Risk Management- a Case Study approach

 

Sustainability of Business-ROCE(Return on Capital Employed) & new ROCE(Return on Climate & Environment)-an Integrated approach

 

Sustainability of Business-ROCE(Return on Capital Employed) & new ROCE(Return on Climate & Environment)-an Integrated approach

 

ROCE(Return on Capital Employed), according to Warren Buffet, is an important Financial Ratio that is used for measuring the combined effect of Profitability of the Business and the Productivity of the Business assets which can sustain its value. 

Profitability is measured in terms of  Return on Sales and Productivity is measured in terms of how well the Assets of the Business are put to use by looking at Assets Turnover.

(1)The formula used for calculating Return on sales is PBIT less Tax/Net Sales.

(2)The formula for calculating Turnover on Assets is Net Sales/(Net Fixed Assets+Net Current Assets i.e(Current Assets-Current Liabilities)

(3) the formula for calculating Return on Capital Employed(ROCE) is obtained by Multiplying (1)X(2)- (calculated for every year separately in the example given below)

The following is a real example of a trend of ROCE of a Business over the years ,that has three Verticals:

Belts, Oilseals and Engineering.The composite business is called Polymer.

 

Now for this Business ,an analysis is done and the ways of how to improve the ROCE of this Business have been identified. This is as follows:

                               

                            How to Improve ROCE of the Business

 This ROCE improvement Plan can be built through Balanced Scorecard Methodology.(The Balanced Scorecard;Measures that drive Performance-HBR-1992 by Dr.Robert S.Kaplan and David P.Norton )

EVA Ratio-"Economic Value Added"(Stern Value Management) of the Business, which is the Economic Profit of the Business can also be considered as the Ultimate Financial goal of a Business . The EVA is NOPAT(Net Operating Profit After Tax)- (Invested Capital*WACC) where Invested Capital includes both Equity & Debt and WACC is Weighted Average Cost of Invested Capital. In this WACC, the cost of Debt i.e Borrowed capital is calculated Net of Taxes, where the local Income/Corporate Tax policies allow deduction for the Interest paid on Borrowed Capital and the Dividend payable/expected by Shareholders is considered as the Cost of Equity.When EVA is integrated with Value-Based Management that becomes the key to Sustainable Value Creation by any Organisation(Stern Value Management-1993- “The Real key to Creating Wealth”).

 

A sample of Strategy Map developed with EVA &ROCE Ratios being tracked on Quarterly basis by comparing Actuals vs Target ,under Balanced Scorecard Methodology for a Co. in India is given below:

 

The benefits of drawing out a Strategy Map like this on Financial perspective built on Financial Ratios at the pinnacle, and Customer ,Operational and Learning & Growth perspectives are many due to interplay of cross-functional interactions and improvements flowing through the entire organisation. When this happens the organisation functions as a one whole being with all its parts working in Sync, Synergistic & Sustainable ways.

On an external environment, it is like all the players of a Team planning a carefully laid out Strategy in a tournament for winning a World cup in Soccer or Cricket!!

Since, the world has already moved into Sustainable Business models with 3Ps as the focus-Profit, People and Planet, and is now rapidly moving into Sustainable business through harmonious assimilation of Environment,Social and Governance values into Business Sustainability(The Investor Revolution-HBR-May-june 2019 bySvetlena Klimenko and Robert G.Eccles).

Now, we have reached a point where we need to integrate traditional ROCE-Return on Capital Employed with the new Return on Climate and Environment.  ESG reporting in India started in 2009 with the Ministry of Corporate Affairs (MCA) issuing the Voluntary Guidelines on Corporate Social Responsibility, since then the reporting landscape has come a long way with the introduction of Business Responsibility Reporting (BRR), Corporate Social Responsibility (CSR), IR, National Guidelines on Responsible Business Conduct (NGRBC) and the newly introduced Business Responsibility and Sustainability Report (BRSR) (introduced through a SEBI circular dated 10th May 2021).

World Economic forum on its part has come out with set of 21 core and 34 widened metrics and disclosures in its report “Measuring Stakeholder Capitalism:Towards Common Metrics and Consistent Rporting of Sustainable Value Creation “(WEF report,2020), as an extension of Stakeholder Capitalism Metrics standing on 4 pillars-People,Planet,Prosperity and Principles of Governance.

For future growth of the Sustainable Business Value Creation the integration of these metrics with Financial Metrics, is sine-qua-non.

