What does one mean by Surrogate Advertising?

Direct advertising for certain products such as liquor, cigarettes, etc is banned in India under the Cable TV Regulation Act as these products are considered harmful for the citizens as well as the society in general. In such scenarios, the companies producing these commodities resort to a disguised form of advertising which is called surrogate advertising.

Various techniques are used for surrogate advertising such as advertising a different product under the same brand name, sponsoring sports teams and events, issuing public statements, sponsoring community events etc. For advertising different products under the same brand name, companies can complementary products such as soda, bottled drinking water, juice etc. or unrelated products such as music CDs and playing cards. These methods help the companies to increase the audience for their brand. The consumers start associating various events and products to these brands and companies and that is how these companies increase the consumer base. These surrogate advertisements can, however, be extremely misleading at times. In India, tobacco products are prevented from being promoted even in a disguised manner but liquor companies have managed to find various loopholes in our laws. Some popular examples of surrogate advertising by liquor companies are- music CDs by Bacardi, Soda by Hayward’s 500, the sponsorship of Royal Challengers Bangalore, etc.

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Businessman and Entrepreneur are two terms that are often used interchangeably by people, however we see that the word entrepreneur has a more positive perception attached to it as compared to businessman. Both, a businessman and an entrepreneur, start new ventures to create utilities and earn profits, and in that process they create jobs, solve problems of the customers and help the economy develop as a whole.

The main distinguishing factor between a businessman and an entrepreneur is the outlook of the individual. While a businessman aims to set up a lucrative venture which may be of an existing good or service or a new product, an entrepreneur’s main focus is on innovation and carrying on a project that he or she is passionate about. Businessmen mainly work to earn high profits whereas entrepreneurs work to create value for various stakeholders. Entrepreneurs may also have social benefits attached to their ventures. While both businessmen and entrepreneurs take several risks in their ventures, businessmen take more calculated risks by the virtue of them being more profit oriented. Entrepreneurs on the other hand allow for a greater degree of risks aiming at extraordinary results for the venture as a whole and not just in monetary terms.

In a nut shell a business has more carefully weighed pros and cons with the main aim being profit maximisation whereas an entrepreneur works passionately to create value in the market and society and could be equally profit driven at times. Thus, neither is better than the other as it all depends on the mind-set of the individual. However, we see a trend emerging where the youth aspires to become successful entrepreneurs as opposed to successful businessperson.

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International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB). They are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS also include International Accounting Standards (IAS) issued by the International Accounting Standards Committee (IASC).

The main goal of IFRS is to make international comparison as easy as possible. Different countries employ different accounting standards while computing the profits of a company. It may happen that if the profits are computed as per the U.S Accounting Laws (U.S GAAPs) the profits are $100 Billion but when the same business is evaluated using U.K Accounting laws (U.K GAAPs) the profit may turn out to be $50 Billion and when computed according to Indian Accounting Laws the profit may be $200 Billion (hypothetical figures). Therefore, uniform results can be achieved across the globe by application of IFRS. Thus IFRS facilitate comparison of financial statements of different firms in different countries.

As the market expands globally, the need for a global standard also increases. Implementation of IFRS benefits the economy by increasing the growth of its international business.  It facilitates the maintenance of orderly and efficient capital markets and also helps to increase the capital formation, and thereby economic growth.

Investors who are willing to invest abroad need information which is more relevant, reliable, timely and comparable across various jurisdictions. Financial statements prepared using a common set of accounting standards help investors better understand the investment opportunities as opposed to financial statements prepared using a different set of national accounting standards. For better understanding of financial statements, global investors have to incur more costs in terms of the time and effort to convert the financial statements so that they can confidently compare opportunities. Investors’ confidence would be strong if the accounting standards used are globally accepted. Thus, implementation of IFRS contributes to investors’ understanding and confidence in high quality financial statements.

A major push towards implementation of IFRS has been coming from the industry. The reason for the same is that the industry would be able to raise capital from the foreign markets at a lower cost if it can create confidence in the minds of foreign investors that their financial statements comply with globally accepted accounting standards. With diversity in accounting standards from country to country, enterprises which operate in different countries face a multitude of accounting requirements prevailing in different countries. The burden of financial reporting is lessened with implementation of IFRS because it simplifies the process of preparing the individual and group financial statements , i.e. eliminating the need for multiple reporting and thereby reduces the cost of preparing financial statements.

IFRS can implemented by a country in 2 ways:

1.Adoption: Adoption of IFRS means accepting the international standards in their original form without making any changes in the language or format. It refers to complete compliance with guidelines issued by IASB.

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Private Equity refers to the equity capital that is not quoted or traded publicly on a stock exchange. Thus, investors either directly invest funds in private companies or conduct buyouts of public companies leading to de-listing of their securities. This is usually carried out by individuals and institutions of high net worth in order to gain major or complete control over a company in hopes of earning high return. Since these private investors have direct incentive of earning profits from these companies they work actively to produce favorable results and improve the prospects of the company. A private equity investor becomes a part of the company and usually holds a position in the board. Private equity can help companies get the attention they require to grow and to build better businesses as investors have direct stake in the success of the company.

