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Index of Professionalism in Financial Decisions

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Financial Management Practices

Part of the book series: India Studies in Business and Economics ((ISBE))

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Abstract

What has been described and discussed in the other chapters is utilised in an attempt to develop an index of professional practices relating to financial management. The index has been developed in the basis of the responses received to a questionnaire sent to all the 166 sample companies. Though the number of responses received and used, being 29, was not very high, it can be considered a fairly good representation of the sample.

A corporate would be called professional if its management practices are consistent with the systematic body of knowledge and tools and techniques of sound theory. This means that the professional enterprises would not follow arbitrary/ad hoc or rule-of-thumb approach in taking decisions. In brief, it may be said that sample companies are using sound financial management practices in a great measure.

However, there is a greater scope for improving professionalism in some categories of financial management practices (like capital structure and risk management) than others.

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References

  • De Bondt WFM, Thaler RH (1995) Financial decision-making in markets and firms: a behavioral perspective. In: Jarrow R et al (eds) Chapter 13: Handbook in OR and MS, vol 9. Elsevier Science B.V., North Holland

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  • Hoyle E (1980) Professionalization and deprofessionalization in education, world year book of education. Kogan Page Ltd., London, p. 42

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  • Jain PK, Yadav SS (2000) Financial management practices in select private corporate enterprises – a comparative study of India, Thailand and Singapore. Hindustan Publishing Corporation, New Delhi

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  • Jain PK, Yadav SS (2005) Financial management practices – a study of public sector enterprises in India. Hindustan Publishing Corporation, New Delhi

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  • Stern D (2012) 7 ways to measure financial performance. http://davidsterncfo.wordpress.com/learning/7-ways-to-measure-financial-performance/. Accessed 19 July 2012

  • Yadav SS, Jain PK (2000) Professionalism in financial management: construct of an index. Manage Change 4(2):287–308

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  • Yadav SS, Jain PK (2005) Financial management practices in public enterprises: development of an index of professionalism. Manage Change 9(1):1–34

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Author information

Authors and Affiliations

  1. Department of Management Studies, Indian Institute of Technology, New Delhi, India

    P. K. Jain, Shveta Singh & Surendra Singh Yadav

Authors
  1. P. K. Jain
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  2. Shveta Singh
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  3. Surendra Singh Yadav
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Appendices

Appendices

Appendix 8.1: Calculations for professional index values of each sample company relating to capital budgeting (CB) practices

Company

Item 1

Item 2

Item 3

Item 4

\( \Sigma \text{Si}/\Sigma \text{Sim}\)

IPF (CB)

1

2/5

5/5

1/5

5/5

13/20

65.00

2

5/5

5/5

5/5

5/5

20/20

100.00

3

1/5

5/5

1/5

5/5

12/20

60.00

4

5/5

5/5

5/5

5/5

20/20

100.00

5

3/5

5/5

1/5

5/5

14/20

70.00

6

5/5

5/5

–

5/5

15/20

75.00

7

5/5

5/5

5/5

5/5

20/20

100.00

8

4/5

5/5

5/5

5/5

19/20

95.00

9

1/5

5/5

–

5/5

11/20

55.00

10

5/5

5/5

5/5

5/5

20/20

100.00

11

5/5

2/5

1/5

5/5

13/20

65.00

12

3/5

2/5

1/5

5/5

11/20

55.00

13

4/5

5/5

–

5/5

14/20

70.00

14

1/5

5/5

1/5

5/5

12/20

60.00

15

3/5

5/5

5/5

5/5

18/20

90.00

16

5/5

5/5

–

5/5

15/20

75.00

17

5/5

5/5

5/5

5/5

20/20

100.00

18

5/5

5/5

1/5

5/5

16/20

80.00

19

5/5

5/5

5/5

5/5

20/20

100.00

20

5/5

2/5

1/5

1/5

9/20

45.00

21

5/5

5/5

1/5

5/5

16/20

80.00

22

5/5

5/5

–

5/5

15/20

75.00

23

5/5

5/5

–

5/5

15/20

75.00

24

5/5

5/5

5/5

5/5

20/20

100.00

25

5/5

5/5

–

5/5

15/20

75.00

26

5/5

5/5

5/5

5/5

20/20

100.00

AvIPF (CB)

     

