IIM Lucknow - March 8

Essay: Study without thought is vain. Thought without study is dangerous

Time: 15 minutes

GD Topic: Study without thought is vain. Thought without study is dangerous

Time: 9 minutes

Number of People: 6

Comments: Firstly, thank you to the 5 comrades for helping avoid fish market. It was a sensible discussion where everyone made their points properly. I made 3-4 entries. Started with an Abe Lincoln quote about chopping tree and sharpening axe. Gave example of Kingfisher that started with a pomp without proper groundwork. Gave examples of Hitler and Alexander who thought of world dominance without much thought.

Also, during GD, I contradicted the topic quoting a booking saying how at times, thought without study is necessary. Added that it may be beneficial in short run, but long run requires study.

Interview: 1^st out of 6 (Panel 4)

Panel: Prakash Singh (Finance), Neelakantan Narayanan (Operations)

Time: 10-12 minutes (Not sure)

PS: Come in.

Me: Good afternoon, Sirs.

NN: Have a seat.

Me: Thank you, Sir.

PS: So what is this One and Two that you were talking about in the GD? Where did you read it?

Me: Sir, the book is called Two Second Advantage.

PS: Two means? (LoL)

Me: Sir, one-two. That two. (Showing by fingers – ROFL)

PS: Okay. So what’s is the book about?

Me: It’s speaks of advantage to the early movers. Basically, how 2 seconds make a huge difference. 2 isn’t strictly 2 seconds. For example, in business it may be 2 months or 2 years.

Ones are impulsive managers who make decisions on the spot and Twos are analytical managers who require much thinking. The book says that Ones tend to be much successful than Twos in the long run.

PS: Can you give an example of this?

Me: I’ll give an example from the book. It speaks of Wayne Gretzky, an ice hockey player. He wasn’t the most talented, nor was he physically well-built. But what he was good at was that he could predict things 2 second early. That’s how he trained himself to overcome lack of talent and physicality. He would know what plays would happen 2 seconds later. That’s how he turned out to be one of the best, in fact the best player in NHL history.

PS: Okay. But it’s just a game. It’s different from business where profits are involved.

Me: Sir, business is passion for some and hockey is passion for others. I’d put them on par. In business, profits are at stake and in hockey, a career is at stake.

PS: Hmm. And what do you think of IPL valuations? Players are being bought for millions? Do you think such prices are justified?

Me: It’s different for every team. For example, Rajasthan Royals broke even in the very first year. Mumbai Indians took 3-4 years to break even. And not everyone is in it for profits. Many are in it for the glamour quotient. Shah Rukh Khan wants to up his brand image. Mukesh Ambani is in to promote Reliance.

PS: How is Reliance being promoted?

Me: People are more aware about Reliance as a brand after IPL. Mukesh Ambani’s group is mainly operating as B2B. It has few B2C businesses. So by way of IPL, common man is much more aware of Reliance now. Also, Mrs. Ambani is interview before matches where she promotes charitable causes. Thus, it helps build Reliance’s brand image.

NN: You mean goodwill?

Me: Yes. I meant goodwill.

NN: Hand me your folder and files.

PS: You’re a Chartered Accountant. So tell me, what 4 statements are required to be published under IFRS?

Me: Balance Sheet, Statement of Income, Cash Flows and Statement of Changes in Equity.

PS: Why is Statement of Changes in Equity required under IFRS?

Me: Sir, we didn’t have much of IFRS under CA.

PS: Still, you’re a CA. You should know.

Me: For stakeholders to see the changes in shareholding pattern.

PS: You mean changes in shares, right?

Me: Yes. Changes in shares. Sorry.

PS: So how would the changes in share occur?

Me: Suppose a company offers bonus. Or by way of rights. Also, the statement would show increase in reserves by way of profits.

PS: So it only shows increase in equity?

Me: Not really. If a company buys back shares, then it’d reduce equity.

PS: Why would a company buy back shares?

Me: To reduce the shareholder base. This was it can increase its EPS.

PS: So that’s the only reason?

Me: That’s the only one I can think of. That and to change the debt-equity ratio.

PS: Okay. What are your favourite subjects?

Me: In college? *PS nods* Financial Accounting and Economics.

PS: It is said that EBITDA is better suited to analysis than Profit After Tax. Is it so? What is EBIDTA?

Me: (Heard it as EBITA) Earnings before interest, taxes and ... amortization.

PS: It’s E-B-I-T-D-A.

Me: Yes. So depreciation and amortization.

PS: So you think it’s a better measure?

Me: Not really. Depends on the perspective.

PS: Arre. You’re an analyst. Take that perspective.

Me: So if I’m analysing from an investor perspective, I’d want to see the return on my investment. So I’d look at PAT to know how much I am earning per share on my investment.

PS: And what about EBITDA? Why is it shown without ITDA?

Me: To show actual operating revenue of the company without making deductions for interest payments, depreciation and taxation. It shows what I’m basically earning from operating activities and from extra-ordinary income.

PS: Okay. Tell me, where does interest earned on investment figure in Cash Flows?

Me: As per Indian Accounting Standards, it is to be show in Cash Flows from Investing Activity. But as per IFRS, it can be shown in either of three heads in CFS.

PS: If there is interest earned not from investment, where would it go?

Me: Where would the interest come from?

PS: Anywhere. Assume from bank deposits or anywhere.

Me: A company would deposit in Current Account, where there would be no interest. If it puts money in FD, it’d be investment income.

PS: Why Current Account? What if it puts in Savings Account?

Me: A bank cannot operate a savings bank account.

PS: (Laughing.. Trying to mock me) Who says so? Why can’t a bank deposit in savings account? Who operates a savings account then?

Me: Only an individual or an HUF can operate a savings account. A company would have to open a savings account.

PS: Theek hai.. But still, if there’s some interest, where would it go?

Me: If we take an example of interest paid by debtors on late payments, it’d go to cash flows from operating activity.

NN: Tell me about yourself.

Me: (Abhi poocha?!) Blah blah blah.

PS: And about your family.

Me: My father is a Chartered Accountant and my mother is a housewife.

PS: Where does your father work?

Me: ______.

PS: What?

Me: *Repeats slowly* It’s into *this business*

NN: What other calls do you have?

Me: ALS and 6 New calls in all from IIMs.

NN: Not C?

Me: I missed by a narrow margin.

NN: 303 was the cutoff.

Me: Yes, sir. And I got 294.

PS: You got S? How?

Me: (Dafuq) Sir, I had 81.86% in my Grad. S had a cutoff of 78% for Commerce Grads.

NN: You don’t have Indore?

Me: No Sir. Perhaps because of the academics.

PS: One last question. Because you’re a CA, we’re very excited. (LOL). Tell me. If a power generation or a manufacturing unit has its workers constructing a canteen, how would their salary be expensed?

Me: Sir, the salary would be capitalized from the time the construction begins till the canteen is ready for use, assuming the workers are working full time on the project.

PS: What if they aren't working full time?

Me: If they’re involved in manufacturing too, then the salary is to be apportioned between the two. The portion related to manufacturing is expensed and the portion related to construction of canteen is capitalized.

PS: I am done. *to NN* Do you want to ask anything else?

NN: No. (Sir, aapne poocha hi kitna?!)

PS: Okay. Fine. That’s it then. *handing back my folder*

PS: (looking at me): Good. (What does it means?! :P And no chocolate offered! )

Me: Thank you, Sir.