CMA result for Dec-11

Total no.of students appeared for Dec 2011 exam - 72,000 (Across globe)
Group 1 passed - 1285
Group 2 passed - 1560
Over all Inter passed - 3239
Group 3 passed- 651
Group 4 passed - 139
Over all Final passed- 753

Accounting Definations - 5

Capital account and Current account: The capital account of international purchase or sale of assets. The assets include any form which wealth may be held. Money held as cash or in the form of bank deposits, shares, debentures, debt instruments, real estate, land, antiques, etc…

The current account records all income related flows. These flows could arise on account of trade in goods and services and transfer payment among countries. A net outflow after taking all entries in current account is a current account deficit. Govt. expenditure and tax revenues do not fall in the current account.

Dividend Yield: It gives the relationship between the current price of a stock and the dividend paid by its issuing company during the last 12 months. It is calculated by aggregating past year’s dividend and dividing it by the current stock price.

 Historically, a higher dividend yield has been considered to be desirable among investors. A high dividend yield is considered to be evidence that a stock is under priced, where as a low dividend yield is considered evidence that a stock is over priced.

Bridge Financing: It refers to loans taken by a company normally from commercial banks for a short period, pending disbursement of loans sanctioned by financial institutions. Generally, the rate of interest on bridge finance is higher as compared with term loans.

Shares and Mutual Funds

Company: Sec.3 (1) of the Companies act, 1956 defines a ‘company’.  Company means a company formed and registered under this Act or existing company”.

Public Company: A corporate body other than a private company. In the public company, there is no upper limit on the number of share holders and no restriction on transfer of shares.

Private Company: A corporate entity in which limits the number of its members to 50. Does not invite public to subscribe to its capital and restricts the member’s right to transfer shares.

Liquidity:  A firm’s liquidity refers to its ability to meet its obligations in the short run.  An asset’s liquidity refers to how quickly it can he sold at a reasonable price.

Cost of Capital: The minimum rate of the firm must earn on its investments in order to satisfy the expectations of investors who provide the funds to the firm.

Capital Structure: The composition of a firm’s financing consisting of equity, preference, and debt.

Annual Report: The report issued annually by a company to its shareholders. It primarily contains financial statements. In addition, it represents the management’s view of the operations of the previous year and the prospects for future.

Proxy: The authorization given by one person to another to vote on his behalf in the shareholders meeting.

Joint Venture: It is a temporary partnership and comes to an end after the completion of a particular venture. No limit in its.

Insolvency: In case a debtor is not in a position to pay his debts in full, a petition can be filled by the debtor himself or by any creditors to get the debtor declared as an insolvent.

Long Term Debt: The debt which is payable after one year is known as long term debt.

Short Term Debt: The debt which is payable with in one year is known as short term debt.

Amortization: This term is used in two senses 1. Repayment of loan over a period of time 2.Write-off of an expenditure (like issue cost of shares) over a period of time.

Arbitrage: A simultaneous purchase and sale of security or currency in different markets to derive benefit from price differential.

Stock: The Stock of a company when fully paid they may be converted into stock.

Share Premium: Excess of issue price over the face value is called as share premium.

Equity Capital: It represents ownership capital, as equity shareholders collectively own the company. They enjoy the rewards and bear the risks of ownership. They will have the voting rights.

Authorized Capital: The amount of capital that a company can potentially issue, as per its memorandum, represents the authorized capital.

Issued Capital: The amount offered by the company to the investors.

Subscribed capital: The part of issued capital which has been subscribed to by the investors

Paid-up Capital: The actual amount paid up by the investors.

Typically the issued, subscribed, paid-up capitals are the same.

Par Value: The par value of an equity share is the value stated in the memorandum and written on the share scrip. The par value of equity share is generally Rs.10 or Rs.100.                     

Issued price:  It is the price at which the equity share is issued often, the issue price is higher than the Par Value

Book Value:   The book value of an equity share is        

                                    = Paid – up equity Capital + Reserve and Surplus / No. Of outstanding shares equity

Market Value (M.V): The Market Value of an equity share is the price at which it is traded in the market.

Preference Capital: It represents a hybrid form of financing it par takes some characteristics of equity and some attributes of debentures. It resembles equity in the following ways     

1.                     Preference dividend is payable only out of distributable profits.

2.                     Preference dividend is not an obligatory payment.

3.                     Preference dividend is not a tax –deductible payment.

Preference capital is similar to debentures in several ways.

1.                     The dividend rate of Preference Capital is fixed.

2.                     Preference Capital is redeemable in nature.

3.                     Preference Shareholders do not normally enjoy the right to vote.

Debenture:  For large publicly traded firms. These are viable alternative to term loans.  Skin to promissory note, debentures is instruments for raising long term debt. Debenture holders are creditors of company.

