Financial Ratios

Interestingly, after a long two and half years of studying for MBA program has not made any better understanding of the financial ratios. Most interesting thing I saw was every finance course we keep doing ratios to land up into the same discussion in the subsequent classes. Here was the classic one. The ratios on returns. RoI, RoA, RoCE, RoE and god knows what all. I use a very common sense approach to ratio determination as such.

There are stakeholders who have put in money or provided infrastructure for a company to operate and they expect some tangible gains from the company. Whatever they gain is basically return. That being said who are the stakeholders to a company?

1. Equity holders (Both preferential and common stocks)
2. Debt holders
3. Government

There are 3 kinds of basic gains for each of the stakeholders

Equity holders get residual profits, Debt holders interest and Government Taxes.

Hence return on asset should consider total returns on the complete asset so return definition here is PBIT. While for Return on Equity it should just be the PAT. Returns are worked on accrual basis and never on expensed basis.

In any case, after all we are MBAs and we will democratize the process of finding the obvious as well and will not know but think it might be something or in the end say well then everything is right. After all the world was there before accounting standards came into being.

Learning leadership from a train journey

The more I think I should not be blogging on personal opinions, the more I am getting tempted to throw my personal views. However, the incident was interesting hence thought of a mention on my blog. There will a consistent rule on my blog. Any idea which may rouse negative thoughts will be supported with literature and analysis available and any positive thoughts will be stated as is. The reason is simple, if I feel strongly negative of something it needs to be substantiated with research and literature and not be on my mere judgement. I hope I am able to reduce the effect of judgement from my articles.

Recently, I was traveling from Bangalore to Chennai in a train. One of my co-passengers were a retired professor of accounting and control from some university in Chennai. As soon as he saw the "HBR on The Mind of the Leader" his immediate reaction was you will learn more leadership from talking to leaders than reading books. I wanted to avoid a debate in the train. It helps no one and with my schedule of job, course work for exec-MBA it's really hard for me to find time to read a book which I did not want to spoile. Yet, I decided to talk to him and be a non-contributor. There are two distinct points he made although in very crude terms we will have lots of examples in lreal life to substantiate.

1. Leadership is about being a good listener
2. To be a successful leader it's important to be a good follower in early part of your life

I found both of these viewpoints unique in someway and very nice. Of course the HBR analysis does not talk about these anywhere. Some learning which only gets to you when you grow grey hair may be :-)