-you-decide/

In the above article, the author mentions that everyone took a pay cut except for people who made less than $50,000 and they were able to bounce back. But if you are asked to take a pay cut as an employee and if you have better paying jobs outside, are you going to take pay cut or move on. Whether you choose pay cuts or lay offs depend on how you are doing in the organization, suggests Manish Sabharwal,chairman of Bangalore-based staffing solutions firm TeamLease. If you are competent, you prefer lay offs, if you are not, you prefer pay cuts.He also cautions that it is dangerous to think that everyone thinks the same way.But, If this is true and the best decide to move on, its going to be a big loss to the organization.

You might argue that in this kind of economy, those better opportunities are not going to exist and pay cuts may be the way to go. But, what happens when the economy starts to bounce back, your best performers would the first ones to go.

Finally, I agree with the conclusion presented by the linked article above:

In the end it seems like the deciding factor may be the type of culture present in your organization. Some organizational cultures are more of the “we’re in this together” while others have developed more of a “Sorry, but business is business” type of attitude.

P.S: There is a poll in this blog about your preferences about layoffs or pay cuts. Do Vote.

Effects of the Financial Crisis on the IT industry

The credit crunch which has now turned in to a full blown recession in the United States is going to have a serious consequences on the Indian IT industry. You can already see some of the changes through the industry

1. Staggered joining dates for freshers. Freshers who normally join IT companies in the July - September period after graduation have had their joining dates pushed back to Feb and March, which might get pushed further back.

2. Reduction of the variable components in Salaries. Most companies have a variable component in the Employee salaries that is dependent on Company performance and on individual targets for higher level employees. With a reduction in growth of companies, few would be able to achieve growth targets hence Employees are going to take away a small pay check over the next two-three quarters.

3. Reduction in bench strength. With very few new projects in the offering, Companies have started to reduce the bench strength.

4. Reduction in Employee Perks like vacation air tickets being provided for onsite employees have been canceled now.

What effects have you seen in your company ??

Collateralized Debt Obligation (CDO)

Today I was watching the questioning of Credit rating agency chiefs by the Congress members. They had to justify on why the rating calls could not pick up bad instruments much before the system collapsed. All I heard was diplomatic answers to the questions from the members of the congress. None of the answers would conclusively result in solutions to avoid such events in future.

While hearing all of this, there is one more instrument, which is Collateralized debt obligation (CDO) which could result in the ripple effect from the failure of a Credit Default Swap (CDS). A CDO is an instrument where debt of firms is clubbed together. What makes this instrument sweeter is the was in which they are packaged; the debt of 100 or more companies is clubbed together such that the companies with a higher default risk are compensated by companies with lower ones. This results in higher credit rating eventually. Wachovia tells Bloomberg that $254 billion worth of CDOs have defaulted so far. Today in the questioning the President of the credit rating agency division in Standard & Poor’s, who joined the firm in September last year told the Congress people that on an average the model of rating of instruments was revised as many as 2.5 times in a year. One could very well infer here that the experts could have caught the bad debt and the resulting systemic collapse well before, as the model would have evolved with respect to changing (deteriorating) economic conditions. Even though these instruments can be very complex in nature, hence difficult to rate; definitely it should not be used as an excuse by people who make a living off rating these instruments. Now a buyer of these instruments has no direct exposure to the underlying debt / loan instruments but relies solely on the ratings assigned to the CDO as a whole and would fail to correctly access his risk exposure.

The banks in Iceland too have been reported to have heavy exposure to the CDOs and it’s sad to see reports such as an entire country going bankrupt. As reported in Bloomberg, Barclays Capital estimates that 70 percent of synthetic CDOs sold swaps on Lehman. So it is not hard to understand what kind of mess Lehman was in. As selling the CDO is relatively simpler due to nature in which they are packaged, the seller normally an investment bank would make a commission. On the other hand it allows firms to pool their debt and hide away their losses. What makes this instrument more prone to failure is the mark-to-market accounting basis. The domino effect would come now as the CDOs have part exposure to fixed income products in the form of a Credit Default Swap (CDS). The CDS mess has already become like a folklore and will be used as case studies in times to come.

The Nerd is Cool

I feel like I am sitting in the cockpit of a F-16, the jet engines roaring, the adrenaline gushing and the crazy G-Forces, only thing it seems like a tailspin. What a time to be in the US; you get a box seat view of the events, the feeling is of your team losing. Let’s be practical, everyone is in a fix so how do we rectify it?