Stock Split: The dividing of a company’s existing stock into multiple stocks.  When the Par Value of share is reduced and the number of share is increased.

Calls-in-Arrears: It means that amount which is not yet been paid by share holders till the last day for the payment.

Calls-in-advance: When a shareholder pays with an installment in respect of call yet to make the amount so received is known as calls-in-advance. Calls-in-advance can be accepted by a company when it is authorized by the articles.

Forfeiture of share: It means the cancellation or allotment of unpaid shareholders.

Forfeiture and reissue of shares allotted on pro – rata basis in case of over subscription.

Prospectus: Inviting of the public for subscribing on shares or debentures of the company. It is issued by the public companies.

The amount must be subscribed with in 120 days from the date of prospects.

Simple Interest: It is the interest paid only on the principal amount borrowed. No interest is paid on the interest accrued during the term of the loan.

Compound Interest: It means that, the interest will include interest calculated on interest.

Time Value of Money: Money has time value. A rupee today is more valuable than a rupee a year. Hence the relation between value of a rupee today and value of a rupee in future is known as “Time Value of Money”.

NAV: Net Asset Value of the fund is the cumulative market value of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units out standing. Buying and Selling into funds is done on the basis of NAV related prices. The NAV of a mutual fund are required to be published in news papers. The NAV of an open end scheme should be disclosed on daily basis and the NAV of a closed end scheme should be disclosed at least on a weekly basis.

Financial markets: The financial markets can broadly be divided into money and capital market.

Money Market: Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, banker’s acceptance, certificates of deposits, etc. 

ü     Capital Market: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Primary Market: It provides the channel for sale of new securities. Primary Market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.

Secondary Market: It refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. Majority of the trading is done in the secondary market. It comprises of equity markets and the debt markets.

Difference between the primary market and the secondary market: In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary

Accounting Definations - 6

SEBI and its role: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

 Portfolio: A portfolio is a combination of investment assets mixed and matched for the purpose of investor’s goal.

Market Capitalization: The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares in issue, is called as market capitalization.

Book Building Process: It is basically a process used in IPOs for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.

Cut off Price: In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called “Cut off price”. This is decided by the issuer and LM after considering the book and investors’ appetite for the stock. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price.

Blue-chip Stock: Stock of a recognized, well established and financially sound company.

Penny Stock: Penny stocks are any stock that trades at very low prices, but subject to extremely high risk.

Debentures: Companies raise substantial amount of long-term funds through the issue of debentures. The amount to be raised by way of loan from the public is divided into small units called debentures. Debenture may be defined as written instrument acknowledging a debt issued under the seal of company containing provisions regarding the payment of interest, repayment of principal sum, and charge on the assets of the company etc…

Large Cap / Big Cap:   Companies having a large market capitalization

For example, In US companies with market capitalization between $10 billion and $20 billion, and in the Indian context companies market capitalization of above Rs. 1000 crore are considered large caps.

Mid Cap: Companies having a mid sized market capitalization, for example, In US companies with market capitalization between $2 billion and $10 billion, and in the Indian context companies market capitalization between Rs. 500 crore to Rs. 1000 crore are considered mid caps.

Small Cap: Refers to stocks with a relatively small market capitalization, i.e. less than $2 billion in US or less than Rs.500 crore in India.

Holding Company: A holding company is one which controls one or more companies either by holding shares in that company or companies are having power to appoint the directors of those company     

The company controlled by holding company is known as the Subsidiary Company.

Consolidated Balance Sheet: It is the b/s of the holding company and its subsidiary company taken together.

Partnership act 1932: Partnership means an association between two or more persons who agree to carry the business and to share profits and losses arising from it. 20 members in ordinary trade and 10 in banking business

IPO: First time when a company announces its shares to the public is called as an IPO. (Initial Public Offer)

A Further public offering (FPO): It is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

Rights Issue (RI): It is when a listed company which proposes to issue fresh securities to its shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.

Preferential Issue: It is an issue of shares or of convertible securities by listed companies to a select group of persons under sec.81 of the Indian companies’ act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital.

Index: An index shows how specified portfolios of share prices are moving in order to give an indication of market trends. It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upward or downwards.

Dematerialization: It is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investor’s account with his depository participant.

Bull and Bear Market: Bull market is where the prices go up and Bear market where the prices come down.

Exchange Rate: It is a rate at which the currencies are bought and sold.

FOREX: The Foreign Exchange Market is the place where currencies are traded. The overall FOREX markets is the largest, most liquid market in the world with an average traded value that exceeds $ 1.9 trillion per day and includes all of the currencies in the world. It is open 24 hours a day, five days a week.

