Thursday, January 27, 2011

13th Finance Commission Report

13th Finance Commission Report

Finance Commission is established for the purpose of allocation of certain resources of revenue between the Union and the State Governments. The Finance Commission is established under Article 280 of the Constitution of India by the President. The Operational duration for the finance commission is five years. . So far 13 Finance Commissions have been appointed.

The 1st finance Commission is established in the year 1951 headed by K C Neogy for the period 1952-57.

The 13th Finance Commission is established in the year 2007 headed by Vijay kelkar for the period 2010-15.

The following are some of the key recommendations of the FC-XIII:

· The share of States in net proceeds of shareable Central taxes shall be 32 per cent every year for the period of the award.

· Revenue accruing to a State is to be protected to the levels that would have accrued to it had service tax been a part of the shareable Central taxes, if the 88th Amendment to Constitution is notified and followed up by a legislations enabling States to levy service tax.

· Centre is to review the levy of cesses and surcharges with a view to reducing their share in its gross tax revenue.

· The indicative ceiling on overall transfers to States on revenue account may be set at 39.5 per cent of gross revenue receipts of the Centre.

· The Medium Term Fiscal Plan (MTFP) should be a statement of commitment rather than intent.

· New disclosures have been specified for the Budget/MTFP including on tax expenditure, public-private partnership liabilities and the details of variables underlying receipts and expenditure projections.

· The Fiscal Responsibility and Budget Management (FRBM) Act needs to specify the nature of shocks that would require relaxation of the targets there under.

· States are expected to be able to get back to their fiscal correction path by 2011-12 and amend their FRBM Acts to the effect.

· State Governments are to be eligible for the general performance and special area performance grants only if they comply with the prescribed stipulation in terms of grants to local bodies.

· The National Calamity Contingency Fund (NCCF) should be merged with the National Disaster Response Fund (NDRF) and the Calamity Relief Fund (CRF) with the State Disaster Response Funds (SDRFs) of the respective States.

· A total non-Plan revenue grant of Rs 51,800 crore is recommended over the award period for eight States. A performance grant of Rs 1500 crore is recommended for three special category States that have graduated from a non-Plan revenue deficit situation.

· An amount of Rs 19,930 crore has been recommended as grant for maintenance of roads and bridges for four years (2011-12 to 2014-15).

· An amount of Rs 24,068 crore has been recommended as grant for elementary education.

· An amount of Rs 27,945 crore has been recommended for State-specific needs.

· Amounts of Rs 5,000 crore each as forest, renewable energy and water sector-management grants have been recommended.

· A total sum of Rs 3,18,581 crore has been recommended for the award period as grants-in-aid to States.

Wednesday, April 14, 2010

How to Reduce Costs - financial analysis

Increasing profits through cost reduction must be based on the concept of an organized, planned program. Unless adequate records are maintained through a proper accounting system, there can be no basis for ascertaining and analyzing costs.

Cost reduction is not simply attempting to slash any and all expenses unmethodically. The owner-manager must understand the nature of expenses and how expenses inter-relate with sales, inventories, cost of goods sold, gross profits, and net profits.

Cost reduction does not mean only the reduction of specific expenses. You can achieve greater profits through more efficient use of the expense dollar. Some of the ways you do this are by increasing the average sale per customer, by effectively using display space and thereby increasing sales volume per square foot, by getting a larger return for your advertising and sales promotion dollar, and by improving your internal methods and procedures.

Profit is in danger when good merchandising and cost control do not go hand in hand. A big sales volume does not necessarily mean a big profit, as one retailer, Carl Jones, learned.

Jones's pride was stocking stylish and well assorted lines of merchandise. Each year, sales volume increased. This increase was attributed to good merchandise which Jones felt took care of the steady rise in expenses.

But Mr. Jones began to have doubts when he found it necessary to get bank loans more often than had been his practice. When he discussed the problem with his banker, Jones was advised to check expenses. As the banker said, "A large and increasing sales volume often creates the appearance of prosperity while behind-the-scene expenses are eating up the profit."

Paying The Right Price
Your goal should be to pay the right price for prosperity. Determining that price for your operation goes beyond knowing what your expenses are. Reducing expenses to increase profit requires you to obtain the most efficient use of the expense dollar.

Look, for example, at the payroll expense. Salesclerks are paid to sell goods, and their productivity is the key to reducing the payroll cost.

If you train a salesclerk to make multiple sales at higher unit prices, you increase productivity and your profits without adding dollars to your payroll expenses. Or, if four salesclerks can be trained to sell the amount previously sold by seven, the payroll can be cut by three persons.