For starters there has already been a lot of financial slicing and dicing the financial mess on the Wall St and the Main St and I am no expert on taking full stock of the situation. As I write this there is a $675 billion bailout happening in Germany. Repeatedly, Warren Buffet has reinstated his stock buying ideology – When there greed it’s time to panic and when there is panic it’s time to be greedy and buy stocks. But I am sure not many people are willing to tread the waters in times like this. But let’s not focus on that now.

Had you been conservative and thoughtful of the long term, would you have been in panic. It pays to follow investment strategies of successful investors in the long term and read great books. Like one of the most amusing story I read about – When Warren Buffet’s father took him to meet the CEO of Goldman Sachs when he was 10 years old and then the Sage of Omaha himself coming out for the rescue of Goldman Sachs with $5 billion. Fascinating. What should we all learn from this? Patience, that’s what matters. Your thoughts and actions on your investing habits will pay off rich dividends when you will make value buys with a really long term horizon. Buffet says – when we buy a stock, think of that as if you were buying a business. Such that your whole life depends upon it. Not only you will tend to make a better informed decision but thoroughly research it before buying it.

Here are My 2 dimes in these rough times.

1. Spend conservatively. Don’t spend on things that won’t put you in a more comfortable position than you are already in.
2. Analyze more. See how many assets you have. By assets I mean what is earning you money.
3. Prioritize what matters. Think of the final goal and not just the journey.
4. Learn about your risk appetite and strike a balance between that and being risk averse.

ICICI Money Multiplier

Create Auto Linked Fixed deposits
If you have more than  Rs 15,000  in your savings account in ICICI, you should better make use of the Money Multiplier facility in ICICI. ICICI allows you to invest the extra money in Fixed Deposits that can be closed prematurely. In a Resident Savings Account, ICICI pays you a interest rate of 3.5 percent, with a fixed deposit of one year you can make as much as 9- 10 percent. Interest rates for different durations can be found at the following link.

http://www.icicibank.com/pfsuser/interestrates/interestrates.htm

What happens if you break the Deposits prematurely
As soon as you balance goes below 10,000 , your Fixed deposits are broken in reverse order of their creation, the one that was created last is broken first. You can easily earn more than a couple of percent more in interest rates. ICICI official guidelines for the money multiplier features can be found at the following link.

http://www.icicibank.com/pfsuser/icicibank/depositproducts/quantumoptima/features.htm

One bad thing about this is it says you cannot avail this facility if your account is linked to a ICICIDirect demat account. I am trying to figure out a way to use this along with your ICICIDirect account. Will update the post once I find out.

Technorati Tags: ICICI

Is your Bank safe ??

With three banks going down and are taken over by the FDIC (Federal Deposit Insurance Corporation) in the last month, check whether investments in your bank are safe.

What is the FDIC

FDIC or the Federal Deposit Insurance Corporation is a US government entity that insures deposits in saving, checking and retirement accounts in member banks. Individual accounts are insured up to an amount of $100,000. There are different rules for different kinds of accounts. Some Retiree accounts may be insured up to $250,000 under the Federal Deposit Insurance Reform act of 2005. More information can be found at the official FDIC site.

Find out whether your savings are safe

Find the list of Banks insured by the FDIC at the following location.

http://www4.fdic.gov/IDASP/main_bankfind.asp

Also, if you are one of those whose Bank is already failed, you can check if you deposits are safe or not at the following location.

http://www4.fdic.gov/dip/index.asp

Precautionary steps to take

1. Do not have all your money in one Bank account, if you have say $100,000 in one account and another $100,000 in another account of another Bank, and both Banks are insured by FDIC, then you don't lose any money.

2.

Technorati Tags: US,FDIC,Failed Banks

Look at the quarterly report published by FDIC on Banks. Member Banks insured by FDIC have to adhere to regulations set by the FDIC, still they can fail. FDIC publishes a quarterly report of member banks depending on various parameters to look at Banks and rates them accordingly.

Circuit Breakers

Circuit breakers on the stock market work in a similar way to how an electrical fuse halts the working of the devices once there is too much load. It helps in stopping the system for a small period of time rather than breaking the system.

