Does Corporate Cook Book?
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This document discusses characteristics of companies and how they operate. It also discusses three key factors for a company's success: liquidity, solvency, and profitability. The document explains that while a company may be profitable, it still needs sufficient liquidity. To attract investors and lenders, some companies may "cook the books" or inflate their financial reports to appear more liquid and attractive. Globalization has increased dependence on foreign funds, leading some companies to disguise their true financial position through "corporate cook books."
Does Corporate Cook Book?
- 1. DOES CORPORATE COOK BOOK? V. Nam ita Stude nt Institute o f Co m pany Se cre tarie s o f India ICSI Hyde rabad Mobile No : 9989654516
- 2. CHARACTERISTICS OF A COMPANY • Legal Entity • Large Pooling of funds - Shares • Ownership and Management are different • Voting Rights • Benefits to society
- 3. HOW A COMPANY OPERATES • Provisions of Companies Act, 1956 • General body meetings – decisions are taken – voting rights are vested with members • Powers are delegated to the Board of Directors • Directors meet frequently to discuss iddues • Shares are issued – Public Issue is done • People literally become owners of the company
- 4. HOW TRANSPARENCY IS ENSURED • Independent Directors • Position of Interested Directors is disclosed • Annual statements are published in the leading newspapers • Inspection of the Central Government when necessary
- 5. 3 THINGS TO LOOK OUT FOR SUCCESS OF A COMPANY LIQUIDITY SOLVENCY PROFITABILITY
- 6. LIQUIDITY • Day-day needs of the company • Working capital • Is it a liquid company?
- 7. SOLVENCY • Is the firm able to pay off its debts in time? • Activity or turnover ratios are calculated • Is the company able to collect the debts in time? • What is the solvency position with regard to certain parameters?
- 8. PROFITABILITY • Is the company able to get a profitable return on investments? • Is it able to service its long debt obligations? • Overall efficiency of the company is studied • Are shareholder’s funds being put to proper use?
- 9. THEN WHY COOK BOOK ? • A company may be very profitable but Liquidity wise, it is poor. LIQUIDITY V/S PROFITABILITY Ex : A man has various sources like credit card, debit card etc. But, he does’nt have a Rs 5 coin to pay for a bus ticket!
- 10. • So, in order to pump in funds, they have to show high inflow of funds • So solution is – inflate accounts, do window dressing and present a satisfactory statement to wannabe lenders! • This is how corporate cook book!
- 11. GLOBALISATION • Advent of globalisation – MNC’s have set shop here in INDIA • Dependence on foreign funds • Dealing with dollar dreams • Offshore assignments for employees • Why would foreigners invest ? • Basis on balance sheet figures keeping in mind Liquidity position of the company. • Hence cook book is the solution!