Key Financial Terms and Ratios that are Useful for Evaluating Stocks - Part 1

For analyzing the stocks that look promising and then selecting the ones in which you can invest your hard-earned money it is helpful to be aware of and clearly understand some of the key financial terms and ratios.

Here are some such key financial terms and ratios that are useful for evaluating stocks:

• CMP or P (Current Market Price) - as the name also suggests, is the price at which the stock is currently trading. P keeps on fluctuating from one second to another (when the stock market is open, of course!).
• BV or B (Book Value) - is the value of the assets held by the company and indicates the cash that will get freed up in case the company goes bankrupt and its assets are liquidated.
• EPS or E (Earning Per Share) - is the net income post-tax the company has earned and indicates the cash generating power of the stock.
• DPS or D (Dividend Per Share) - is the dividend earned by the shareholder for every share held and can be viewed as regular cash inflow from stock investment.
• P/E (Price to Earnings ratio) - indicates the premium or discount at which the stock is trading. P/E should be less than 20 (which implies a 5% rate of return on capital invested by you to buy the stock).
• P/B (Price to Book ratio) - indicates how much you are paying for the stock as against the value of its assets in the books. P/B should be less than 5 (which implies if you buy a stock at Rs. 100/- and the company goes bankrupt you can expect to get Rs. 20/- back). 
• ROCE (Return On Capital Employed) - is the cash generating ability of the capital employed by the company in the form of both equity and debt. ROCE should be more than 10%.
• ROE / RONW (Return On Equity or Return On Net Worth) - is the cash generating ability of company for its owners or shareholders. It indicates  the return that can be expected by the owners for assuming the investment risk. ROE should be more than 15%.
• D/E (Debt to Equity ratio) - is the composition of the capital employed by the company and indicates its financial leverage position. Higher leverage would generally translate into higher risk for the business. D/E ratio should be less than 2 (which implies if the capital of a company is Rs. 100/-, debt should not be more than Rs. 66.67)
• DY (Dividend Yield) - is the dividend paid by the stock as against its market price. It indicates the return from the stock in the form of dividends. It indicates how much "hard" cash is shared by the company with its shareholders. DY should be more than 2%.
• DPR (Dividend Payout Ratio) -  indicates the ratio of earnings the company distributes to its shareholders as dividend (or DPS/EPS). DPR should be within 20% to 40%.
• NPM (Net Profit Margin) - is the profit post-tax or the net earnings generated by the company. Annualized growth in NPM during the last 5 years should be more than 10%.
• OPM (Operating Profit Margin) - is the NPM from business operations. It is the net earnings from operations and not from the management of the company's finances. Average OPM during the last 5 years should not be negative.

Read Part 2 here:
Key Financial Terms and Ratios that are Useful for Evaluating Stocks - Part 2

Why Investing is an Extremely Hard Game to Play?

Think about any game.

In most of the games following aspects will generally hold good:

• Past records are known and are a good predictor of future performance.
• Rules of game are well defined.
• Skill is more important than luck (other than in some cases like chance-based card games).
• Rules of game do not change all of a sudden due to any unexpected event occurring suddenly.
• Every player knows how many players and who all are playing the game.
• Duration for which a game is played is known.
• Played in open so what any player does is visible immediately or after a short time lag to all the other players.
• Kind of homework and preparation that needs to be done is known to all players.
• Involves use of both physical and mental faculties (degree of usage varies).
• Uncertainty about future does not have a large bearing on the final outcome of the game.
• Risks that may materialize are limited in number and mostly known to all players.

Investing can also be viewed as a game!

So what does the game of investing involve? Here are some key aspects:

• Past records are known but are not a good predictor of future performance and can only be used to make hypothesized projection of the future performance.
• Rules of game are well defined only in terms of the transactions that need to be made and not the strategy that gets deployed (there are legal considerations as well which need to be adhered to otherwise the penalty incurred may wipe out the entire gains).
• Skill is more important than luck but role of luck is also huge in terms of the uncertainty about the future. Skill is used to analyze past performance and hypothesized projection of the future performance to arrive at an investment decision but a "black swan" event in the future can tilt the final outcome in either direction. Luck or the lack of it can play the role of an angel or a devil respectively.
• Rules of game do not change all of a sudden due to any unexpected event occurring suddenly but since they do not apply to the strategy part of the investing process, the way many of these rules get applied by a player can have a significant material impact on the other players.
• The choice of investment portfolios and the investments within each any player can hold is infinite. The players playing the game of investing would not know how many and who all are playing the game. Not only that, players may be independently playing a game of their own individual choice with multiple intersections though with games being played by the other players simultaneously.
• The duration and the time to enter and exit an investment is not specified and, in fact, forms a crucial part of the strategy to improve the final investment outcome (a player can actually enter and exit multiple number of times).
• Played mostly privately (the first few critical moves are always private) so what any player does is either not visible at all or only after a long time lag to all the other players.
• Kind of homework and preparation that needs to be done is known to all players but is very wide ranging from subjects such as Economic History, Macro Economics, Micro Economics, Behavioral Economics, World History, Politics, Finance & Accounting, Capital Markets, Human Psychology, Mathematics, Statistics. With such a wide range of subjects a player ought to understand, the homework and preparation required is indeed a tough one and since things are ever evolving it always remains in a work in progress state.
• Involves use of mental faculties primarily (analysis and due deliberation performed at times are very comprehensive and highly complex).
• Uncertainty about future has a large bearing on the final outcome of the game (both on the negative as well as the positive side).
• Risks that may materialize are large in number (including geo-political and macro-economic factors across the world) and not known to all players in equal measure and at the same time.