An understanding of the worth of each expense item comes from experience and an analysis of records. Adequate records tell what has happened. Their analysis provide facts which can help you set realistic goals, you are paying the right price for your store's prosperity.

Analyze Your Expenses
Sometimes you cannot cut an increase item. But you can get more from it and thus increase your profits. In analyzing your expenses, you should use percentages rather than actual dollar amounts.

For example, if you increase sales and keep the dollar amount of an expense the same, you have decreased that expense as a percentage of sales. When you decrease your cost percentage, you increase your percentage of profit.

On the other hand, if your sales volume remains the same, you can increase the percentage of profit by reducing a specific item of expense. Your goal, of course, is to do both: to decrease specific expenses and increase their productive worth at the same time.

Before you can determine whether cutting expenses will increase profits, you need information about your operation. This information can be obtained only if you have an adequate recordkeeping system. Such records will provide the figures to prepare a profit and loss statement (preferably monthly for most retail businesses), a budget, break-even calculations, and evaluations of your operating ratios compared with those of similar types of business.

A useful method for making expense comparisons is break-even analysis. Break-even is the point at which gross profit equals expenses. In a business year, it is the time at which your sales volume has become sufficient to enable your over-all operation to start showing a profit.

Once your sales volume reached the break-even point, your fixed expenses are covered. Beyond the break-even point, every dollar of sales should earn you an equivalent additional profit percentage.

It is important to remember that once sales pass the break-even point, the fixed expenses percentage goes down as the sales volume goes up. Also the operating profit percentage increases at the same rate as the percentage rate for fixed expenses decreases - provided, of course, that variable expenses are kept in line.

Locating Reducible Expenses
Your profit and loss (or income) statement provides a summary of expense information and is the focal point in locating expenses that can be cut. Therefore, the information should be as current as possible. As a report of what has already been spent, a P and L statement alerts you to expense items that bear watching in the present business period. If you get a P and L statement only at the end of the year, you should consider having one prepared more often. At the end of each quarter might be often enough for some firms. Ideally, you can get the most recent information from a monthly P and L.

Regardless of the frequency, for the most information two P and L statements should be prepared. One statement should report the sales, expenses, profits and/or loss of your operations cumulatively for the current business year to date. The other should report on the same items for the last complete month or quarter. Each of the statements should also carry the following information:

  1. this year's figures and each item as a percentage of sales.
  2. last year's figures and the percentages.
  3. the difference between last year and this year - over or under.
  4. budgeted figures and the respective percentages.
  5. the difference between this year and the budgeted figures - over and under.
  6. average percentages for your line of business (industry operating ratio) when available, and
  7. the difference between your annual percentages and the industry ratios - under or over.

This information allows you to locate expense variation in three ways: (1) by comparing this year to last year, (2) by comparing expenses to your own budgeted figures, and (3) by comparing your percentages to the operating ratios for your line of business. The important basis for comparison is the percentage figure. It represents a common denominator for all three methods. When you have indicated the percentage variations, you should then study the dollar amounts to determine what line of operative action is needed.

Because your cost cutting will come largely form variable expenses, you should make sure that they are flagged on your P and L statements. Variable expenses are those which fluctuate with the increase or decrease of sales volume. Some of them are: advertising, delivery, wrapping supplies, sales salaries, commissions, and payroll taxes. Fixed expenses are those which stay the same regardless of sales volume. Among them are: your salary, salaries for permanent non-selling employees (for example, the bookkeeper), depreciation, rent, and utilities.

Taking Action

When you have located a problem expense area, the next step obviously is to reduce that cost so as to increase your profit. A key to the effectiveness of your cost-cutting action is the worth of the various expenditures. As long as you know the worth of your expenditures, you can profit by making small improvements in expenses. Keep an open eye and an open mind. It is better to do a spot analysis once a month than to wait several months and then do a detailed study. Take action as soon as possible. You can refine your cost-cutting action as you go along.


A company which rents out industrial equipment decides to expand its facility, so it can offer more equipment. Of course, building is a big capital expense, and the company has to go loan hunting. Or maybe not.

What if the company could take an asset it's not using to full potential... such as equipment which only goes out on weekends, and turn it into that warehouse... or part of that warehouse anyway. Hocus pocus?

It's called barter.

When you join a barter network, you exchange goods or services for barter dollars from members of the network. Then you use those to purchase from other members. The accounting's simple, and it's easy to market your services to other members.