79.42

  1. *Questions 5 (item 2), 6 (item 3), 7 (item 4) and 9 (item 5) are the four questions picked up from the capital budgeting section (Section B) from Appendix 1.3 and their scores are shown under item 1–4, respectively, in the table
  2. **The scores of 26 companies (out of 31) that responded to more than 50% of the questions in this category have been shown here

Appendix 8.2: Calculations for professional index values of each sample company relating to capital structure (CS) decisions

Company

Item 1

Item 2

Item 3

Item 4

Item 5

\( \Sigma \text{Si}/\Sigma \text{Sim}\)

IPF (CS)

1

5/5

1/5

1/5

1/5

–

8/25

32.00

2

5/5

0/5

5/5

1/5

5/5

16/25

64.00

3

5/5

5/5

–

1/5

5/5

16/25

64.00

4

5/5

5/5

5/5

1/5

5/5

21/25

84.00

5

5/5

5/5

1/5

1/5

0/5

12/25

48.00

6

5/5

5/5

5/5

–

5/5

20/25

80.00

7

5/5

5/5

5/5

–

5/5

20/25

80.00

8

5/5

5/5

1/5

1/5

0/5

12/25

48.00

9

5/5

5/5

1/5

1/5

5/5

17/25

68.00

10

5/5

5/5

1/5

–

0/5

11/25

44.00

11

5/5

5/5

1/5

–

5/5

16/25

64.00

12

5/5

5/5

1/5

1/5

5/5

17/25

68.00

13

5/5

5/5

5/5

–

0/5

15/25

60.00

14

5/5

5/5

1/5

–

5/5

16/25

64.00

15

5/5

0/5

5/5

1/5

5/5

16/25

64.00

16

5/5

5/5

–

1/5

5/5

16/25

64.00

17

5/5

5/5

5/5

–

5/5

20/25

80.00

18

5/5

1/5

1/5

–

5/5

12/25

48.00

19

5/5

5/5

5/5

–

0/5

15/25

60.00

20

5/5

5/5

5/5

–

0/5

15/25

60.00

21

5/5

1/5

5/5

1/5

5/5

17/25

68.00

22

5/5

5/5

1/5

1/5

5/5

17/25

68.00

23

5/5

5/5

5/5

–

5/5

20/25

80.00

24

5/5

5/5

1/5

–

0/5

11/25

44.00

25

5/5

5/5

1/5

–

0/5

11/25

44.00

26

5/5

0/5

1/5

1/5

5/5

12/25

48.00

27

5/5

5/5

1/5

–

5/5

16/25

64.00

28

5/5

5/5

1/5

–

0/5

11/25

44.00

AvIPF (CS)

 

60.86

  1. *Questions 3 (item 1), 11 (item 2), 13(B) (item 3), 14 (item 4) and 16 (item 5) are the five questions picked up from the capital structure section (Section C) from Appendix 1.3, and their scores are shown under item 1–5, respectively, in the table
  2. **The scores of 28 companies (out of 31) that responded to more than 50% of the questions in this category have been shown here

Appendix 8.3: Calculations for professional index values of each sample company relating to working capital (WC) decisions

Company

Item 1

Item 2

Item 3

Item 4

Item 5

\( \Sigma \text{Si}/\Sigma \text{Sim}\)

IPF (WC)