So it is evident that investing is like any other game.

However, investing, is unlike other games in many ways. The nature, scope and complexity of the game of investing makes it extremely hard.

I Want To Become Rich And I Don't Want To Do Any Bloody Job

That's what you might think at times.

"I Want To Become Rich And I Don't Want To Do Any Bloody Job"

There's really nothing wrong if you think this way.

When you are rich you are not a wage slave. You get to live life from the level of f**k you.

If someone pisses you off, you don't need to explain anything. You can just say f**k you!

Here are more things that happen then:

• If you meet someone who is incompetent, you can just say f**k you!
• If you meet someone who is an ass with a stinky hole, you can just say f**k you!
• If you meet someone who is short but carries a big ego, you can just say f**k you!

Professional Colleagues or College Friends?

What happens to an organization where those working for it act like college friends and not professional colleagues?

The first question you may want to ask would be - what's the difference?

Heck, there is a lot of difference. In fact, there are only differences.

Someone who is a professional will generally stay away from the following:

• Go below a a certain level of decorum even if they meet the colleagues outside office
• Interact in a manner which is too informal and using unpolished language
• Watch funny videos with others in the office
• Crack certain types of jokes with others
• Spend the entire working day (almost) in small talk with others
• Share too many personal and trivial details with others
• Get drunk in office parties and talk non-sense with one another

Identifying and Handling Your Anxieties

Identifying and handling your anxieties is a very powerful way to understand your true drivers in life and what makes you feel energetic and what makes you dull.

Here are some of things that can cause you anxiety:

• Staying late at work for too many days in a row
• Dealing with the corporate asses at your workplace
• Negotiating with someone unreasonable and unfair to deal with
• Dealing with long-time stooges of the management
• Being forced to report into an incompetent ass who is a scheming lunatic and a hard-core stooge as well
• Having someone incompetent sit in judgment of your work
• Coming across people who carry a big ego and superiority complex
• Dealing with people at work who are more like college friends than professional colleagues

Why I Don't Want to be a Worker Anymore?

Have you ever had this thought cross your mind?

I don't want to be a worker anymore.

And it shouldn't be this way because you are lazy, or you are not competent, or you want an easy life. No. Not really.

The answer should actually lie somewhere else.

In the modern society the key to having a good life is money, having enough of it.

Of course, it is not just money, but money is the primary and the first ingredient for a good life.

Money in current system is controlled and moved by those who own it.

Who are these people?

They are the capitalists (this term, broadly speaking, includes investors too). They own money and hence own the system in some sense.

Everybody else is a worker.

And if you are not a capitalist then you are a worker.

Why Investors Shouldn't be Fooled by The Success Mantras of Super-Investors?

One of the inferences that can be drawn from the the book "Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets" by Nassim Nicholas Taleb is this:

If there are N investors who put their money in the market at a given period in time, n1 of them (n1 = x1 * N, where x1 is very close to 0) would end up as great investors in that period.

Also n2 of n1 (n2 = x2 * n1, where x2 is ever further closer to 0 as compared to x1) would end up as great investors across multiple periods and hence turn out to be super-investors eventually.

The n1 who end up as great investors and the n2 who turn out to be super-investors eventually may be as a result of not merely their skill but probably in equal measure as a result of the law of probability.

The above would mean that there has to be some people who will eventually become a Warren Buffet or a Philip Fisher or a Peter Lynch or a Bill Ackman.

The success of above people shouldn't be seen as anything unusual and surprising. Some n2 people had to turn out to be super-investors eventually and the above happens to be their names.

Once names are attached to those who are part of the n2, then their success is dissected and analyzed and codified into success mantras - rules, theories and concepts - that supposedly helped these investors turn out to be super-investors.

However, the success mantras of the n2 super-investors will probably be different from one another.

Not only that the success mantra of a super-investor will also perhaps be different across multiple time periods.

What that would mean is that there is no single success mantra that worked for all super-investors through all periods with same level of success consistently.

And hence, the success mantras that have worked in the past may not necessarily work even in the next period with 100% certainty.

Forget about the period next to that and the one after that!

Here's something worth taking a closer look at:

"This year's top-performing mutual funds aren't necessarily going to be next year's best performers.

It’s not uncommon for a fund to have better-than-average performance one year and mediocre or below-average performance the following year.

That's why the SEC requires funds to tell investors that a fund's past performance does not necessarily predict future results."

(Source: https://www.sec.gov/answers/mperf.htm)

The statement "past performance does not necessarily predict future results" or something similar is a common but very important statement which is often used as a legal disclaimer by investment firms and yet generally ignored by most who invest money with such firms.

What applies to mutual funds and investment firms applies equally well to the n2 and even the n1 investors - past performance does not necessarily predict future results.

So for any investor it is important not to be fooled by the success mantras of the super-investors (as also the great investors) and hence not to try to directly emulate them.

It is certainly a good idea to study and analyze the various success mantras that have worked in the past but not be blinded by them.

It is definitely very useful to learn key lessons from all this study and analysis.

In the end, however, every investor has to find her own success mantra.

If an investor follows her tried and tested success mantras and turns out to be a super-investor it would be great.

However, it should not be forgotten that this could again be a result of not merely the skill but probably in equal measure as a result of the law of probability.