Technorati Tags: Indian Stock Markets,BSE NSE Circuits

Index Circuits

In case the index(BSE or NSE) rises or falls by more than ten percent, the circuit breaker kicks in and halts trading. Depending on the change in indexes, different period of break times are put in. Complete information related to the how much time the trading is halted can be found here. In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level and market shall continue trading. In case if the market hits 10% before 1 p.m. then as explained there would be a one hour halt in trading and after resumption of trade in case if the market hits 15% in either index, then there shall be a two-hour halt. If the 15% trigger is reached on or after 1:00p.m. but before 2:00 p.m., there shall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt for the remaining part of the day. If the market fails to resume at 10% then the next limit is placed at 15% and finally at 20%. In case if market fails to resume from 15% and if it hits 20% irrespective of the time, the trading shall be halt for remaining part of the day.

Circuits on Individual stocks

Circuits are also present on individual stocks. The stocks present in the BSE 30 and the Nifty 50 do not have any circuits built on them. These are known as the Non Index scripts. Incase there is huge percentage swings in these stocks, the whole market circuits can be triggered. For the other stocks on the nifty, circuits are built at 2,5 or 10 percent. This limit is determined by the impact cost and other things related to the script. These values are calculated monthly and for  a new stock ,it is placed in a group which has most companies in the same market cap.

How ya doin’

To start with, apologies for my prolonged absence here. I have had the opportunity in the last couple of months to see the financial and energy crisis unfold from the Big Apple. Here in the US, people are very polite and friendly to each other – asking How ya doin? To anyone who catches your eye. Usually the answer happens to be - I am fine.

There have been 2 long weekends in the US past me now, Memorial Day and the other American Independence Day. The gas prices here have risen by more than 30% since I landed. So there were fewer cars planning long trips on these weekends. Oil prices have already started their round of Beijing Olympics, smashing one record after the other. The prices at the supermarket too have been rising, with a woman balking at how much a bunch of asparagus costs. Since start of this year, around 500,000 people have lost their jobs in the US. Some of the companies are rethinking their strategies of manufacturing in China, as the cost of shipping goods to US offsets the cost advantage. It’s pretty much the downward slide which has been ongoing.

So what’s the real deal? People here are taking a more pragmatic approach towards things instead of believing in blind pessimism. They are just avoiding what hurts the most. Like the gas prices. Instead they just choose to stay back and go for dinners with their families at closer locations. It helps to look around for pockets of opportunity, like today Warren Buffet is financing a deal for Dow Chemicals, even though he has long concluded that US is in recession. Job data today, shows there has been a biggest drop in claims in over 3 years. The economic stimulus package seems to have worked for the retailers. So there are indeed reasons for hope. The Presidential elections are around the corner and people are hoping that things will turn around for the good.

So where are we headed. As for the oil scenario, which is the cause for bad sentiment all around, will only get worse with speculation with winter approaching in the US. The financial crisis seems to worsen day by day – the latest being government bailouts feared for Fannie Mae and Freddie Mac. It’s a period of incertitude and hoping for the best.

So the real answer to the question above is – Not so good.

PS: Recession or otherwise some people can still afford to pay $2.1 million for a lunch with Warren Buffet at Smith & Wollensky.

Ten things India needs to do...

Following are the ten things listed in a Goldman Sachs economics paper that India needs to do to achieve its potential. The complete paper can be found here.

www.livemint.com/2008/06/16235741/CB9BCB3C-5825-4AD6-9604-042202BBC985ArtVPF.pdf

1. Improve Governance
2. Raise Educational Achievement
3. Increase quality and quantity of universities
4. Control Inflation
5. Introduce a credible fiscal policy
6. Liberalise financial markets
7. Increase Trade with neighbours
8. Increase Agricultural Productivity
9. Improve Infrastructure
10. Improve Environmental Quality

Goldman Sachs book on the emerging economies of BRIC (Brazil, Russia, India and China) " BRICs and Beyond" can be found here.

Commodities

Who invest in Commodities and why?

There are two kinds of investors who invest in commodities. One who use it as a hedging tool to lock future prices and the second who use it to make profits by speculating on the future price movements. The first set of investors are usually investors who want to buy these commodities at a future price but are unsure of the future prices. e.g. Farmers would want to sell their grains at a particular future date. However, they are not sure what the future prices would be. Hence they would go Short in a particular futures contract in order to lock future prices. The same is applicable to any dealer who would be buying Gold on a future date and would want to lock the buying price today.The later set of investors trade on commodity futures and gain/lose depending on the future prices. They trade on these futures not with an intent of getting the actual commodity.

Why do Portfolio Managers like Commodities? 