Barter has three big benefits. It allows you to turn downtime into goods and services. It's great for employee incentives. And it can help generate real -- that is, cash -- business.

Here's how the rental company can turn it's downtime into a warehouse.

Barter's great if you can use an underutilized resource. The equipment that's sitting idle has a new market. The members of the network will be more apt to come to the rental company, because they'll save cash. The barter dollars the rental company receives can be put toward the expansion in building supplies and contractors.

Presto. Rental equipment into warehouse space.

You can also use barter to save on employee benefits. By using barter dollars as hiring incentives, raises, bonuses, or as medical benefits -- since many medical services can be bartered -- you can provide valuable rewards for less. You can also look at sending employees to special events or on training using the barter network.

Barter can help you get new clients and generate business.

Say you're bidding on a big contract from a hotel customer. You can consider taking partial payment in cash and the rest in hotel rooms (since hotels always have empty rooms.) By being creative and flexible in your terms, you can win bids.

As well, once you introduce your service to new customers in the network, you can expect to get real cash business from many of them down the road.

Next time, we'll show you how to get customers to invest in your business.

How to find the right barter exchange

Barter exchanges abound. Make sure that barter is right for you, and the exchange you choose is right for you, too.

1. Check on its history. A well established exchange is a good bet for service, variety of products and services available and confidence it's going to be around.

2. But get references, too. Talk to some of the people on the exchange and find out how they've found service and availability in the past. Ask specifics about how they've used it to make sure their comments are relevant to you.

3. Make a list of products and services you require and check to see that the exchange offers these on a regular, ongoing basis.

4. Find our whether the exchange is regional, national or global. While you might buy office supplies from a company 1000 miles away, you're not going to be able to take advantage of the automotive oil change offered in that city.

5. Check out the fees. These usually include monthly membership, plus a percentage on purchases and sales.

6. Make sure you can sell, but also that your income won't exceed your ability to purchase. While you can put a hold on your service -- go on standby -- you continue to pay monthly fees.

Get more information on Entrepreneurship


Book Details

  • Book
  • Authors
  • KHAN, M.Y. JAIN, P.K.
  • Publisher
  • ISBN-10
  • 007040223X
  • ISBN-13

  • Edition
  • 1/e, 2000

Book Description


The book provides a framework for understanding of the fundamentals of financial management in terms of investment; financing and dividend policy. It gives a comprehensive account of the basic concepts, theories, and techniques underlying the subject, in the context of the financial, legal, and taxation environment in India. The authors have followed an analytical approach, with due emphasis on managerial problem-solving and decision-making situations that business firms encounter in their day-to-day operations. Learning aids are: easy-to-understand language and lucid presentation; numerous real-life illustrative solved problems; end-of-chapter exercises, with answers as appropriate; discussion on contemporary industry practices, including procedural aspects; financial tables; glossary; bibliography, and Index.

Finance Books

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finance for companies

In 2009, our Opportunities in adversity program led to more than 45,000 meetings with companies to discuss the challenges of the new market conditions. Insights from these meetings enabled us to identify Lessons from change — and a new performance wheel comprising eight key goals.

But we wanted to take this a step further, so we commissioned the Economist Intelligence Unit (EIU) for additional research, surveying 876 global executives. Can we move from observed practice of what companies are doing to a more helpful guide to what they should be doing?

What high-performing companies are doing differently

The companies we surveyed showed high levels of adoption of the eight goals of the performance wheel.

Using EBITDA (earnings before interest, taxes, depreciation and amortization) as our measure of performance, we have sought to identify the differences between the level and types of action undertaken by those companies experiencing above 5% growth in earnings and those experiencing less.

Higher-performing companies have significantly higher levels of adoption of almost all programs, as you can see on the two actions per “spoke” on the performance wheel, where the differences in levels of adoption were most pronounced.

Findings from the market

A picture is beginning to emerge from our work — across countries and sectors — of a group of companies that share a particular performance agenda to drive market success. High performers are consistently:

  • Seeking to develop a broader and deeper view of their market opportunities, today and tomorrow
  • Being more innovative in strategy and structure than their competitors, more collaborative with partners and more questioning of themselves and their potential
  • Taking a much more holistic and long-term approach to their people and communicating more frequently and transparently to both their internal and external stakeholders
  • Broadening their understanding of risk in their market and from their actions, and tightening their execution and key support processes to mitigate that risk
  • Pursuing and attaining greater speed in making and executing decisions to take advantage of their changing market

These successful companies are equipping themselves for the new economy. What actions do you need to take to be one of them?