It is easy to be fooled by randomness and ignore the hidden role of chance in life and in the market!

How is Health and Happiness Related to Wealth?

Does having more wealth make you healthier and happier?

This is a question which needs deeper probing as it can help understand the psychology behind why most people stuck in their daily rut try to acquire more and more wealth.

The underlying assumption is that if you are wealthy, then you would be healthy and happy too!

Some people defer their happiness to a certain point in the future.

Their driving motivation is - "I will be happy when I have got X amount of money".

Having that X amount of money can give you financial freedom but not necessarily health and happiness.

Whichever life situation you may be, you can and should strive to remain healthy and happy.

Being healthy is about living a simple life, eating simple and wholesome food and doing some exercises regularly.

It is also important to avoid smoking and too much drinking and taking proper rest.

And finally, it is crucial for being healthy not to get overly stressed about anything at work or elsewhere.

Feeling happy is purely a state of mind.

If you love yourself, have self-esteem and self-confidence and think and do good, you can easily be happy.

It is true that the above is tough given that you are generally surrounded by a lot of negative people and a lot of negativity.

However, remaining positive at all times, especially the turbulent ones, is easier if you are healthy and happy.

It is even far easier if you are wealthy as well.

Being healthy and feeling happy is certainly correlated with being wealthy.

When your net worth is negative (means you are in debt) it will surely have adverse impact on your health and happiness.

As you wealth grows and moves above the zero level, so would your health and happiness also grow.

The marginal increase in your wealth will keep on declining as your wealth grows further and further.

After that point, increase in wealth will have zero impact on your health and happiness.

Here's how the curve of health and happiness versus wealth would typically look like:



It is important to always remember that being healthy and happy is certainly correlated with being wealthy.

Till a point of course.

And after that wealth doesn't really matter!

I Was Not Born Rich But I Would Want To Die Rich For Sure

The world is inevitably moving towards a state where your economic well-being and status is increasingly going to decide how your life experience is going to be like - from the time you are born till you die.

You can't choose to be born rich. When you are born is the first instance, and perhaps the most significant of them all, when lady luck can play a make or break role in how you would live your life.

If your are lucky, you would be born as the son and daughter of a wealthy parents. You would be as they say born with the proverbial "silver spoon in the mouth".

You are guaranteed a comfortable and secure childhood in most likelihood. You would have access to most of the basic necessities and some more.

You would get an opportunity to go to a decent school, get educated, maintain reasonable health and may be inherit some wealth.

In case you are born in a poor family, the dice is loaded against you right from the start.

Playing the game of cards after you have been dealt "not so good" set of cards can be a tough act for even the best of the players.

The worst thing about being poor is that you may not even get the opportunity to go to a decent school, get educated, maintain reasonable health (things which are taken for granted by most of us).

So what you are born as - rich or poor - is a matter of luck!

However, once you grow up into an independent and mature adult, what happens in you life would start depending more on your abilities and how things play out in your life.

At this point in your life, you and others like you would be at par in a certain sense. What happens from this point onward would bear upon whether you die rich or not.

It is important for every person to strive to become rich and wealthy in their life-time in case they were not born rich.

As is accepted as a universal truth, in life you must strive only for three things - character, health and wealth.

Among these three wealth takes the third place in the order of importance and rightly so.

So as long as you take care of the first two - character and health, you are set for life.

Then focus on wealth.

When it comes to wealth, you should strive to accumulate as much as is possible without becoming sick or killing yourself through work stress.

Also stay totally away from using unfair and unethical means, which, at times, can lead you to spend the last part of your life in prison - think of Enron and Bernie Madoff!

For a happy and successful life, being wealthy certainly helps.

Hence, you should always think of the following and strive to become rich:

"I was not born rich but would want to die rich for sure"

Why Some People Always Piss You Off, No Matter What?

It is a fact that there are some people you come across in your life who you would never like.

No matter what.

Some people just piss you off.

And there are strong reasons for the same, some of which may have to do with your outlook in life which may be deeply embedded in your sub-conscious mind.

So why some people always piss you off, no matter what?

• They try to demean and belittle you
• They try to act smart
• They request you for something but don't approach you in a nice way
• They maintain stoic silence as if they are superior to you
• They pounce on you like a vulture in case you make a mistake
• They play dirty politics behind your back
• They are frustrated with their personal affairs
• They have huge jumbo-sized egos
• They want others to pump up their fat ego 
• They are part of the coterie of the top dog
• They are stooges of the top dog and don't stand for what is right
• They are "yes sir" henchmen of the top dog
• They are part of the inner circle
• They are dead-woods who are allowed to hang on
• They are narcissistic who love troubling others
• They focus on what's wrong
• They focus on finding faullts
• They oppose change
• They oppose being challenged
• They like others to respect their authority and power

In case you are unfortunate to come across such people either in your neighborhood or at your workplace good luck to you!

You have signed up for some really bad times.

Fasten your seat belt as your life is going to pass through turbulence!

What is Making You Sick These Days?

The question - what is making you sick these days? - is a wonderful question that you should keep on asking yourself once in a while, preferably couple of days every week.

If you are feeling sick and uncomfortable, it is a clear indication for you to try to fix something that's currently not going well in your life and if that's not possible, just move away from it.

You get one life to live. And living it in a way that makes you sick and uncomfortable constantly and not just occasionally is no way to live your life. You deserve better.

So what is making you sick these days?