Commodity futures are the only investment tools providing a negative correlation to all other investment asset classes (stock, bonds, etc). This is because commodities tend to gain (during depressions) when all other asset classes loose value. Due to this -ve correlation commodities help reduce the overall risk of the portfolio hence making it much more attractive to investors.

When to invest in Commodities?

People usually tend to invest in commodities when there are economic downturns. In times of economic depressions, the stock market usually tends to go down. Due to the -ve correlation that commodities have with the stock markets people invest in commodities as a hedging tool.

Technorati Tags: Commodities

Crude oil prices to fall ....

US Senate approves a bill to stop stockpiling the Oil

The US Senate voted to stop stockpiling of oil, US buys 70,000 barrels of oil everyday to create a strategic reserve that can be used in case of emergencies. Even though 70000 is a small number compared to the 21 million barrels of oil that US consumes everyday, it will still be step forward in reducing the Oil Futures.The House also passed a bill to stop stockpiling while the price of oil is more than $75 which probably isn't going to be sometime soon.

Dollar starts to hit back

The US dollar after hitting a low against all currencies has started to fight back(1 dollar = 41.85 Rupees, let it hit 45 and I am going to transfer all my money back home :) ). Part of this is because there seems to be increasing stability in the Financial market. Federal Reserve also seems to be done with the rate cuts and that should help the dollar.

International Energy Agency reports drop in Consumption

Higher gas prices have led to a drop in consumption of gas in developed countries. The CPI (Consumer Price Index) suggested that gas prices rose only 1.2 percent after adjusting for seasonal changes in gas prices (Gas prices increase as summer marks the driving season in US).

All these factors should lead to a drop in the Crude oil futures from its daily record breaking prices.

Technorati Tags: Oil,Futures

Google wins in the Yahoo - Microsoft battle ...

Microsoft over the weekend withdrew its offer to buy Yahoo. Yahoo reportedly wanted $37 per share and Microsoft was ready to offer $33 per share. In the end both sides did not budge and the deal fell apart.

Microsoft was given credit by analysts for not paying too much for Yahoo. Yahoo board on the other hand is sure to face shareholder lawsuits for not accepting Microsoft's offer. Yahoo stocks have not fallen to the pre deal price because a lot of analysts feel that Microsoft will come back and make another offer for the Internet giant.

Microsoft needs Yahoo to make its Internet division profitable. Windows live search was supposed to do that, but Microsoft's share in the search market increased for a while Microsoft offered goodies to use its search, but has since been losing ground to Google.

With both Yahoo and Microsoft distracted for this long, this just plays into the hands of Google, which has steadily gained in the Internet Search market and holds a strong position in the $25 billion online advertising market. After the Yahoo-Microsoft deal fell apart, Yahoo shares stumbled more than 15 percent, Microsoft and Google both surged around 5 percent. With Yahoo agreeing to allow Google to display Ads on its search results, the going simply gets better for Google.

How is an 'Asset Bubble' created?

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was $2 as there were only two pieces of $1 coins circulating round. There were 3 citizens living on this island country. A owned the land. B and C each owned $1. Now the following series of events happen: -

1. B decided to purchase the land from A for $1 . A and C now each own $1 while B owned a piece of land that is worth $1. The net asset of the country = $3 
2. C thought that since there is only one piece of land in the country and land is produce-able asset, its value must definitely go up. So, he borrowed $1 from A and together with his own $1, he bought the land from B for $2.  
       A has a loan to C of $1, so his net asset is $1.
       B sold his land and got $2, so his net asset is $2.
       C owned the piece of land worth $2 but with his $1 debt to A, his net asset is $1.
       The net asset of the country = $4.
3. A saw that the land he once owned has risen in value. He regretted selling it. Luckily, he has a $1 loan to C. He then borrowed $2 from B and acquired the land back from C for $3. The payment is by $2 cash (which he borrowed) and cancellation of the $1 loan to C.
   As a result,
       A now owned a piece of land that is worth $3. But since he owed B $2, his net asset is $1.
       B loaned $2 to A. So his net asset is $2.
       C now has the 2 coins. His net asset is also $2.
       The net asset of the country = $5. A bubble is building up.
4. B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for $4. The payment is by borrowing $2 from C and cancellation of his $2 loan to A.
   As a result,
       A has got his debt cleared and he got the 2 coins. His net asset is $2.
       B owned a piece of land that is worth $4 but since he has a debt of $2 with C, his net Asset is $2. 
       C loaned $2 to B, so his net asset is $2.
       The net asset of the country = $6; even though the country has only one piece of land and $2 in circulation.
5. Everybody has made money and everybody felt happy and prosperous.
6. One day an a thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan? There is only $2 in circulation, I think after all the land that B owns is worth at most $1 only." A also thought the same.
7. Suddenly, nobody wanted to buy land anymore.
   In the end,
     - A owns the $2 coins, his net asset is $2. 
     - B owed C $2 and the land he owned which he thought worth $4 is now $1. His net asset became -ve $1. 
     - C has a loan of $2 to B. But it is a bad debt. Although his net asset is still $2. 
     - The net asset of the country = $3 again.
8. Who has stolen the $3 from the country? Of course, before the bubble burst B thought his land worth $4 and the net asset of the country was $6 in paper. However, now his net asset is $2.  
   The net asset of the country = $3 again.
9. B had no choice but to declare bankruptcy. C has to relinquish his $2 bad debt to B but in return he acquired the land which is worth $1 now. 