In the last decade, we have seen a huge rise in private equity as it satisfies the need for large cash inflows and doesn’t require compliance with the increasing number of regulations of the stock market. Financial institutions like commercial banks and investment banking firms have also benefited greatly from the rise in private equity. They provide loans to private investors to finance large buy outs. The largest investment banking entities such as Goldman Sachs, J P Morgan Chase etc. have been actively ensuring that they are in the middle of the billion dollar deals being made in this field.

However, the recent recession trends in the economy in major parts of the world have discouraged investors to take huge risks. While the potential returns are great, private equity comes attached with even greater risks. Despite this fact, private equity has been on a rise and record of the most expensive buyout has been broken and re-broken several times.

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Financial Modelling is the process by which a firm constructs a financial representation of some, or all, aspects of a business or a security. Financial models are arrived at using Mathematical and Statistical tools to forecast and estimate financial figures. Models may range from simple Accounting models to those involving complex computer algorithms. Complex financial models require the use of computer programmes such as Excel etc.

Business owners, entrepreneurs, accountants, analysts and consultants widely make use of these models as they help in analyzing how a business will react to different economic situations or events, and in projecting the likely output of a financial decision. A Financial Model is prepared for purposes such as:

1. Valuation of a security
2. Financing projects
3. Credit analysis
4. Estimating costs of Projects
5. Analyzing cash flows
6. Evaluating Acquisition targets
7. Studying the pros and cons of mergers
8. Predict risk in investments
9. Carrying out monthly or annual financial planning
10. Conducting capital structure studies

In essence, Financial Models help reduce uncertainty and bring stability in business organisations. Investments and business projects are influenced by various internal and external factors and the history of the firm. These models based on various calculations try to take into account these various factors to make predictions for the future and help understand possible outcomes of the business decisions. They also help identify cost-effective ways to implement these decisions and find optimal solutions for the possible problems that may arise.

Some of the commonly used Financial Models are:

• Discounted Cash Flow model
• Comparative Company Analysis model
• Sum-of-the-parts model
• Leveraged Buy Out (LBO) model
• Merger & Acquisition (M&A) model
• Industry-specific financial model
• Option pricing model
• Corporate finance models

Financial Modelling has become an imperative tool for sound decision making. More and more firms today are adopting these models to minimize risks and maximize returns. Many Indian firms, however, have not familiarized themselves with the construction and adoption of financial models and is still a new, unexplored concept for them.

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The year 2014 began with a low growth rate of 4.7% in the first quarter but the Indian economy gained momentum once the Narendra Modi led government came into power with full majority. The newly formed government implemented various policies, most of which were received wholeheartedly the nation.

The Government raised Foreign Direct Investment (FDI) limits in Insurance, Railways and Defence and also liberalised the FDI conditions in real estate. However, the BJP led government disallowed FDI in multi-brand as it had stated in its manifesto.

To clear out the problems in the coal and power sector, the government initiated the process of e-auction to facilitate a transparent and non-discretionary method of allocation of coal blocks. This would enable commercial mining to enhance the potential of this sector, increase power generation and reduce costs.

The government was also able to get consensus on the Goods and Service Tax (GST) Bill, providing that a single, comprehensive tax be levied on manufacture, sale and consumption of goods and services at a national level.

Financial inclusion has been the aim of several previous governments formed as well as the current one in power. The Pradhan Mantri Jan Dhan Yojna was launched by Prime Minister, Narendra Modi to allow financial freedom to the economically weaker sections of the society. Under the scheme, Public Sector Banks were directed to open bank accounts with zero balance on the basis of Aadhar cards. These bank accounts came with other financial benefits such as accidental insurance cover of ₹ 1 lakh, overdraft facility up to ₹ 5,000 after 6 months of opening if the account, etc. About 10 crore bank accounts were opened under this scheme with the Government achieving its target.

The inflation rate in the economy have also come under control but that has mostly been due to the fall in the global oil prices. India imports 70% of its oil demand and the fall in oil prices has greatly helped in curbing inflation. In fact the inflation rate in November, 2104 was 0%. If the current trends continue, India may even be looking at de-inflation in the year ahead.

Mr Narendra Modi also launched the “Make in India” campaign to encourage investment in manufacturing infrastructure to be able to make India the manufacturing hub of the world. This powerful campaign is yet to show major results but it has already started attracting investments from all over the world.

The Asian Development Bank has projected a 5.5% growth rate for India for the financial year ending in March 2015. The year 2014 brought with itself a lot of changes for India and changes in the economy are a major part of them. We seem to have taken a positive turn financially but still await the stability.

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