Co-ordinators: Kishan Kunal Pranav Bajoria Rajesh Beriwal cashonova@iift.ac.

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About us
Cashonova, the Finance & Investments Club of IIFT, is a platform where students who are passionate about making a career in finance come together and learn the different facets of the world of finance. The club aims to complement classroom learning and present a wider view of the financial domain to its members in order to broaden their horizons. The Club members are entitled to attend the various knowledge-transfer sessions conducted, primarily by the club coordinators as also by other students on a voluntary basis, on different issues of relevance and the same results in a fruitful learning environment.

Key Club Activities

Finance Symposium Equity Research Cell Guest lectures

Competitions (Internal & Inter-college)

Key Accounting Terms

Basic Accounting Equation

ASSETS = LIABILITIES + OWNERS EQUITY

ASSETS: The valuable resources that your business owns are called assets. Examples of assets in a shoe factory are the machines, the factory building etc. LIABILITIES: The resources or obligations that your business owes to outside parties are called liabilities. Example would be a, a bank loan which you had taken to buy leather from the market, which is the raw material for the shoes. This loan is an obligation to the business and it needs to be paid back to the bank and so is a liability. Another example would be the tax to be paid to the Government. OWNERS EQUITY: A business has owner/owners who put in money to run the business. The owners equity is divided generally in two parts: Paid-in capital and Retained earnings. You and your friend started the shoe factory by contributing Rs. 100,000 each to the business. So the paid-in-capital is Rs. 200,000 (i.e. the money put into the business by the owners). After a successful year of operations, the business churns out a profit of Rs. 60,000. You and your friend decided to keep Rs. 10,000 and put the remaining Rs. 50,000 back into the business. This sum of Rs. 50,000 is called retained earnings which is the earnings that have been retained in the business. CURRENT AND NON- CURRENT ASSETS AND LIABILITIES There are many ways in which assets and liabilities are classified. One of the classifications is current or non-current. The word current means that it (asset or liability) would be settled within a year. If the time span is more than one year they are termed as non-current assets and liabilities or long term assets and liabilities. Here are some of them using the shoe factory example Current Assets: The cash the business has in hand to carry out day to day activities Current Liabilities: A bank loan that the business needs to repay to the bank in the next 6 months Non-current assets (also known as long term assets): Buildings and machinery owned by the business Non-current liability (also known as long term liability): A long term loan i.e. which is to be paid back in 10 years.

Financial Accounting
This aspect of accounts deals with the initial and the basic stages of accounting in a firm. It involves aspects such as: Book Keeping o Journal o Ledger o Trail Balance o Final Statements/Accounts (Profit & Loss Account, Balance Sheet and Cash Flow Statement) Bank Reconciliation Interest Calculations Treatment of special items (Goodwill, revaluation of assets, et al)

In this document we will just touch upon the basics of Book Keeping. Though the preparation does not find direct application in a financial role from a managers point of view, but an understanding of these concepts help us in analysing the Financial Statements in a better and more efficient way.

Journal, Ledger & Trial balance

Journal: This is a preliminary record of day to day business transactions, which is to give effect to 2 different accounts involved in business transactions (i.e., Debit & Credit) Ledger: This is permanent record of all transactions in a summarised and classified form Trial balance: This is a statement showing the balance of all ledger accounts. This is to test the arithmetical accuracy of books of accounts There are 3 types of accounts in which all transactions entered into by a company, can be classified. These are also known as the Golden Rules of accounting and form the basis for double entry system while preparing a journal. 1. Personal Accounts (e.g. Debtors, Creditors etc) a. Debit The Giver (The person that has to give you money, Debtor) b. Credit The Receiver (The person who is supposed to receive money from you, Creditor) 2. Real Accounts (e.g. Land, Building, Investments etc.) a. Debit What comes in b. Credit What goes out 3. Nominal Accounts (e.g. Salary, Interest, Rent etc.) a. Debit All Expenses & Losses b. Credit All Gains & Income Example i. ii. XYZ Co. bought raw materials from ABC Co. for Rs. 100000/- on credit. XYZ Co. paid one month salary of Rs. 35000/-

Now analysing each transaction and passing the journal entries, preparing ledger and trial balance.

Journal Entries
i. Purchases AccountDr. 100000 ABC Co. . 100000

Now here Purchases is a real account as we have physical material coming into it we Debit it. ABC Co. is a personal account belonging to a particular company and we owe money to them in the future, so we Credit them.

ii.

Salary AccountDr. 35000 Cash & Bank A/c35000

Salary is a nominal account and an expense so we Debit it. Cash is a real account as we have money in physical form in the bank or at hand. Since money is going out of the company to employees we Credit it. In the same way other transactions can also be classified accordingly and a journal entry passed.

Ledger (T-format)
Dr.1 Purchase Account Cr.2 Dr. ABC Co. Cr. By Purchases 100000

To. ABC Co. 100000 By Balance c/d 100000 To Bal b/d 100000

This shows that the Purchases account has been debited by ABC Co. and hence ABC Co. appears in the debit side of the ledger account, similarly for the other accounts we can populate either side with appropriate transactions. The balance c/d shows that at the close of the current accounting period these are the transactions that have taken place in the respective accounts and the balance of the account currently stands hence and is brought down for the next accounting period. The ABC co. ledger is incomplete. For each accounting period the ledgers are closed and the balance is written down in a Trial Balance with an appropriate debit or credit balance against each head.

Trial Balance
Dr. Purchases Cash & Bank Salaries Sundry Creditors (ABC Co.) 35000 100000 100000 35000 Cr.

1 2

Debit Credit

Note: If the accounts are prepared properly the debit and credit side in the trial balance would be equal.