1

5/5

0/5

1/5

5/5

5/5

16/25

64.00

2

5/5

0/5

5/5

5/5

5/5

20/25

80.00

3

5/5

5/5

5/5

5/5

5/5

25/25

100.00

4

5/5

3/5

5/5

5/5

5/5

23/25

92.00

5

5/5

3/5

1/5

5/5

5/5

19/25

76.00

6

5/5

5/5

5/5

5/5

5/5

25/25

100.00

7

5/5

0/5

1/5

5/5

5/5

16/25

64.00

8

5/5

5/5

5/5

5/5

5/5

25/25

100.00

9

5/5

5/5

5/5

5/5

5/5

25/25

100.00

10

5/5

5/5

5/5

5/5

5/5

25/25

100.00

11

5/5

5/5

5/5

5/5

5/5

25/25

100.00

12

5/5

0/5

1/5

5/5

5/5

16/25

64.00

13

5/5

5/5

5/5

–

–

15/25

60.00

14

5/5

5/5

5/5

5/5

5/5

25/25

100.00

15

0/5

5/5

5/5

5/5

5/5

20/25

80.00

16

5/5

5/5

1/5

–

5/5

16/25

64.00

17

5/5

3/5

5/5

5/5

5/5

23/25

92.00

18

–

0/5

1/5

5/5

5/5

11/25

44.00

19

5/5

5/5

5/5

5/5

5/5

25/25

100.00

20

5/5

3/5

5/5

–

–

13/25

52.00

21

0/5

3/5

1/5

5/5

5/5

14/25

56.00

22

0/5

3/5

5/5

5/5

5/5

18/25

72.00

23

5/5

0/5

5/5

5/5

5/5

20/25

80.00

24

5/5

0/5

5/5

5/5

5/5

20/25

80.00

25

5/5

5/5

1/5

–

–

11/25

44.00

26

5/5

5/5

5/5

5/5

5/5

25/25

100.00

27

5/5

3/5

5/5

–

5/5

18/25

72.00

28

5/5

5/5

1/5

5/5

5/5

21/25

84.00

AvIPF (WC)

 

77.38

  1. *Questions 19 (item 1), 20 (item 2), 23 (item 3), 25 (B) (item 4) and 25 (C) (item 5) are the five questions picked up from the working capital section (Section D) from Appendix 1.3, and their scores are shown under item 1–5, respectively, in the table
  2. **The scores of 28 companies (out of 31) that responded to more than 50% of the questions in this category have been shown here

Appendix 8.4: Calculations for professional index values of each sample company relating to dividend (D) policy

Company

Item 1

Item 2

\( \Sigma \text{Si}/\Sigma \text{Sim}\)

IPF (D)

1

1/5

5/5

6/10

60.00

2

5/5

5/5

10/10

100.00

3

1/5

1/5

2/10

20.00

4

5/5

5/5

10/10

100.00

5

5/5

5/5

10/10

100.00

6

5/5

1/5

6/10

60.00

7

5/5

5/5

10/10

100.00

8

5/5

5/5

10/10

100.00

9

5/5

5/5

10/10

100.00

10

5/5

5/5

10/10

100.00

11

5/5

5/5

10/10

100.00

12

5/5

5/5

10/10

100.00

13

5/5

5/5

10/10

100.00

14

5/5

5/5

10/10

100.00

15

5/5

5/5

10/10

100.00

16

5/5

5/5

10/10

100.00

17

5/5

5/5

10/10

100.00

18

5/5

5/5

10/10

100.00

19

5/5

1/5

6/10

60.00

20

5/5

5/5

10/10

100.00

21

5/5

1/5

6/10

60.00

22

5/5

5/5

10/10

100.00

23

5/5

5/5

10/10

100.00

24

5/5

5/5

10/10

100.00

25

5/5

5/5

10/10

100.00

26

5/5

5/5

10/10

100.00

27

5/5

5/5

10/10

100.00

AvIPD (D)

 

91.11

  1. *Questions 27 (A) (item 1) and 27 (B) (item 2) are the two questions picked up from the dividend policy section (Section E) from Appendix 1.3, and their scores are shown under item 1–2, respectively, in the table
  2. **The scores of 27 companies (out of 31) that responded to more than 50% of the questions in this category have been shown here

Appendix 8.5: Calculations for professional index values of each sample company relating to corporate governance (CG)

Company

Item 1

Item 2

Item 3

Item 4

Item 5

Item 6

Item 7

Item 8

Item 9

Item 10

Item 11

Item 12

Item 13

Item 14

Item 15

Item 16

SSi/SSim

IPF (CG)