At the end of all  this: -

• A owns the 2 coins, his net asset is $2.
• B is bankrupt; his net asset is 0 dollar. (B lost everything )
• C got no choice but end up with a land worth only $1 (C lost one dollar)
• The net asset of the country = $3.
  

*****************End of the Story***************** 
The net outcome of the above bubble is a redistribution of wealth. A is the winner, B is the loser, C is lucky that he was spared.

Few points worth noting from the above story: - 

1. When a bubble is building up, the debt of individual in a country to one another is also building up.  
2. This story of the island is a close system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
3. An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below $1.
4. When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the loser. The asset could shrink or in worst case, they go bankrupt.
5. If there is another citizen D either holding a dollar or another piece of land but refrain to take part in the game, at the end of the day, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
6. When the bubble was in the growing phase, everybody made money.
7. If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A) and take part in the game. But you must know when you should change everything back to cash.
8. Instead of land, the above applies to stocks as well.
9. The actual worth of land or stocks depends on psychology to a great extent. 

 

The above narration is an excerpt from a public web site. I don't recollect the web site name and hence cannot cite the source for reference. The excerpt has been reproduced here with slight modifications for better clarity.

Prisoner's Dilemma

 

Consider this scenario: -

Two Prisoners, A and B, are suspects for a crime and are put behind bars. The cops have no evidences against either of them. So the cops offer the following to each of the prisoners. "If you deny your crime and the other accepts, you get a term of 10 years and the other goes free. If you both accept, each one gets 5 years and if you both deny you both get 6 months each." The offer is summarized below

	Prisoner B Rejects his crime	Prisoner B Accepts his crime
Prisoner A Rejects his crime	A gets 6 months B gets 6 months	A gets 10 years B goes free
Prisoner A Accepts his crime	A goes free B gets 10 years	A gets 5 years B gets 5 years

Given the above scenario, how do you expect each of the Prisoner's to react considering the fact that neither of the prisoners knows what the other is going to do.

Consider Prisoner A. What would be the best course of action for Prisoner A given the actions of Prisoner B.

1. If B rejects his crime, the best course of action for A would be to accept his crime.
2. If B accepts his crime, the best course of action for A would be to accept his crime.

Consider Prisoner B. What would be the best course of action for Prisoner B given the actions of Prisoner A.

1. If A rejects his crime, the best course of action for B would be to accept his crime.
2. If A accepts his crime, the best course of action for B would be to accept his crime.

Since neither A nor B are aware of the actions of the other, they both end up accepting their Crimes thereby getting terms of 5 years each.

 

The above scenario is what is referred to as the Prisoner's Dilemma and is a classic example of Game Theory. It explains why, even though by co-operating each player can benefit more, each player tries to maximize his/her payoff at the cost of the other player's payoff.

One application of the above theory is to explain how firms in an Oligopoly work together. Oligopoly refers to a market where there are a few firms competing with each other. If all firms in an oligopoly collude together, they can artificially jack up the prices and earn extra ordinary profits. However, each firm has an incentive to reduce prices in order to increase sales so that they can increase their profits even more as compared to their competitors. Because of this suspicion that the other firms might reduce prices, every firm reduces it prices and the collusion fails. Because of this none of the firms in an Oligopoly earn extraordinary profits.

However, there are Oligopolies that collude and work successfully by raising prices artificially. One example which I can cite is 'OPEC'.