Mutual Fund: A mutual fund is a pool of money, collected from investors, and invested according to certain investment objectives.

Asset Management Company (AMC): A company set up under Indian company’s act, 1956 primarily for performing as the investment manager of mutual funds. It makes investment decisions and manages mutual funds in accordance with the scheme objectives, deed of trust and provisions of the investment management agreement.

Back-End Load: A kind of sales charge incurred when investors redeem or sell shares of a fund.

Front-End Load: A kind of sales charge that is paid before any amount gets invested into the mutual fund.

Off Shore Funds: The funds setup abroad to channalise foreign investment in the domestic capital markets.

Under Writer: The organization that acts as the distributor of mutual funds share to broker or dealers and investors.

Registrar: The institution that maintains a registry of shareholders of a fund and their share ownership. Normally the registrar also distributes dividends and provides periodic statements to shareholders.

Trustee: A person or a group of persons having an overall supervisory authority over the fund managers. Bid (or Redemption) Price: In newspaper listings, the pre-share price that a fund will pay its shareholders when they sell back shares of a fund, usually the same as the net asset value of the fund.

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Accounting Definations - 6

Earning per share (EPS): It is a financial ratio that gives the information regarding earning available to each equity share. It is very important financial ratio for assessing the state of market price of share. The EPS statement is applicable to the enterprise whose equity shares are listed in stock exchange.

Types of EPS:

1.             Basic EPS ( with normal shares)

2.             Diluted EPS (with normal shares and convertible shares)

EPS Statement             :

             

Sales                                                                     ***

Less: variable cost                                                ***

                                                Contribution                   ***

Less: Fixed cost                                                    ***

 

                                                  EBIT                 ***

Less: Interest                                                         ***

                                             

                                                     EBT                   ***

Less:  Tax                                                              ***

                                               Earnings                  ***

 Less: preference dividend                                     ***

                                                                                         ***

Earnings available to equity

Share holders (A)                                                   ***

EPS=A/ No of outstanding Shares

EBIT and Operating Income are same

The higher the EPS, the better is the performance of the company.

Cash Flow Statement:

It is a statement which shows inflows (receipts) and outflows (payments) of cash and its equivalents in an enterprise during a specified period of time. According to the revised accounting standard 3, an enterprise prepares a cash flow statement and should present it for each period for which financial statements are presented.

Funds Flow Statement:

 Fund means the net working capital. Funds flow statement is a statement which lists first all the sources of funds and then all the applications of funds that have taken place in a business enterprise during the particular period of time for which the statement has been prepared. The statement finally shows the net increase or net decrease in the working capital that has taken place over the period of time.

Float: The difference between the available balance and the ledger balance is referred to as the float.

Collection Float: The amount of cheque deposited by the firm in the bank but not cleared.

Payment Float: The amount of cheque issued by the firm but not paid for by the bank.

Operating Cycle: The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivables.

Marginal Costing:

                               Sales – VaribleCost=Fixed Cost ± Profit/Loss

                                 Contribution= Sales –VaribleCost

                                 Contribution= Fixed Cost ± Profit/Loss

P / V Ratio= (Contribution / Sales)*100

When per 1 unit information is given,

                                P / V Ratio = (Contribution per Unit / Sales per Unit)*100

Two years information is given,

                               P / V Ratio= (Change in Profit / Change in Sales) * 100

Through Sales, P / V Ratio

                               Contribution =Sales * P / v Ratio

Through P / V Ratio, Contribution

Sales = Contribution / P V Ratio

Break Even Point (B.E.P)

IN Value = (Fixed Cost) / (P / v Ratio) OR (Fixed Cost / Contribution) * Sales

In Units = Fixed Cost / Contribution OR Fixed Cost / (Sales Price per Unit – V.C per Unit)

Margin of Safety = Total Sales – Sales at B.E.P (OR) Profit / PV Ratio

Sales at desired profit (in units)

                                 = Fixed Cost+ Desired Profit / Contribution per Unit

Sales at desired profit (in Value)

            = Fixed Cost+ Desired Profit / PV ratio (OR) Contribution / PV Ratio

RATIOANALYSIS

A ratio analysis is a mathematical expression. It is the quantitative relation between two. It is the technique of interpretation of financial statements with the help of meaningful ratios. Ratios may be used for comparison in any of the following ways.

ü  Comparison of a firm its own performance in the past.

ü  Comparison of a firm with the another firm in the industry

ü  Comparison of a firm with the industry as a whole

TYPES OF RATIOS

ü  Liquidity ratio

ü  Activity ratio

ü  Leverage ratio

ü  profitability ratio

1. Liquidity ratios:

These are ratios which measure the short term financial position of a firm.