1

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

70/80

87.50

2

5/5

–

5/5

5/5

5/5

5/5

5/5

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

70/80

87.50

3

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

75/80

93.75

4

–

0/5

5/5

0/5

5/5

5/5

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

60/80

75.00

5

5/5

0/5

5/5

0/5

5/5

1/5

5/5

5/5

5/5

5/5

5/5

–

5/5

5/5

5/5

5/5

61/80

76.25

6

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

75/80

93.75

7

5/5

0/5

1/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

71/80

88.75

8

5/5

5/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

70/80

87.50

9

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

75/80

93.75

10

5/5

0/5

5/5

1/5

1/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

67/80

83.75

11

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

75/80

93.75

12

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

80/80

100.00

13

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

5/5

70/80

87.50

14

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

–

5/5

0/5

65/80

81.25

15

5/5

0/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

5/5

5/5

5/5

–

5/5

5/5

65/80

81.25

16

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

–

5/5

5/5

70/80

87.50

17

–

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

70/80

87.50

18

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

70/80

87.50

19

5/5

0/5

5/5

–

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

65/80

81.25

20

5/5

0/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

70/80

87.50

21

5/5

0/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

70/80

87.50

22

0/5

0/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

0/5

55/80

68.75

23

0/5

0/5

5/5

–

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

–

5/5

5/5

55/80

68.75

24

5/5

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

75/80

93.75

25

5/5

5/5

1/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

76/80

95.00

26

5/5

–

5/5

5/5

5/5

5/5

5/5

0/5

5/5

5/5

–

5/5

5/5

5/5

5/5

5/5

65/80

81.25

27

5/5

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

5/5

75/80

93.75

28

5/5

0/5

1/5

–

–

5/5

5/5

0/5

5/5

5/5

5/5

5/5

5/5

0/5

5/5

0/5

46/80

57.50

29

5/5

0/5

–

5/5

5/5

5/5

–

5/5

–

5/5

5/5

5/5

5/5

5/5

5/5

5/5

60/80

75.00

AvIPF (CG)

                 

84.96

  1. *Questions 32 (A) (item 1), 33 (A) (item 2), 36 (A) (item 3), 36 (B) (item 4), 36 (C) (item 5), 37 (item 6), 39 (item 7), 41 (A) (item 8), 41 (B) (item 9), 45 (item 10), 46 (item 11), 47 (item 12), 48 (item 13), 49 (A) (item 14), 49 (B) (item 15) and 49 (C) (item 16) are the 16 questions picked up from the corporate governance section (Section F) from Appendix 1.3, and their scores are shown under item 1–16, respectively, in the table
  2. **All 31 companies had responded to this (corporate governance) section’s questions. However, two of them had responded to questions of this section only. Hence, they have not been included in the calculation of the index

Appendix 8.6: Calculations for professional index values of each sample company relating to risk management (RM)

Company

Item 1

Item 2

Item 3

Item 4

Item 5

Item 6

Item 7

\( \Sigma \text{Si}/\Sigma \text{Sim}\)

IPF (RM)

1

1/5

1/5

5/5

1/5

–

–

–

8/35

22.86

2

4/5

3/5

5/5

5/5

1/5

–

–

18/35

51.43

3

1/5

3/5

5/5

–

–

1/5

1/5

11/35

31.43

4

1/5

1/5

5/5

1/5

–

1/5

1/5

10/35

28.57

5

4/5

4/5

5/5

5/5

1/5

1/5

1/5

21/35

60.00

6

1/5

2/5

5/5

–

1/5

1/5

1/5

11/35

31.43

7

3/5

3/5

5/5

5/5

1/5

–

–

17/35

48.57

8

3/5

3/5

5/5

1/5

2/5

3/5

2/5

19/35

54.29

9

3/5

3/5

0/5

4/5

2/5

1/5

1/5

14/35

40.00

10

2/5

2/5

5/5

3/5

4/5

1/5

1/5

18/35

51.43

11

2/5

3/5

5/5

5/5

1/5

2/5

2/5

20/35

57.14

12

2/5

4/5

5/5

1/5

2/5

3/5

3/5

20/35

57.14

13

3/5

4/5

5/5

–

–

1/5

1/5

14/35

40.00

14

4/5

4/5

5/5

–

2/5

1/5

1/5

17/35

48.57

15

2/5

4/5

5/5

2/5

3/5

1/5

1/5

18/35

51.43

16

2/5

4/5

5/5

5/5

–

1/5

1/5

18/35

51.43

17

4/5

4/5

5/5

–

2/5

1/5

2/5

18/35

51.43

18

2/5

2/5

5/5

3/5

–

–

–

12/35

34.29

19

1/5

2/5

5/5

1/5

–

–

–

9/35

25.71

20

3/5

3/5

5/5

–

4/5

2/5

1/5

18/35

51.43

21

1/5

2/5

5/5

–

1/5

–

–

9/35

25.71

22

2/5

4/5

5/5

2/5

–

1/5

1/5

15/35

42.83

23

–

3/5

5/5

–

1/5

1/5

1/5

11/35

31.43

24

2/5

1/5

5/5

1/5

1/5

2/5

1/5

13/35

37.14

25

1/5

1/5

0/5

5/5

–

–

–

7/35

20.00

26

5/5

5/5

5/5

–

5/5

1/5

1/5

22/35

62.86

AvIPF (RM)

        