• You are stuck in a bad, toxic company. The people around you are unprofessional, immature and create negatives vibes in you.
• You are not able to sleep properly as you find yourself stuck in a bad, toxic company. Random thoughts related to toxicity you have been experiencing keeps haunting you.
• You see the stooges and their top dog going for lunch together everyday. The back-room dealings of this group pisses you off completely but there's nothing you can do.
• You see the coterie and extended coterie working in a tandem and making your position weak and untenable.
• Your life is going smooth other than this one thing - you are stuck in a bad, toxic company. Finding another job has become the sole purpose of your life at this point.
• You see a lot of second guessing and irritating, unprofessional emails coming from the stooges and their top dog.
• You have been trying to get out of the toxic company you currently work at but have failed so far. You are desperate to get an offer so that you can quit and move on.
• You don't want to work at the toxic company, have not been able to get another job and can't even quit as you have got bills to pay.
• Your spouse doesn't know about how much toxicity you are handling at your workplace. Of course, you haven't told her any of the nonsense you are experiencing.
• You get irritated easily on small things at your home and with your family members. And then you feel bad immediately when you realize the need to control this tendency of yours.

It is useful to write down the above in the situation you may be currently experiencing in your life.

The good thing is some things would be making you happy as well. Do note the good things also and feel gratitude that so many things are going well for you.

And yes, it is extremely important to fix whatever is making you sick currently or find a way to move away from it.

You don't need to tolerate toxic and negative people. You owe this to yourself.

And if you decide to quit, just quit without any malice and anger.

Also remember, you don't owe the toxic and negative people any explanation whatsoever. They don't deserve even an ounce of it!

Yesterday, Today and Tomorrow

Life is just about these three things - Yesterday, Today and Tomorrow.

Yesterday is history.

Yesterday is gone.

You can't do anything about it. Nothing.

Today is a gift.

Today is with you. Grab it. Use it nicely and judiciously.

In fact, only this very moment as you read this (only this) is with you.

The last moment is actually a part of yesterday. Similarly the very next moment is a part of tomorrow.

Tomorrow is mystery.

Tomorrow is yet to come. And it will be there tomorrow, obviously. Plan to use it well and do that for sure when it becomes "today".

Tomorrow brings with it hopes of things that will bring you joy and happiness or at times fears of things that will bring you misery and sadness.

You would love to hear only about good things and you would be eager for them to happen soon or at the right time (like the arrival of a new-born in the family).

However, life is not always good. It brings with it a lot of bad and ugly as well.

Sometimes you would anticipate bad things to happen though you may not want that (like someone terminally-ill in your family is about to die).

So always remember the following about Yesterday, Today and Tomorrow.

Do not regret about yesterday but do learn from it.

Do live in today and do enjoy the time which is here and now. This time will be gone in no time!

Do no worry about tomorrow but do plan for it.

How a Toxic Workplace Can Make You Sick?

A toxic workplace is a direct result of and is generally characterized by the following:

• Unbalanced organizational structure - Those heading different areas are at peer-level as far as their roles are concerned but are not at par as far as their grades are concerned. This simply means those who are at the lesser grades have lesser power in the organizational hierarchy.
• Coterie of the top man - The top man in such organizations nurture and promote a close-knit inner circle. This exclusive old boys club is privy to all the key information while others are provided only sketchy information and that too not always.
• Too many emails - Such organizations thrive on too many emails being sent back and forth. The top man and his pet coterie love writing long emails once in a while about issues that ideally should be getting discussed in a face-to-face meeting.
• Holier than thou attitude of the coterie - The coterie in this case acts like a privileged lot. They go for lunch together, act as a bunch of college boys rather than professional colleagues and come across as boorish and biased.
• Negative emails - The coterie is also adept at sending emails laced with venom. They would write any non-sense to defend their position and to pulverize the others. As they are pet stooges and part of the coterie, the top man will choose to ignore their acts.
• Lack of professionalism - The coterie will talk about professionalism but act in an otherwise manner. The way they write emails, the way they speak in meetings, the way they do not respond to meeting invites and the way they act as smart ass show their professionalism or rather the lack of it.

All this can make you sick. Very sick.

• You may start carrying toxicity back to your home
• You may stay awake in night thinking what kind of a deep shit you are into
• You may start experiencing health issues
• You may start loosing your calm and composure
• You may start wondering how come you got into this hell-like workplace
• You may start analyzing your work situation in terms of how to stay positive

Despite all the good theories that glorify what a progressive organization looks and acts like, the fact is that toxic organizations are more common than one would like to have.

If you are one of those unfortunate ones trapped in a toxic workplace, it is important for you to stay positive and professional. Always.

Remember, there is always a dawn waiting at the end of every dark, long night.

Is Your Organization Infested with Extra Terrestrial (ET) Employees?

Many organizations, especially small-sized which do not grow even at a reasonably low rate, are ideal breeding ground for the ET employees.

Such employees are, really speaking, dead-woods for whom special roles and assignments are carved out of nowhere.

They are assigned to special initiatives and groups which may not really be needed otherwise in the very first place in another organization.

And lo and behold since they are pet stooges of the management, they are invited to many meetings. Even such meetings where they are not really needed.

They would throw garbage in the name of sick wisdom. They would question everything with an intent to show how smart they are and how much deep understanding they have as compared to others.

At times they sound impossible and are generally hard asses to crack. They think only they know everything about everything.

The ET employees are generally jerks and would have only one intention at all times - make extra-terrestrial statements to show that they are really needed!

