For students looking for Finance Mentor/Guide

Hello guys,

For all those newbies to finance, here is something for you. Recently, I stumbled upon this website called myfinmentor.org. This is a online platform with an aim to assist finance graduates in making good career decisions. Through this platform, they intend to bridge the industry-academia gap. They have several industry professionals (mentors) on board who provide one-on-one mentoring sessions, pass info about various job opportunities in their respective companies, give a flavour of their profiles and a lot more to prospective candidates (mentees).

 

Think, This can be useful to you in case you plan to pursue a career in finance. This could help you not only understand career /profiles better but would bring you closer to right people and help build a relevant network. All of their services are completely free and it’s a not for profit organization. Do have a look at the website whenever you have time and visit their facebook page too.

 

Website – www.myfinmentor.org

 

Page – www.facebook.com/myfinmentor

Service Tax

 

Service Tax is an Indirect Tax.  Why is it called an Indirect Tax? Well, you the consumer pay it indirectly to the government.

Service Tax was introduced in India in 1994 by Finance Minsiter Manmohan Singh with an intention to reduce tax burden from Manufacturing /Servicing companies for the services they provide. So how is the burden reduced? It is transferred to the consumers. The service tax is pre calculated and added to the price of a product. When you purchase a product, you are paying the service tax on the product and this amount is paid back to the government by the company.

This service tax is only applicable to those firms whose turnover is more than Rs.10 lacs per annum and all states other than Jammu and Kashmir.  Currently the service tax rate in India is 12.36%.

Service Tax  ——————————————– 12.00%

+ Education Cess @ 2%——————————-  0.24%

+Senior and Higher Education Cess @1%———0.12%

Effective Tax rate                                          12.36%

 

For Firm’s Accounting:

When you sell a product/service you receive the Service Tax from the consumer. You will record it as ST Payable as you are obliged to pay it back to the government what you received it from the consumers or end users.

When you purchase a product/service you are paying service tax the retailer or supplier.  You are the buyer or creditor. If you are a firm purchasing from a supplier, you will record the service tax amount paid on your purchase as ‘’ST Receivable’’.  As you have already paid this ST, this amount will be set off against your ‘’ST Payable’’ obligation.

-D.V.P

How Stock Index and its daily percentage changes are calculated

The stock market fluctuates daily. Someday it rises high and someday reaches rock bottom.  There are several stock indexes across the globe i.e. S&P 500, Dow Jones, Nikkei 225, Sensex, Nifty, etc.

These indexes are the statistical weighted average of few major companies listed under them. Sensex is calculated based on 30 companies and Nifty on 50 companies. It will be easier to understand with an example.

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Assume the calculation for an Index called ABC ( I will take very small fictional numbers so that there is no confusion)

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ABC takes into consideration 3 companies ( just for simple calculation).  These companies are available for trading. FREE-FLOAT MARKET CAPITALISATION METHOD IS USED TO CALCULATE INDEX.  It is simply multiplying the number of shares available to public with the current market price of the share.

Eg: XYZ company with 2000 shares, out of which only 1500 shares available for public trade at market price Rs. 120/- per share

=1500*120= Rs.180,000 Free Float Market capitalisation

MNO  company with 3000 shares, out of which only 2000 shares available for public trade at market price Rs. 500/- per share

=2000*500= Rs.1000,000 Free Float Market capitalisation

PQR company with 1000 shares, out of which only 800 shares available for public trade at market price Rs. 200/- per share

=800*200= Rs.160,000 Free Float Market capitalisation

So, total Free Float Market Capitalisation = 180,000+1000,000+160,000=1,340,000

Now, the year ABC INDEX had begun or the BASE YEAR it would have the initial Market Cap value like the one we calculated now. (eg: Sensex’s base year is 1978-79)

So now we take 2 assumptions about base year and its Market Cap

1. Base year: 2000-01
2. 2.       Market Cap: Rs.200,000

The base year Market Cap is considered 100. So daily or within every few minutes how much the Market Cap has increased or decreased to that base year is calculated

Calculation of ABC INDEX: 1,340,000* 100/200,000= 670 points

Tomorrow if the share prices of companies change and the Free Float Market Cap changes from Rs.1,340,000 to Rs.1,335,000 then how the changes are shown?

Calculation: 1,335,000* 100/200,000= 667.5 points

The Stock Market Index has gone down from 670 points to 667.5 points, i.e. the market is down by 2.5 points

Percentage Decrease = 2.5/670*100 = 0.37%

So, that’s how you get the news: The Market Today is at 667.5 points, down by 2.5 points or 0.37%.

Please do give me your feedback about the article and if you have any more doubts you want to be clear on. Thankyou.

DVP

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