39.90

  1. *Questions 59 (item 1), 60 (item 2), 61 (item 3), 64 (item 4), 65 (A) (item 5), 65 (B) (item 6) and 65 (C) (item 7) are the seven questions picked up from the risk management section (Section H) from Appendix 1.3, and their scores are shown under item 1–7, respectively, in the table
  2. **The scores of 26 companies (out of 31) that responded to more than 50% of the questions in this category have been shown here

Appendix 8.7: Abbreviations with their expansions

IPF (CB)::

Index of professionalism with regard to capital budgeting (CB) practices in the sample company

AvIPF (CB)::

Average index of professionalism with regard to capital budgeting (CB) practices for the sample as a whole

IPF (CS)::

Index of professionalism with regard to capital structure (CS) practices in the sample company

AvIPF (CS)::

Average index of professionalism with regard to capital structure (CS) practices for the sample as a whole

IPF (WC)::

Index of professionalism with regard to working capital (WC) practices in the sample company

AvIPF (WC)::

Average index of professionalism with regard to working capital (WC) practices for the sample as a whole

IPF (D)::

Index of professionalism with regard to dividend (D) practices in the sample company

AvIPF (D)::

Average index of professionalism with regard to dividend (D) practices for the sample as a whole

IPF (CG)::

Index of professionalism with regard to corporate governance (CG) practices in the sample company

AvIPF (CG)::

Average index of professionalism with regard to corporate governance (CG) practices for the sample as a whole

IPF (RM)::

Index of professionalism with regard to risk management (RM) practices in the sample company

AvIPF (RM)::

Average index of professionalism with regard to risk management (RM) practices for the sample as a whole

IPF (C)::

Aggregate value of the index of professionalism for all companies for one category of financial management practice

IPF (AG)::

Aggregate value of the index of professionalism for all companies and all financial management practices combined

Appendix 8.8: Questionnaire for the calculation of index

I – Items Related to Capital Budgeting (CB) Practices

  1. 1.

    How many year(s) ahead do you plan for capital expenditure?

    1. (a)

      [ ] For next 1 year only

    2. (b)

      [ ] For next 5 years

    3. (c)

      [ ] For next 10 years

    4. (d)

      [ ] As and when the opportunity takes place

    5. (e)

      [ ] Any other (please specify) __________________

  2. 2.

    Does your company ever forego any expected profitable investment opportunity because of paucity of financial resources?  Yes [ ]  No [ ]

  3. 3.

    (A) Please identify capital expenditure evaluation technique(s) used in your company

    1. (a)

      [ ] Accounting rate of return on investment

    2. (b)

      [ ] Payback period

    3. (c)

      [ ] Discounted cash flow techniques

      1. (i)

        [ ] Net present value

      2. (ii)

        [ ] Internal rate of return

      3. (iii)

        [ ] Profitability index/present value index

    4. (d)

      [ ] Any other (please specify) __________________

  4. (B)

    Is your company using the following techniques?

    1. (a)

      [ ] Real options  Yes [ ]  No [ ]

  5. 4.

    Please state method(s) followed to incorporate project risk into your investment decision

    1. (a)

      [ ] Shorter payback period for risky projects

    2. (b)

      [ ] Higher cut-off rate for risky projects

    3. (c)

      [ ] Sensitivity analysis

    4. (d)

      [ ] Any other (please specify) _______________

II – Items Related to Capital Structure Decisions

  1. 1.

    During the course of capital expenditure projects, does your company opt for sound capital structure to ensure a low cost of capital for the project? Yes [ ]  No [ ]

  2. 2.

    Which method do you use to determine cost of capital?

    1. (a)

      [ ] Weighted average cost of long-term sources of finance

    2. (b)

      [ ] Marginal cost of additional funds raised to finance new asset

    3. (c)

      [ ] Decided by the top management

    4. (d)

      [ ] Any other (please specify) _________________

  3. 3.

    In your opinion the ratio of debt to equity should be maintained less than 1, 1:1, 2:1, 3:1 or greater than 3.

  4. 4.

    If your firm prefers to have predominantly more equity, the reason(s) could be

    1. (a)

      [ ] Firm is not under obligations to pay dividends.

    2. (b)

      [ ] There is flexibility in paying dividends.

    3. (c)

      [ ] Equity is easy to raise.

    4. (d)

      [ ] Any other (please specify) ________________

  5. 5.