 

 

ROCE-Return on Capital Employed- a fair measure Ratio to know the Business Efficiency in Nutshell

ROCE(Return on Capital Employed)_A Ratio analysis

ROCE is an important Financial Ratio that is used for measuring the combined effect of Profitability of the Business and the Productivity of the Business. 

Profitability is measured in terms of  Return on Sales and Productivity is measured in terms of how well the Assets of the Business are put to use by looking at Assets Turnover.

(1)The formula used for calculating Return on sales is PBIT less Tax/Net Sales.

(2)The formula for calculating Return on Assets is Net Sales/(Net Fixed Assets+Net Current Assets)

(3) the formula for calculating Return on Capital Employed(ROCE) is obtained by Multiplying (1)X(2)-(calculated for each year separately in the example given below)

The following is a real example of a trend of ROCE of a Business over the years ,that has three Verticals:

Belts, Oilseals and Engineering.The composite business is called Polymer.

Now for this Business ,an analysis is done and the ways of how to improve the ROCE of this Business have been identified. This is as follows:

                                           How to Improve ROCE of the Business

This ROCE improvement Plan can be built through Balanced Scorecard Methodology.

EVA Ratio-"Economic Value Add" of the Business, which is the Economic Profit of the Business can also be considered as the Ultimate Financial goal of a Business . The EVA is NOPAT(Net Operating Profit After Tax)- (Invested Capital*WACC) where Invested Capital includes both Equity & Debt and WACC is Weighted Average Cost of Invested Capital. In this WACC, the cost of Debt i.e Borrowed capital is calculated Net of Taxes, where the local Income/Corporate Tax policies allow deduction for the Interest paid on Borrowed Capital and the Dividend payable/expected by Shareholders is considered as the Cost of Equity.

A sample of Strategy Map developed  with EVA &ROCE Ratios ,under Balanced Scorecard Methodology for a Co. in India is given below:

The benefits of drawing out a Strategy Map like this on Financial perspective built on Financial Ratios at the pinnacle, and Customer ,Operational and Learning & Growth perspectives are many due to interplay of cross-functional interactions and improvements flowing through the entire organisation. When this happens the organisation functions as a one whole being with all its parts working in Sync & Synergy.

On an external environment, it is like all the players of a Team planning a carefully laid out Strategy in a tournament for winning a World cup in Soccer or Cricket!!

Vyadha gita -its lofty philosophy of Karma Yoga

 Vyadha Gita, literally means Song of the Butcher,  is part of Mahabharat and is actually a collection of  teachings  imparted by a Butcher to a Brahmin Sannyasi. This is our heritage and none less than Swami Vivekananda extolled Vyadha Gita as the essence of Karma Yoga. A Butcher , a housewife and a Brahmin Sannyasi are the three characters in this mystical story occurring in Vana Parva section and is told by Sage Markendeya to Yudhistra, the Pandava Prince.

Lord Krishna, it seems, says in Srimad Bhagavata Purana that this Butcher is someone who attained perfection /realisation/emancipation by Satsanga.

So let us dvelve a little into that incredible story where a Brahmin Sanyaasi is taught Dharma and Ahimsa by a Butcher of all the beings!! In terms of social heirarchy Vyadha is at the lowest status when compared to a brahmin and yet this story finds a prominent place in Mahabharata ,which is acclaimed as the Fifth Veda.

A young Sanyasi went to the forest,meditated, did penance. After years of Yoga practice, and hard work, he was sitting under a tree, when some dry leaves fell on his head.He looked up and saw a crane and a crow fighting on the tree-top .He angrily glanced at them at uttered" How dare you throw these dry leaves upon my head", and a flash of fire emanating from him burnt up the poor birds immly.Such was his Yogic power and he felt elated that he had acquired such powers in his grasp that could burn others if he became angry.Next day he went to a house asking for alms as per his daily ritual and cried out "Mother, give me some food". A woman from inside the house answered "Wait, I will come". In the meantime he felt angry and due to arrogance he thought to himself "This wretched woman has asked me to wait without knowing the power I have". The woman politely answered " I am neither a crow nor a crane!". The Sanyasi fell at her feet and asked her how she came to know of the incident which happened in the forest.She replied " I do not know any Yoga or meditation like you do; but ever since my birth I was ding my duty to my parents initially and now after marriage I am looking after my husband as he fell sick. I have been doing my duty cheerfully and wholeheartedly.that is all.But by doing my duty I have become illumined; thus I could read your thoughts and know what you had done in the forest.If you want to learn further you can go to such and such town and meet the Dharmavyadha(Righteous Butcher)". Sanyasi felt reluctant to go and learn from a Vyadha(Butcher) but he realised that there must be a reason behind this and so he went to meet Dharmavyadha.Vyadha was in his workplace cutting meat and the moment he saw this Sanyasi he enquired whether he was sent by the said woman. He listened to his teachings which are called Vyadha-Gita. According to Dharma vyadha