 

LiveJournal Tags: Prisoner's Dilemma,Game Theory,Oligopoly

Ever heard the terminology top line and bottom line?

Ever heard of the term top line and bottom line being used by financial analysts? So what do these terms refer to and why are they called so.

Starting with top line; it refers to the total sales or revenue generated by a firm.

For e.g. if a firm sells 100 cars/fiscal @ Rs.1,00,000 (oh yes, its the nano!!) then the top line would be Rs.1,00,00,000. (The Math here has been simplified to drive home the point!! ).

Now, say the Net Income (profit) earned on every car is Rs.20,000, then the bottom line would be Rs.20,00,000. (Again, we exclude the effects of Depreciation, Taxes, SG&A and other accounting stuff to keep the math simple).

So why are these terms referred to as they are?

Try reading an income statement of any firm. If you see at the top you would find the Sales/Revenues being shown. Hence, in general usage, Sales/Revenues are referred to as top line because of their close proximity to the top part of an income sheet. If you keep coming down the income statement you will see that there are deductions( depreciation, taxes, interest expenses, etc ) and additions (gain from sale of securities, etc) being made to the top line. After all adjustments are made to the top line, the firm would report its Net Income ( or Profit ) at the bottom of the income statement and hence the term bottom line because of it's close proximity to the bottom of the income statement.

 

Also commonly referred as

Top line : - Revenue, Sales

Bottom line: - after tax profit, bottom line, net, net profit, profit

LiveJournal Tags: Income Statements,Top Line,Bottom Line

TCS disappoints ....

TCS dropped nearly eleven percent on Tuesday, the highest loss in terms of percentage since it began trading. Disappointing fourth quarter results lead to this.

Financial results can be found here. The profits dropped six percent on a quarter on quarter basis. Profits showed a small increase of four percent on a yearly basis.

TCS earns more than fifty percent of its revenue from North American clients, difficult conditions and an appreciating rupee puts a strain on the margins. TCS still earns more than 44 percent of its revenue from services provided to the Banking and the Financial Industry.

TCS lead a crash of the technology stocks on the BSE sensex with the BSE IT index losing 4 percent; the broader markets posted a gain of a mere 44 points. Infy dropped more than 2.5 percent, HCL systems lost 4.5 percent, Wipro lost more than 4 percent, Tech Mahindra lost more than 4 percent. I own at least a few stocks of each of these companies. After the Infy results, my portfolio suddenly started to look a lot better after the IT stocks started to pick up. Now they have again gone southwards.

MasterCard inControl and Healthcare Industry

Technorati Tags: Healthcare,US

Mastercard is planning to introduce a corporate card through which employers can set a limit on expenditures as well set up locations where the card can be used (Check the Businessweek story here ).

This incontrol Card represents a great opportunity for Healthcare Insurance companies that provide it's members with Cards to be used at Pharmacies(Humana provides a card for its Spending Account Members). In the current scenario, if the member misuses the card and uses to refuel his car or something other than what he qualifies. The Insurance company needs to reject this swipe or adjust in future claims for the member.

With the Mastercard inControl, the Insurance provider can program where the card can be used and for what it can used for. This can result in significant savings by saving all the effort that is required once a bad purchase has been made.

Spotting the next Orchid chemicals ...

Orchid chemicals is stock that had fallen from its peak of 300 to a low of 110 about a fortnight ago. But the stock has seen amazing recovery and gained something like 23 percent  on Monday and has reached a price of 223. If you had invested in this stock 15 days earlier you could have made a profit of hundred percent.

Orchid chemicals lost a whopping 44 percent of its value on the day of when Bear Sterns was sold to JP Morgan for $2 a share. Bear Sterns sold nearly all its assets in the Indian market and sold its stake in Orchid chemicals completely and this lead to margins calls for two firms Indiabulls and Religare securities. A nice article here on what happened during that day.

The company is still based on solid fundamentals and had reported  91%increase in the net profit in Q3 December 2007 over Q3 December 2006. It reported a sales growth of nearly 40% in the same period. Stakes sold in the market by Bear Sterns have been picked up by other Investment banks like Credit Suisse and with Ranbaxy picking up a 9.4 percent stake in the company, Its price has sky rocketed with a 23 percent increase yesterday. And as I am writing this down,  its already up another ten percent in today's trading.

Its much easier to write about such recoveries once they have happened, the trick lies in spotting such stocks that can have a V shaped recovery. So what do you think would be the next Orchid chemicals ???

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