The need to again and again prove that they are really needed is so dominant in their behavior that they spread toxicity all around them.

However, as they are pet stooges of the management, they are put high on the pedestal. After all, who doesn't like having their feet licked by a pet stooge?

And those who nurture and promote the stooges may at times themselves be ET employees.

As the organization growth is stunted, they also need to make extra-terrestrial statements to show to the lowly employees that they are also really needed just like the stooge ETs!

In such an organization there are three distinct group of employees:

• The core or inner part of inner circle - this comprises of those who nurture and promote the ETs. Some of them may be ETs themselves. And yes, they would never leave!
• The outer part of inner circle - this comprises of the ETs. All of them are invariably stooges of those in the core inner circle. And yes, they will also never leave!
• The others or outer circle - this comprises of those who are professionals unlike the ETs above. And yes they are always on a lookout to move on!

If you are in such an organization and are a part of the outer circle you deserve to be congratulated. Despite the ET employee culture around you, you have managed to remain a professional.

Hats off to you. However, you are in grave danger if you stay for too long. You may end up becoming an ET employee. You got to move, fast.

Don't wait to turn into an ET employee. Move. Fast.

Competence is Inversely Related to Lack of Ownership

If competence is low, then lack of ownership is high. And if competence is high, then lack of ownership is low. They are inversely related.

It is not hard to come up with examples of this.

Someone who is not able to get his group managers to comply to the defined processes shifts the ownership of the compliance to the process facilitator for that group and even to the head of the process facilitation team.

The lack of competence in ensuring compliance leads to disowning of and lack of ownership of compliance and its off-loading to someone else in the organization.

When someone is competent he will manage to get things done in the area under his control. After all, those in that area report into him.

However, if despite reporting structure enabling it, if the person fails to get things done then he is totally incompetent.

And how would such a person hide his incompetence?

The simple and easy way is to disown the tasks this person fails to get through.

Lack of ownership and true commitment are the true hallmarks of an incompetent ass. And he uses it to the extent of it getting obnoxious.

You need to be careful when dealing with such persons at your workplace. At times, they may be hiding under imposing titles like VP, SVP, EVP.

This is a serious situation you may find yourself in some organizations.

And if you have to deal with several such persons in an organization who also happen to be at high levels you are as good as dead.

In this case you should start counting your days. No, not to die but to quit such an organization!

Why You Need to Put Up with the Shit at the Place You Currently Work and What to Do About it?

The title uses the phrase "place you currently work" and there's a very solid reason behind it.

If you work with an organization where you experience extreme levels of toxicity then you may be longing for and trying hard getting off the burning ship.

However, until you can move out, it is no more an organization in a real sense, but simply a "place you currently work" or rather a "place you hate to go but still need to go"!

You may be severely disengaged. And you may be in a state of mind where you are ready with the resignation notice and just waiting for a job offer.

But why do you need to put up with the shit at the "place you currently work"?

Here are some of the reasons:

• You have been trying hard but haven't managed to find another job. Again, even if you find one, don't be desperate to take it up before a thorough evaluation. You don't want to move from one toxic place to another
• You can't leave your job because you got to pay your bills - utilities, doctor/medicines, EMI, school fees, groceries, etc.
• You do not have any source of income other than the salary you get from the current job. And you don't have enough investments to  continue with your current standard of living using the returns from your investments.

Basically, you have no choice from a financial perspective.

At such a time, it is very important for you to remember the following points:

• Do not resign in frustration till you get another job
• Visualize what is the worst that will happen in case you get laid off or fired before you can find another job
• Take extreme care of your physical health, sleep well, eat well
• Stay positive and professional at the "place you currently work"
• Remain relaxed, calm and composed so that there is no adverse impact on you mental health
• Make sure you do not carry your frustrations at the "place you currently work" back to your home and your family
• Take stock of your finances to figure out where exactly you stand from a money stand-point
• Assuming you loose your job today, calculate based on the above point, for how many years/months you can survive on your investments at your current standard of living
• Cut down your expenses to what is essential, better still become a minimalist
• Work furiously towards attaining financial freedom so that you can deal with things in your life from the level of f**k you
• Pay off all loans that you may have as early as you can and become 100% debt-free
• Buy a house but do remember the point immediately above
• Ensure you are adequately protected with the right kind of insurance - term, medical, accident and disability, and home insurance
• Keep the lights on as far as your job search efforts are concerned and in fact increase the focus!
• Keep yourself motivated by imagining the day when you will accept an offer letter and send the ever-ready resignation notice
• Lastly, don't bottle up your frustrations and thoughts and do vent them out by writing them down (maintaining a blog for this is a fantastic idea, and it is free as well if you choose the right platform!)

Remember if you are in such a situation, you life may be very miserable. You may be feeling desperate to get out. You may have started to become negative in your outlook.

This may start reflecting on your behavior both a the "place you currently work" and more dangerously at your home and with you spouse, kids and parents.

You should realize that this spiral of negativity is not good for you in whichever way you look at it. And you must immediately stop your descent down the spiral of negativity.

In such a difficult and tumultuous time in your life the key message you should always carry in you mind is this: Stay positive, calm and composed. You owe it yourself and your family!

IT Services Business Model Made Simple

IT services business model is quite easy to comprehend.

The primary "raw material" in this type of business is the human brain. And since brain is inside a human being and put to use for IT services work, the primary cost driver is the employee salary.