"no duty is ugly, no duty is impure. My birth placed me in these places,situations and environments. In my boyhood I learnt the trade; I remain unattached, and I try to do my duty well. I try to do my duty as a householder, and I try to do all I can to make my father and mother happy. I neither know your Yoga, nor have I become a Sannyasi, nor did I renounce this world and go into a forest; But all that you have heard and seen has come to me through my way of doing my duty without any attachment and that is my way of life".

Swami Vivekananda says that this Vydha Gita contains one of the highest flights of Vedanta. This story on Karma Yoga of doing one's duty wholeheartedly ,whatever be the station of his life ,without attachment to the results, makes one fully enlightened and leads to the realisation of the soul.

Thus Ved Vyasa unhesitatingly has called this also a Gita.

Azhwar and Nayanmar -linked by love for Tamil

 திருஞான சம்பந்தரும், திருமங்கையாழ்வாரும் சமகாலத்தவர்கள்

என்பது வரலாற்றின்படி சிலரின் தெளிந்த அபிப்பிராயம். கொள்கைகளால் இருவரும் வேறுபட்டவராயினும் “கற்றானைக் கற்றானே காமுறுவான்”
என்பதற்கொப்ப ஒருவரையொருவர் சந்திக்க ஆவல்
கொண்டிருந்தனர் என்பதும்     ஒருவருடன்     ஒருவர்
தமிழில் கவிபாடக் காலங்கருதிக் காத்து இருந்தனர்
என்பதும் கீழ்க்கண்ட இரண்டு தமிழ் பூம்பாக்களால் விளங்கும்.

கடியுண்ட நெடுவாளை கராவிற் றப்பக்
    கயத்துக்குகள் அடங்காமல் விசும்பில் பாய
அடியுண்ட உயர் தெங்கின் பழத்தாற் பூதம்
    அலையுண்டு குலைசிதறும் ஆலி நாடா
படியுண்ட பெருமானைப் பறித்து பாடி
    பதம் பெற்ற பெருமாளே தமியேன் பெற்ற
கொடி ஒன்று நின்பவனிக்கு எதிரே சென்று
    கும்பிட்டாள் உயிர் ஒன்றுங் கொடு வந்தாயே

என்பது ஞானசம்பந்தர் தொடுத்த பாட்டு. அதாவது தன்னைத்
தாயாக பாவித்துக் கொண்டு தன் மகளின் நிலை கூறுகிறார்.

தன்னைக் காத்துக் கொள்ளக் கருதிய வாளை மீனானது, முதலையின் வாயினின்று பிழைத்து, குளத்தில் தங்கியிராமல், வானில் தாவியும், அவற்றால் தாக்கப்பட்டு உயர்ந்த தென்னைமரத்தின் நெற்றுக்கள் கீழேவிழும்போது கமுக மரங்கள் அவற்றால் அசைவுற்று பாக்குக் குலைகளை குவிக்கின்ற, திருவாலி நாட்டாழ்வரே! பரம்பொருளாம், பூமியை விழுங்குகின்ற திருமாலை வழிப்பறி செய்தீர்.
உமது பவனியைக்காண என் மகள் ஒருநாள் வந்தபோது அவள்
உள்ளத்தையும் வழிப்பறி செய்தீர். இதுமுறையோ, எனது ஒரே
மகள்  தன் உள்ளமிழந்து உயிர் ஒன்றுடன் வருந்த நிற்கிறாளே, என்று

அகைச்சுவைபடக்கூறும் வகையில் திருமங்கையாழ்வார் தனது உள்ளத்தையும் திருடிவிட்டதாய் (வழிப்பறி செய்து விட்டதாய்) சம்பந்தர்
கூறினார்.