Final Statements
Once the trial balance is prepared we then use the heads in the trial balance and put them either in the P/L Account or the Balance Sheet. PROFIT AND LOSS ACCOUNT (P/L ACCOUNT): All the heads that are classified as expenses/losses and profits/gains are placed in the P/L Account. This statement will give u the net profit or net loss which is the net result of an enterprise. From the above example salaries and purchases would feature in the P/L account and the Trading Account. BALANCE SHEET: All the heads that can be classified as an asset or a liability will be placed in the balance sheet. This statement gives us the financial status of the company on the date of reporting. From the above example creditors and cash accounts would be placed under this. CASH FLOW STATEMENT: It shows the flow of physical cash in and out of the company. It does not take into account transactions that are entered into but the receipts and payments have not been made. For example outflow due to purchases, in the example above, will not feature in the cash flow statement.

Management Accounting
This is the field of accounting where most MBAs would be working in. It involves: Ratio Analysis One of the most important topics that you would be covering as a part of your course. It involves using certain heads in the P/L account, Balance Sheet and the Cash Flow Statement and calculating ratios to get an idea about the following aspects of the company: Liquidity Leverage3 Profitability Operational Efficiency and Effectiveness It allows one to compare the performance of companies in a particular industry or assess the performance of company across a period of time. Working Capital Management This helps a person to analyse and decide how the current assets should be financed. In other words how a company manages its cash and receivables to ensure smooth day to day running of business. Operating Cycle-Inventory ManagementThe management of inventory present in the organization. Using inventory management techniques such as Economic Order Quantity and ABC system of management. Since holding inventory requires cost the firm has to optimize its inventory management system to reduce costs. Cost of Capital A concept that will find its way in any sort of valuation you do. It refers to a cost that a company implicitly incurs while raising capital from the market (both debt and equity). When taking up a project the company must ensure that the project would earn them returns above the cost of capital.

Capital Structuring This involves the management of proportion of capital raised through debt and that raised through equity. This plays an important role in the solvency of the firm and the return to shareholders.

Amount of capital that a company has raised using debt markets

Some General Financial Terms

Policy Rates and Reserve ratios Bank rate: Bank rate is the rate of interest that commercial banks and other financial intermediaries have to pay on the loan that they take from countrys central or federal bank Repo rate: Repo rate is similar to bank rate except that it is applicable to short term loans while bank rate is applicable to long term loans. Reverse repo: It is the counterpart of repo rate. It is the rate of interest commercial banks and other financial intermediaries receive on excess funds they deposit with the central bank. Cash reserve ratio (CRR): CRR is the percentage of their total deposits that the commercial banks have to keep in central bank in form of cash Statutory liquidity ratio (SLR): SLR is similar to CRR except that apart from cash other liquid assets like precious metals such as gold and approved short term securities like treasury bills may be used to meet the reserve requirements. Types of financial instruments Shares: A unit of ownership interest in a corporation or financial asset. While owning shares in a business does not mean that the shareholder has direct control over the business's day-to-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends. Bonds: A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities. Derivatives: A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Options: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down. Futures: A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange.

Career Options in Finance Domain

Disclaimer: Company names mentioned below are generic and have no relation to their being on campus for placements

1. Investment Banking
The nature of job involves analyzing investment options for a client through research, creating pitch books (discussion materials) for client meetings which in turn contain qualitative and quantitative assessment. Overall, it is referred to as advisory business and revenues for investment banks are through commissions on a deal (Buyout, Merger, Capital Raising) Some of the major investment banks operating in India: Foreign Banks: Nomura, HSBC, Deutsche Bank, Goldman Sachs, JP Morgan Chase etc. Indian Banks: SBI Caps, Edelweiss, Enam Securities (Part of Axis Bank now) etc.

2. Equity Research
Equity Research involves an in-depth analysis of equity markets (Primary & Secondary) to generate reports on the valuation of equity stocks and give out a recommendation (Buy, Sell or Hold). Equity research reports are used by other market participants to develop their understanding of the market. Equity research companies are also referred to as brokers in common market usage. Some of the major Equity research companies: HSBC, Nomura, Goldman Sachs, JP Morgan, Edelweiss, Deutsche Bank, Morgan Stanley etc. Please note that though the list of companies in Equity Research and Investment Banks are almost identical, they always function as separate entities

3. Risk Management
It involves managing a Banks asset portfolio risk. (Risks involve default, devaluation) through use of risk mitigation factors like derivatives etc. It is a profile mostly offered by Commercial and Retail Banks and requires an in-depth technical knowledge along with excellent quantitative skills. Some of the major banks that offer Risk Management profiles: ICICI Bank, SBI, Axis Bank

4. Corporate Finance
As the name suggests, it involves managing the finances of a corporation (e.g. a manufacturing/services company). The structural difference between this and the others discussed so far is that these are offered by companies whose core activity is not financial investments/services.

A strong knowledge of accounting rules and applications along with a keen interest in the functioning of the business is essential for success. Some of the companies offering Corporate Finance profiles: Airtel, Vodafone, FMCG Companies etc.

5. Multi Functional Roles

Many organizations have in recent times offered profiles which have elements of many jobs clubbed into one and offer an individual the choice of specialization after acclimatising to the rigours of the job. Such profiles often are dubbed as Management Trainee/Associate Also, some of the profiles shall be dubbed as Business Development which essentially means a project based profile. Some of the companies offering such profiles are Citibank, SBI etc.

6. Others
Other profiles include Private Equity, which is again an off-shoot of Investment banking; Corporate Banking; Relationship Management (involves both Marketing and Finance), etc.