The primary "revenue source" in this type of business is payment received from customers for person-hours consumed or milestones achieved.

The good thing about this business when done in an outsourcing mode is that you incur expenses in a certain currency, say currency (E) but bill your customers in another currency, say currency (B).

The key point is that the exchange rate between currency (E) and currency (B) should be such that:

1 unit of currency (B) = N units of currency (E)

For example, if currency (B) is USD and currency (E) is INR, then based on the exchange rate today (13-May-2016) the above equation can be written as:

1 USD = 66.76 INR

The above equation is the backbone of the entire IT services business model.

Just imagine what will happen if  1 INR = 66.76 USD instead?

Catastrophe would be too mild a word to describe what will happen!

Following Google sheet provides a simple template to analyze the revenue and gross margin of an IT services business.

IT Services Business Model

As you can see yourself it is quite simple and easy to comprehend!

A Frog in the Well Doesn't Grow Big but Grows a Big Ego

Those working in small organizations are like frogs in the well.
(Image courtesy: http://cliparts.co/clipart/32574)

They don't grow big but grow big egos!

Someone might be working for 10 years and doing the same thing.

Of course to inflate the ego of such a person, he gets promoted from Grade 5 to Grade 6 to Grade 7. With higher cost to the company of course.

Such long timers get amply rewarded. However, they are no better than toe-sucking stooge of the top man.

Despite promotions there is no real career growth though for such folks.

Such companies lack business growth and hence tend to slowly drift into a situation where their margins start declining gradually.

After all feeding the blood-sucking frogs with big titles and bigger egos is a costly proposition!

But since the top frog and the stooge frogs are "the company" (being the founders and the early joiners forming the close-knot coterie ) and not merely working for it, they tend to get special incentives and perks.

They may be highly incompetent (which is generally the case) and to cover up for that they become adept at blaming others, play dirty politics, write flaming e-mails, show attitude and run vicious campaign to malign others.

They also get bigger rooms which is dwarfed only by their elephant sized egos they carry inside a stunted frog-sized body.

How to Handle a P for Pig?

Handling a pig is so very difficult!

And pigs in the corporate world are even more difficult to handle.



(Image courtesy: http://cliparts.co/clipart/8452)

So how do you handle a pig?

The first important rule to always remember when dealing with a pig is this - Do not become a pig yourself. Never.

As George Bernanrd Shaw, the renowned Irish playwright, critic and polemicist so famously and rightly said:

"I learned long ago, never to wrestle with a pig. You get dirty, and besides, the pig likes it."

You can never win over a pig in the dirty tricks department. Never.

Another rule to remember is this - Pigs not only survive but thrive in the middle of garbage. They are cunning and shrewd and can create troubles for you.

What to do when a pig speaks non-sense, silly and immature things in a non-sense, silly and immature manner?

The rule to handle the above is to ignore the pig-shit (whatever the pigs speak is no better than shit) and show your anger and disdain in a composed manner.

Remaining composed when dealing with a pig  is a very critical skill to have.

So that's another important rule to keep in mind - try to remain calm and composed. Remember you can't expect anything other than pig-shit from a pig.

Pigs make pigs as their friends.

Here's another rule to handle pigs - figure out who are the friends of the pig? This would tell you how many pigs you have to deal with, in all?

In case the number of pigs comes out to be too large, you know you are in for big time trouble.

So here's the last but the most important rule. If you have to deal with too many pigs start looking for the exit.

Think about this - if you can never win against one pig what chance do you stand when you have to deal with a large number of pigs?

If you are that unlucky one stuck in a pig-infested organization, you got to be on your toes.

On your mark, get, set, go!

And if you don't do that fast, you will remain in deep pig-shit that longer.

Is Your Company Professional at the Fore but Lala at the Core?

Comparing a professional versus a lala company is a very interesting exercise.

The conventional wisdom is that a professional company is a professional company and a lala company is a lala company and never the twain shall meet.

This, however, is too simple a view.

In India, there are several companies which are "Professional at the Fore but Lala at the Core?"

Surprisingly, many of them call themselves as MNCs.

How to determine whether your company is one?

Well, it's not that hard to figure this out.

The biggest tell-tale sign is that the company's management has Indians both in the India office and in the office abroad (typically in the US).

Those in the management are a close-knit coterie consisting of the loyalists and the stooges. And management in such companies is nothing more than a pack of jokers.

Anyone working in such lala companies must always remember about "Why It's Dangerous To Work For An Organization Led By A Pack Of Jokers?"

Here are some more tell-tale signs:

• The top man has a close circle of trusted lieutenants. The only real qualification of the trusted lieutenants is their loyalty to the top man.
• The top man is not used to anyone challenging his ideas and thoughts. The trusted lieutenants would get the order enforced mostly by hook and crook.
• The top man promotes those who are his stooges and sing paeans in his praise. And if you don't do do,  you stand no chance to go up in such a company.
• The top man and his stooges literally run the show and make all the central decisions. There is no real delegation.
• The stooges force the people under them to remain unsettled by crossing the line and going to those below to gather information to show the people under them their true place.
• The top man starts a new initiative every month but maintains a hands-off approach. He also puts one of the stooges in charge of escalations knowing that it has not worked in the past and will not work going ahead as well.
• The top mean beams with silly pride when praised by the stooges and feels even more elated when others praise him.
• The stooges maintain a close circle withholding crucial information, play behind the scene games to discredit others and use office to sharpen their political skills.