இதனைக் கேட்ட திருமங்கை, தன்னை பரகால நாயகியாய்-தலைவியாகப் பாவித்துக் கொண்டு, தலைவி படும் துயரத்தைச் சொல்லும்முகமாய் தலைவிப் பேச்சுப் பேசுகிறார்.

திருஞான சம்பந்தர் மயிலையில் அனலில் வெந்த ஒரு பெண்ணை
உயிர்ப்பித்துக் கொடுத்தார். இச்செய்தியை அடிப்படையாகக்
கொண்டு தலைவிப் பேச்சில் திருமங்கை கூறுகிறார்.

பலா மரமானது வாசனையுள்ள கனிகளை சிதறுவதால், ஒழுகிய நல்ல தேன் மிகுதிப்பட்டு சிறுகுட்டைகளின் கரைகளிலும், பெரிய குளங்களின் கரைகளிலும்,மடைகளிலும் ஒடும்படி, வெள்ளமாய் பரவுவதால்,வண்டுகள்

பேரோசை இடுகின்ற சீர்காழியில் வாழும் ஆளுடைய பிள்ளையாராகிய ஞானசம்பந்தரே, நானும் ஒரு பெண். பெண் என்றால் அபலை
என்பர் பெரியோர். நான் தங்களையே நினைந்து நினைந்து
காணாக் காதலுற்று பிரிவாற்றாமையால் வருந்தி நிலவொளி கூட
அனலாக வேகும்படி நிலவில் வெந்திருக்கிறேன். தாங்கள்
மயிலாப்பூரில் தீயினால் சுடப்பட்ட ஒரு பெண்ணை பிழைக்கச்
செய்தீரே அது என்ன விந்தை. அது போன்றே தங்களைக் காண
விரும்பி நிலவின் வெப்பத்தினால் சுடப்பட்ட இந்தப் பெண்ணுடன் கூடி
உயிர்ப்பித்தாலன்றோ தங்கள் பெருமை நிலைக்கும் என்றார். அப்பாடல்..

வறுக்கை நுறுங்கணி சிதறிச் செந்தேன் பொங்கி
    மருக்கரையின் குளக்கரையில் மதகிலோடப்
பெருக்கெடுத்து வண்டோலம் செய்யும் காழிப்
    பிள்ளையார் சம்பந்தப் பெருமாள் கேளீர்
அருட்குலாவு மயிலை தன்னில் அனலால் வெந்த
    அங்கத்தைப் பூம்பாவை யாக்கினோம் என்று
இருக்குமது தகவன்று நிலவால் வெந்த
    இவளையும் ஓர் பெண்ணாக்கல் இயல்புதானே
                - என்று பாடினார்

பக்திச் சோலையிலே திளைத்து பாசுரங்களை இறைவனுக்கு
வாரித்தெளித்த இவ்விரு கவி வள்ளல்களும் ஒரே நேரத்தில்
(தாய்ப்பேச்சு, தலைவிப்பேச்சு அகச்சுவை) இரண்டு ஆன்மீக பூமாலைகளாய் தொடுத்து தமிழன்னைக்கு அணிவித்து விட்டனர்.

இந்த இரு பாடல்களும் “தனிப்பாடல் திரட்டு” என்பதில் காணப்படுபவை.

பெரிதிருமொழி மூன்றாம் பத்தில் உள்ள “ஒருகுறளாய்” என்ற பாசுரம் பாடியமைக்கு திருமங்கையாழ்வாருக்கு சம்பந்தர் பின்னர் “வேல்” கொடுத்து “நாலுகவி பெருமாள்” (ஆசுகவி, சித்திரக்கவி, விஸ்தாரக்கவி, மதுரகவி) என்ற பட்டமும் கொடுத்தார் என்பது தனிக்கதை

A tribute to Buddha, the Guru, by a layman!!

 

"Buddha always called his way to salvation the 'Aryan Path'. "- says Pandit Jawaharlal Nehru in Discovery Of India , while writing about "What is Hindusism"(Page 74).

If Buddha had held "Aryan" which means Noble in Sanskrit, in such a high esteem, will it pass muster if anybody says Aryan Invasion Theory as being correct or calls Aryans Invaders of Dravidian India. All these Western theories(AIT) are nothing short of a great conspiracy who termed Aryans , a race. Those of us who hold Buddha as a fighter against Brahminical hegemony tends to unnaturally convert him as a crusader against Vedas and Vedantas.