    Cost of retained earnings in your company is equivalent to

    1. (a)

      [ ] Cost of equity capital

    2. (b)

      [ ] Opportunity cost of using these funds by company

    3. (c)

      [ ] Opportunity cost of using these funds by equity-holders

    4. (d)

      [ ] No cost is considered

    5. (e)

      [ ] Any other (please specify) _______________

III – Items Related to Working Capital Management

  1. 1.

    Which of the following forms the basis for working capital determination?

    1. (a)

      [ ] Percentage of budgeted production

    2. (b)

      [ ] Percentage of budgeted sales

    3. (c)

      [ ] Length of operating cycle

    4. (d)

      [ ] Determination of individual components of current assets and current liabilities (based on raw material holding period, debtors collection period, creditors payment period and so on)

    5. (e)

      [ ] Any other (please specify) _______________

  2. 2.

    Please state your company’s policy regarding financing of working capital

    1. (a)

      [ ] Mainly from long-term sources

    2. (b)

      [ ] Mainly from short-term sources

    3. (c)

      [ ] Temporary/seasonal needs from short-term sources and only for period needed

    4. (d)

      [ ] Permanent needs from long-term sources and temporary/seasonal needs from short-term sources

    5. (e)

      [ ] Any other (please specify) _________________

  3. 3.

    How do you manage emergency requirements of cash?

    (Arising due to unexpected events or to exploit an opportunity)

    1. (a)

      [ ] Always maintain minimum cash balance over and above the required amount

    2. (b)

      [ ] Bank overdraft

    3. (c)

      [ ] Utilisation of cash credit limit from bank

    4. (d)

      [ ] Discount bill receivables

    5. (e)

      [ ] Have special arrangements with some lending agency for such purposes

    6. (f)

      [ ] Sell marketable securities

    7. (g)

      [ ] Raise loan against warehouse receipt

    8. (h)

      [ ] Any other (please specify) ______________

  4. 4.

    Is risk analysis of customers made before granting credit?  Yes [ ]  No [ ]

  5. 5.

    Is the ageing schedule of debtors prepared?  Yes [ ]  No [ ]

IV – Items Related to Dividend Policy

  1. 1.

    Does your company follow a stable dividend policy?  Yes [ ]  No [ ]

  2. 2.

    Does your company follow a constant payout ratio?  Yes [ ]  No [ ]

V – Items Related to Corporate Governance

  1. 1.

    Does your company have an internal team dedicated to corporate governance?  Yes [ ]  No [ ]

  2. 2.

    Has the company been assessed for its corporate governance practices by any rating agency like CRISIL or ICRA etc.  Yes [ ]  No [ ]

  3. 3.

    Does the company publish its annual report within stipulated time of 6 months after the end of the financial year?

    • Always [ ] Mostly [ ] Occasionally [ ] Sometimes [ ] Never [ ]

  4. 4.

    Does the company publish/announce semi-annual reports within 1 month of the end of the half-year?

    • Always [ ] Mostly [ ] Occasionally [ ] Sometimes [ ] Never [ ]

  5. 5.

    Does the company publish/announce quarterly reports within 1 month of the end of the quarter?

    • Always [ ] Mostly [ ] Occasionally [ ] Sometimes [ ] Never [ ]

  6. 6.

    Does the company consistently disclose material sensitive information to stakeholders?

    • Always [ ] Sometimes [ ] Never [ ]

  7. 7.

    Are the statutory auditors of the company unrelated to the top management of company?  Yes [ ]  No [ ]

  8. 8.

    Is there a whistle-blower policy in your company?  Yes [ ]  No [ ]

  9. 9.

    Is there an investors’ grievance cell in your company?  Yes [ ]  No [ ]

  10. 10.

    Do the CEO and CFO of your company establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls?  Yes [ ]  No [ ]

  11. 11.

    Does your company submit a quarterly compliance report on corporate governance to the stock exchange where it is listed in the prescribed form?  Yes [ ]  No [ ]

  12. 12.

    Does your annual report contain a separate section on corporate governance with a detailed compliance report?  Yes [ ]  No [ ]

  13. 13.

    Does your company obtain a certificate either from auditors or practising company secretaries regarding compliance of conditions as stipulated in clause 49 and annex the same to the director’s report?  Yes [ ]  No [ ]

  14. 14.

    Does your company have a committee on corporate governance as per clause 49?  Yes [ ]  No [ ]

  15. 15.

    Does your company have the mandatory audit committee as per clause 49?  Yes [ ]  No [ ]

  16. 16.