In such companies the top man and and his stooges show as if they are professionals at the fore but can never hide from the smart folks down under of their being a true lala at the core!

Note: Lala is a Hindi word. In case you are wondering what the meaning of the word lala is, read the following: http://sanjaylakhotia.blogspot.in/2011/07/professional-vs-lala-company.html

Stuck in a Rut and Going Totally Nut!

There are times in you life when you would find yourself stuck in a rut. You can't move up, down or sideways and you can't move out.

And you suddenly realize that its been several years in the rut and you have become part of "them" and are no longer "you". You have been trying to get out but have failed so far!

You may see bias, unfairness, partiality all around you, loyalty being paraded in a naked manner, silly stuff being done every day and stooges getting promoted.

You also notice that the stooges have also been stuck for a very long time in a much bigger rut and are doing almost the same thing they used to do 10 years back!

What scares you the most is that very soon you will also hit the 10 year mark. It keeps you awake in the night, it makes you count every second when you are at work.

You are desperate to get out, you are frustrated with your plight, you just want to get rid of the toxicity around yourself.

But you can't.

So stuck in a rut for too long you are going totally nut!

You can't see any lights towards any exit path leading out of the rut you are in.

You also see that the top men and their loyal dogs are not afraid of the rut and that is because they are the ones who created it in the first place.

You are eagerly waiting for that one chance to get going.

And the question that you ask yourself every day is just the same.

When? When? When will you get the chance to escape this sick situation. For how further long will you need to suffer? How long?

In-Hand Salary - What the HR and Recruitment Folks Don't Want You to Fully Understand?

An earlier blog post CTC Break-up - What HR and Recruitment Folks Don't Want You to Fully Understand  dwelt upon the CTC break-up and provided details of its various components.

HR and recruitment folks are true followers of the below quote by Prof. Aaron Levenstein:

“Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.”

For an HR and recruitment guy this would actually mean the below:

“CTC break-up is like bikini. What it reveals is suggestive, but what it conceals is vital.”

The vital information that CTC conceals is the "In-Hand Salary" or the "Take Home Salary" - the money which actually lands in you salary account on the last day of the month.

And as they say the rest is history and soon forgotten for ever!

So let's analyze an example of CTC salary break-up to understand how to figure out the In-hand Salary hidden beneath the details.

Use the following google sheet to understand this better.

Calculation of In-Hand Salary from CTC Salary

Suppose you are currently in a company C.

You can play with the numbers in "Yellow Cells" to see how various components are calculated and to figure out what the In-hand Salary, Deferred Cash Benfits and Net Cash-flow would be under various scenarios at company C.

• On Paper - the assured that is promised to you in your salary letter
• Actual/Adjusted - the actual/adjusted that goes/will go into your salary account (including the actual incentive/bonus, once declared)
• Projected - the assumed that you expect from the upcoming performance appraisal.

The paper CTC includes incentive/bonus but the calcuations for "On Paper" and "Projected" ignores this component. "Actual/Adjusted" would consider this component though.

The key to a good understanding of CTC salary and In-hand Salary is to categorize the various components into the following heads:

• Taxables - these are fully taxed. Basic salary is the most fundamental component of this and "Flexible/Special" column is generally used to match the paper CTC figure
• Tax-frees - these are not taxed with certain restrictions. They may be clubbed with "Flexible/Special" but for the purpose of the above sheet consider only that part of "Flexible/Special" that is completely tax-free
• Deductibles - these are part of CTC but is actually used by the Employer either due to certain statutory and legal need (PF) or to save tax (NPS). Some of these like gratuity, insurance don't even show up on the pay slip
• Uncertains - these are part of CTC but are paid subject to certain conditions and may be recovered by the employer in certain  situations. They are, as the term also indicates, uncertain in some sense. These are fully taxable though.
• Exemptions - these are useful to claim tax benefits. Along with the tax-frees, these help bring down how much you pay as income tax and hence help increase the In-hand Salary.
• Deductions - these are shown on the payslip but you don't get it. They result in lowering the In-hand Salary. PF (Employee Contribution) falls under this head. Also, NPS (Employer Contribution) falls under this head.

Using the above you can easily calculate the monthly In-Hand Salary.

You can also calculate the Net Cash-flow, which includes deferred cash benefits in the form of PF and NPS. You may not get the deferred benefits every month but you would eventually get it, with some returns on it as an incing on the cake!

The google sheet does all the above calculations for you to get all the above figures instantly once you have entered the values in the "Yellow Cells".

In another blog post How to Evaluate a Job Offer? one key point that was touched upon under the reasons to quit was was this: Decent hike over your current salary - consider both In-Hand Salary and Net Cash-flow (never go by the CTC Salary!)

Suppose you are currently in a company C and you get an offer from another company O. How do you compare them on the above point?

You can use the google sheet to do this comparison easily. Put the required CTC Salary details under Company O - both under "On Paper" and "Actual/Adjusted", as required. All figures will appear automatically.

You can compare the hike ratio for both In-Hand Salary and Net Cash-flow from this sheet easily. Remember to compare both as you will eventually get all of it!

What Do You Want From Your Life?

What do you want from your life?

This is a very important question indeed. The most important perhaps.