I would like to give few counterpoints and leave the rest to the best judgment of the readers of this post:

1)Buddha accepted Kapila's Sankhya Yoga's principles of this metaphysical arrangement of the world including the universe but without accepting its Prakriti and Purusha connections, as they are not easily verifiable. Kapila rishi, according to Swami Vivekananda, is the first and foremost profound psychologist in the world ,who has also been eulogised by our Vedas as the grandson of Brahma and whose theory also finds a reflection in Greek philosophy.

 In the words of Swami Vivekananda“there is no philosophy in the world that is not indebted to Kapila.”

 If Buddha's philosophy rests on Kapila Muni's theory then is it anti-vedic?He also got the name of Sakhyamuni from this stand point only.

2)Buddha's own words on Rama,the son of Dasaratha: The following is an excerpt from Dasaratha Jataka (no. 461) of the Jātaka-book 

"The Master(Buddha) having ended this discourse, declared the Truths, and identified the Birth: "At that time the king Suddhodana 3 was king Dasaratha, Mahāmāyā 3 was the mother, Rāhulā's mother 4 was Sītā, Ānanda was Bharata, and I myself was Rāma-paṇḍita."

Buddha revered Ramayana and that is why he chose to visit Sri Lanka many times.

In Divurumpola, which is considered as Hindu holy spot where Sita Mata did Agni-Pariksha, a sapling from Boddhi tree from Anuradhapura was planted here as a mark of respect. This is a holy place for Buddhists also and a Buddhist temple has also been built here.

Similarly Kelaniya temple built in memory of King Vibhishana originally, has become a Buddhist temple and in Buddhist traditions, Vibhishana is crowned as King by Buddha instead of Rama. 

3)Thailand which boasts itself as being Buddhist still names its monarch as Rama.Thailand 's native Ramayana, which is called Ramakein has its origins in Dasaratha Jataka narrated by Buddha.

4) Buddha also accepted the hindu concept of rebirth based on one's own karma and expounded on the laws of karma based on Cause and Effect cycle.He even praised and identified who is a True Brahmin in his Dhammapada.

Buddha, who did not accept the abstract concepts of Vedanta with respect to Atman, and the unquestioned authority of Vedas & its animal sacrifice rituals, never deviated from the path of Charanam, Dharma,Sangam and Vinaya, which are the tenets of Sanatana dharmam as a way of life.

He was as devout as Kapila Muni and was a true Kaivalyarthi as propounded by Bhagavat Gita. That is why Poet Saint Jayadeva following Suka Rishi's Bhagavata Purana, called him an avatar of Vishnu. Even the great Adi Sankara subtly accepted Buddha's concept of Pure Consciousness.Ahimsa and agreed that the path to Salvation is through Self-enlightenment i.e Gnana marga by giving up all the worldly desires. He only condemned Buddha's Sunyata concept but complemented and supplemented it with Poornatva of Purusha/Brahman based on Vedanta.Like different schools of thought and philosophy in Sanatan Dharma , Sankara and Buddha schools are accepted as ways of life,even though both are held up against orthodox schools of Hinduism . Was Adi Sankara not accused "pracanna Buddha"i.e both are in the same side of Sanatan Dharma which included Charvaka and Nastika schools also!!!

That is why Buddha is also truly a Guru in our long lineage of Guru Parampara.

Tax ruminations!

 FS Dr.TVS rightly mentioned that Tax to GDP ratio should go up.

Couple of thoughts related to this and other Revenue augmentation avenues;

a) Tax exemption except for Primary produce which are Agri products, is anathema to Value Addition. I would say that Value Add abhors tax exemption, with few exceptions!!

It also militates against the concept of  Nominal GDP growth rate as it is always zero and so unaffected by inflation or deflation. In the same breath, Agri income should also be taxed at say 0.1% atleast.

Therefore, my humble submission to Govt , is to take a relook at all exempted/zero (0)-rated products under GST etc.Atleast these products should be brought under 1% slab by creating a new slab.

b)Mining Royalty rates should be indexed to inflation.

c) EB overdues to Power generation companies as per PRAAPTI.in is increasing every month which have touched Rs.1.07 lac cr. as of Feb 2022.

You might have noticed that this is a serious drag on the economy, which will have repercussions on the lenders .

d)Local bodies charges, EB tariffs must be indexed to inflation to keep them out of State Politics.