(i) Current ratio: It is also called as working capital ratio. The current ratio measures the ability of the firm to meet its current liabilities-current assets get converted into cash during the operating cycle of the firm and provide the funds needed to pay current liabilities i.e.

= Current assets/ Current liabilities                                                                  

è Ideal ratio is 2:1

(ii) Quick or Acid test Ratio: It tells about the firm’s liquidity position. It is a fairly stringent measure of liquidity.                          

                                   

=Quick assets/Current Liabilities                        

                                                è Ideal ratio is 1:1

                        Quick Assets =Current Assets – Stock - Prepaid Expenses 

  (iii) Absolute Liquid Ratio:

                                    = Absolute Liquid Assets/Current Liabilities

                                    ** ALAssets=Cash + Bank + Marketable Securities.

2. Activity Ratios or Current Assets management or Efficiency Ratios:

These ratios measure the efficiency or effectiveness of the firm in managing its resources or assets

ü     Stock or Inventory Turnover Ratio: It indicates the number of times the stock has turned over into sales in a year. A stock turn over ratio of ‘8’ is considered ideal. A high stock turn over ratio indicates that the stocks are fast moving and get converted into sales quickly.

                                    = Cost of goods Sold/ Avg. Inventory

ü     Debtors Turnover Ratio: It expresses the relationship between debtors and sales.

=Credit Sales /Average Debtors

ü     Creditors Turnover Ratio: It expresses the relationship between creditors and purchases.

=Credit Purchases /Average Creditors

ü     Fixed Assets Turnover Ratio: A high fixed asset turn over ratio indicates better utilization of the firm fixed assets. A ratio of around 5 is considered ideal.

= Net Sales / Fixed Assets

ü     Working Capital Turnover Ratio: A high working capital turn over ratio indicates efficiency utilization of the firm’s funds.

=CGS/Working Capital

=W.C=C.A – C.L.

3. Leverage Ratio: These ratios are mainly calculated to know the long term solvency position of the company.

a>Debt Equity Ratio: The debt-equity ratio shows the relative contributions of creditors and owners.

                                    = outsiders fund/Share holders fund

è Ideal ratio is 2:1

b>Proprietary ratio or Equity ratio: It expresses the relationship between net worth and total assets. A high proprietary ratio is indicative of strong financial position of the business.

                                    =Share holders funds/Total Assets

                       

                 = (Equity Capital +Preference capital +Reserves – Fictitious assets) / Total Assets

c>Fixed Assets to net worth Ratio: This ratio indicates the mode of financing the fixed assets.  

                                                è Ideal ratio is 0.67                                                         

                                    =Fixed Assets (After Depreciation.)/Shareholder Fund

4. Profitability Ratios: Profitability ratios measure the profitability of a concern generally. They are calculated either in relation to sales or in relation to investment.

ü     Return on Capital Employed or Return on Investment (ROI): This ratio reveals the earning capacity of the capital employed in the business.

                                                =PBIT /Capital Employed

ü     Return on Proprietors Fund / Earning Ratio:  Earn on Net Worth

                                                =Net Profit (After tax)/Proprietors Fund

ü     Return on Ordinary shareholders Equity or Return on Equity Capital: It expresses the return earned by the equity shareholders on their investment.

             =Net Profit after tax and Dividend / Proprietors fund or Paid up equity Capital

ü     Price Earning Ratio: It expresses the relationship between market price of share on a company and the earnings per share of that company.

                                         =MPS (Market Price per Share) / EPS

ü     Earning Price Ratio/ Earning Yield:

                                                = EPS / MPS

ü     EPS= Net Profit (After tax and Interest) / No. Of Outstanding Shares.

ü     Dividend Yield ratio: It expresses the relationship between dividend earned per share to earnings per share.

                                 =    Dividend per share (DPS) / Market value per share

ü     Dividend pay-out ratio: It is the ratio of dividend per share to earning per share.

= DPS / EPS                           

DPS: It is the amount of the dividend payable to the holder of one equity share. =Dividend paid to ordinary shareholders / No. of    ordinary shares

                                                C.G.S=Sales- G.P

                                                G.P= Sales – C.G.S

                                                G.P.Ratio =G.P/Net sales*100

Net Sales= Gross Sales – Return inward- Cash discount allowed

Net profit ratio=Net Profit/ Net Sales*100

Operating Profit ratio=O.P/Net Sales*100

Interest Coverage Ratio= Net Profit (Before Tax & Interest) / Fixed Interest Classes

            Return on Investment (ROI): It reveals the earning capacity of the capital employed in the business. It is calculated as,

                                          EBIT/Capital employed.

The return on capital employed should be more than the cost of capital employed.

Capital employed=EquityCapital+Preference sharecapital+Reserves+Longterm loans and Debentures - Fictitious Assets – Non Operating Assets