    Does your company have the remunerations committee as per clause 49?  Yes [ ]  No [ ]

VI – Items Related to Risk Management

  1. 1.

    What are some of the steps your company takes to mitigate its financial risk?

    1. (a)

      [ ] Keep the debt/equity ratio close to the industrial benchmark.

    2. (b)

      [ ] Make conscious efforts to keep the financial leverage as low as possible by reducing debt in the capital structure.

    3. (c)

      [ ] Have internal control ratios like cash flow return on investment.

    4. (d)

      [ ] Make conscious efforts to keep the interest coverage ratio as high as possible.

    5. (e)

      [ ] Make extensive use of financial derivatives.

    6. (f)

      [ ] Examine tax consequences of cross border activities and incorporate it in financial planning.

    7. (g)

      [ ] Any other (please specify) _____________

  2. 2.

    What are some of the steps your company takes to mitigate its business/operational risk?

    1. (a)

      [ ] Use adequate insurance coverage against fixed asset loss.

    2. (b)

      [ ] Use leasing/hire-purchase arrangements to keep long-term investment as low as possible.

    3. (c)

      [ ] Examine components like transfer pricing, excise duties etc as consequences of cross border activities and incorporate it in operational planning.

    4. (d)

      [ ] Review acquisitions and handle disposal/liquidation of business components/joint ventures.

    5. (e)

      [ ] Budgets are regularly monitored and reallocated in line with revised risk/resource needs.

    6. (f)

      [ ] There is a strong and conscious effort to focus on variable-cost-dominated ventures and strategies.

    7. (g)

      [ ] Any other (please specify) _____________

  3. 3.

    If operating risk is high, does your company make a strong effort to reduce financial risk (or vice versa) in order to keep the overall risk low?  Yes [ ]  No [ ]

  4. 4.

    Indicate the order of preference as to which of the following precautions could help in minimising the political risk in international operations. (1 for most important, 2 for next preference and so on)

    1. (a)

      [ ] Incorporating a risk premium in the cost of capital

    2. (b)

      [ ] Integrating products of the host country in your business

    3. (c)

      [ ] Taking loans from the financial institutions of the host country

    4. (d)

      [ ] Increasing the number of the host country employees.

    5. (e)

      [ ] Creating joint ventures with an enterprise of the host country

    6. (f)

      [ ] Any other (please specify) _______________

  5. 5.

    For managing exchange rate risk, do you use the following technique(s)?

     

    Yes

    No

    (a) Leads and lags

    [ ]

    [ ]

    (b) Netting

    [ ]

    [ ]

    (c) Back to back swap

    [ ]

    [ ]

    (d) Re-invoicing through a centralised system

    [ ]

    [ ]

    (e) Risk sharing

    [ ]

    [ ]

    (f) Any other (please specify) ______________

    [ ]

    [ ]

  6. 6.

    In the case of anticipated depreciation of local currency, which of the basic hedging strategies are used by your company? (Please tick mark.)

    1. (a)

      [ ] Buy foreign currency forward.

    2. (b)

      [ ] Reduce levels of local currency cash and marketable securities.

    3. (c)

      [ ] Reduce local currency receivables.

    4. (d)

      [ ] Delay collection of hard currency (appreciating currency) receivables.

    5. (e)

      [ ] Borrow locally.

    6. (f)

      [ ] Delay payments of local currency payable.

    7. (g)

      [ ] Speed up dividend and other remittances to parent.

    8. (h)

      [ ] Invoice exports in foreign currency and imports in loc.l currency.

  7. 7.

    In the case of anticipated appreciation of local currency which of the basic hedging strategies used by your company? (Please tick mark.)

    1. (a)

      [ ] Sell foreign currency forward.

    2. (b)

      [ ] Increase levels of local currency cash and marketable securities.

    3. (c)

      [ ] Relax local currency credit terms (i.e. increase local currency receivables)

    4. (d)

      [ ] Speed up collection of soft currency (depreciating currency) receivables.

    5. (e)

      [ ] Reduce local borrowing.

    6. (f)

      [ ] Speed up payments of local currency payable.

    7. (g)

      [ ] Delay dividend and other remittances to parent.

    8. (h)

      [ ] Invoice exports in local currency and imports in foreign currency.

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Jain, P.K., Singh, S., Yadav, S.S. (2013). Index of Professionalism in Financial Decisions. In: Financial Management Practices. India Studies in Business and Economics. Springer, India. https://doi.org/10.1007/978-81-322-0990-4_8

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