Driving toward the rebound

Twelve months ago, companies were focused on survival. Today we see the economy beginning to recover, for a wide variety of reasons:

  • US$1.8 trillion in government stimulus
  • The resilience of some larger emerging markets
  • The continued existence of large amounts of mobile capital

The global recession — already over in many countries — is now expected to end in 2010. The common view holds that a gradual recovery will become more apparent, although markets are only likely to strengthen in 2011 and 2012.

Optimism has increased...

Our research shows that over 50% of companies still have a focus on securing their present business, down from 74% in January 2009. And the number who report they are aggressively looking for future opportunities has almost doubled. It is the action of these companies that will drive the rebound.

...but growth remains a challenge

Only 32% of respondents saw revenue growth returning to pre-crisis levels within six months. A further 31%, however, said it would take two years or more for this level of recovery to be achieved, suggesting a rather sluggish recovery for much of 2010.

This is the burning platform for companies: getting revenue growth back. Indeed, if we have just been through a “credit crisis,” we have now entered a “growth crisis.” Revenue growth is the dominant challenge for today’s executives.

The need for action

We believe the critical determinant of a company’s performance is management action. Executives would be unlikely to adopt all the action programs we have identified, but results have shown that the higher-performing organizations follow several of the programs of action concurrently.

Not surprisingly, since the majority of companies are still focused on securing the present, levels of adoption reflect the fact that companies are at the early stages of responding.

Only in the area of optimizing capital availability and deployment have respondents already implemented 50% of the action programs we identified. Given the initial “credit crunch” nature of the economic crisis we are going through, this is to be expected.

But, while overall adoption rates are currently just under 40%, a further 36% of our highlighted practices are under active consideration — and companies are following more than one program in each area.

Can earnings be sustained without growth?

Historically, most business models have been built on an assumption of consistent revenue growth. Part of the reason we are seeing the recovery (despite shrinkage in revenue) is that companies have changed their model to extract earnings growth despite anemic sales (through cost cutting, process redesign, outsourcing, shared services and productivity improvements). The real question may turn out to be: how long can companies sustain earnings growth without revenue growth?

Cash Management Basics

Handling and Avoiding Crises

How Do You Define Cash Flow?
If your definition of cash flow is flawed, and you're not tracking the right numbers, you may grow your company right into a cash crisis.
The 10 Absolutely Must Follow Cash Flow Rules

Everyone wants cash on hand at all times. Here are 10 rules to help you get there.
The Magic Number
Every business has a magic number. By employing his, our columnist didn't overstaff this year.
Riding the Economic Roller Coaster
Tighten your seatbelt. Surviving the ups and downs of the world economy means keeping an eye on business finances.
When a Cash Crisis Strikes
Credibility with vendors, bankers, and other creditors is built slowly, but can be destroyed quickly if your company falls behind on payments. Know how to break the bad news to preserve your business's relationships.

Hot Tip: Prepare for a Cash Crisis

How do you prep for a cash crisis? Wayne Karpoff, president of Myrias Software Corp., knew cash would be a problem late last year. His 15-employee, $1.5-million company dropped selling its products and became a full-time service business. So he built a contingency fund into his annual budget -- an amount equal to three months' worth of payroll. He got the idea when his bank suggested he set up a contingency fund to safeguard his mortgage payments in the event he found himself out of work. He dipped into the fund three times last year to float the company during project and payment delays.

Source: Ilan Mochari, Inc magazine, March 2000

Forecasting, Projections and Budgets

The Secrets to Formatting Cash Flow Projections
Here are the keys to creating a powerful tool to take control of your cash flow.
Cash Flow Projections Made Easy
Here is a 4-step process you can use to create cash flow projections you can trust.
Breaking Free from Budgets
Exasperated by budgets that hamstring creativity, a growing number of companies are tossing off financial constraints--and still holding the line on spending.
Budgeting for Blunders
Lisa Hickey created a fund to support creative risks her Boston-based ad agency, Velocity Inc., takes when trying innovative ideas that might not pan out.
A Passion for Forecasting
Don't put together an annual sales forecast using only gut instinct and wishful thinking! Here are some rules you can follow to create a forecast that you and your employees can count on.
Action Plan: Forecasting and Cash-Flow Budgeting
Developing a budget is simple, and when created with solid sales and expense forecasts in mind, you can ensure that your budget will stand up to the daily demands of your business. Here are some steps you can take to create a cash flow budget you can rely on.