This is what you probably want:

• Live till the age of 100 years (live very long and more importantly in extremely good health till the very last day of your life)
• Work in a place and with people who are nice (and even if that is not so, you should remain nice and use emotional detachment to stay positive and upbeat)
• Attain financial freedom (work towards reaching a state where your income from investments exceeds your expenses, month after month, till the very last month of your life)
• Take care of your family and enjoy your relationships with your spouse, kids and parents (give your family enough for them to have a safe and comfortable life)
• Be a minimalist, buy as less stuff as possible (focus on accumulating experiences over accumulating stuff)
• Adopt a spiritualistic attitude in life (remain energetic, remain nice no matter what happens in life and remember time is running out and also in the end nothing matters)

So what do you want from your life?

Write it down like above. Look at it very often. And do make sure your are living each moment fully conscious of what you want from your life.

The idea is that when your are about to die and you look back and think about how you lived it, you should have no regrets. You should actually be happy to die.

Why Staying Away From Our Parents and Kids Is So Very Scary?

We are in this world because of our parents and our kids are in this world because of us.

So there is no reason for our parents and kids not to mean so much to us. In fact, our parents and kids should mean everything to us!

Our affection for our parents and kids is completely unconditional. If something hurts them it hurts us too. This also creates an emotional weakness in us when dealing with our parents and kids.

Though staying away from our parents and kids, maybe in another city, can lead to stronger emotional bond with them the thought of living away from them is a very scary one.

Following thoughts come to the mind:

• I'll not be around to see my kids grow up
• I'll not be around when my kids are sick
• I'll not be around to comfort my wife when she needs me
• I'll not be around in case my parents pass away suddenly
• I'll not be around on my kid's birthdays
• I'll not be around on important family occasions
• I'll not be around to celebrate festivals with them
• I''ll not be around to comfort my son when he cries for me
• I'll not be around to embrace my son and hold him in my arms
• I'll not be around to touch and caress the cheeks and hands of my son
• I'll not get home-cooked food
• I'll not get clean shirts and trousers every morning
• I'll not get to talk to my wife, parents and kids when I reach home
• I'll not get the needed love and care when I fall sick

Then should you stay away from them? The answer is - no you shouldn't.

However, at times, life puts you in a strange situation where you have no choice but to stay away.

The decision to stay away is indeed a very tough one.

Staying away is scary, for sure.

At the same time, staying with your parents and kids but being in a situation that lowers your self-respect is equally or may be even more scary.

You may be handling shit in your current situation and handling shit is what you would continue to do if you don't move out of that, and that too as fast as you can.

Staying away is scary, for sure. At times, though, you have no choice. Those are really bad times.

All of us have our share of bad times. And bad times can come back again and again.

That's life. Good people are made to suffer. Bad people prosper, they get promoted.

CTC Break-up - What HR and Recruitment Folks Don't Want You to Fully Understand

In case you are a corporate animal but don't clearly understand what CTC is, here is some much needed information.

CTC stands for "Cost To Company" and is your all-inclusive cost to the company.

You need to carefully note that everything the company spends on you, be it PF, NPS, Gratuity, Insurance, Incentive, Retention Bonus, Basic Salary, Perquisites is eventually paid from your CTC.

It even includes the perquisite amount for the "supposedly" free lunch in many organizations.

So as you can see there is indeed really nothing called free lunch!

Bonus for meeting target performance is also a part of CTC. 

However, you may get more or less or even none depending upon many factors. So in some sense it can be seen as being outside the CTC.

Following sections provide a typical CTC salary break-up and explain the various components in greater detail.

Basic Pay

Basic Salary 

This as the name suggests is the most basic part of CTC and is also the most important one since it drives many of the other salary components.

Basic Salary is fully taxable.

House Rent Allowance (HRA) 

40% to 50% of the Basic Salary. Tax exemption on HRA is the minimum of the following three: 

• Actual house rent allowance received from employer
• Actual house rent paid minus 10% of basic salary
• 50% of basic salary in case of metro, 40% in case of non-metro

Benefits Pay

This includes long-term retirement-oriented benefits.

This is directly deducted from the CTC and never comes your way!

These either carry no tax liability for you (Insurance) or not taxed at all (PF) or taxed at the time of actual payment (Gratuity)

Employer's Contribution to PF (Provident Fund)

Minimum Rs. 1800/- per month (12% of Rs. 15000/- which is the wage ceiling set by EPFO) to a maximum of 12% of the Basic Salary

Insurance

This also goes from your CTC, so there is really nothing free about the insurance cover

Gratuity

4.81% of Basic Salary

Choice / Flexible Pay

This includes several components some of which are driven by the Basic Salary.

This component of the CTC provides options to save tax albeit within certain limitations.

Meal Coupon  

Tax-free till Rs. 1100/- per month (Rs. 51/- per day for 20 days)

Conveyance Allowance

Tax-free till Rs. 1600/- per month

Medical Allowance

Tax-free till Rs. 1250/- per month

Leave Travel Allowance (LTA)

6% of Basic Salary

National Pension Scheme (NPS) Contribution

Tax-free till 10% of the Basic Salary

PF (Employee Contribution)

Minimum Rs. 1800/- per month (12% of Rs. 15000/-) to a maximum of 12% of the Basic Salary

PF Adjustment (Employer Contribution)

Adjustment in case Employer's Contribution to PF in the CTC is at Minimum and not 12% (always ask the prospective employer to provide CTC with Employer's Contribution to PF set at 12%)

Special/Other Allowance 

The final place to dump the "adjustment" amount to get to the magic figure of CTC

Others

This includes other components that are related to miscellaneous aspects such as performance, joining and retention.

These are fully taxable just like the Basic Salary.

Incentive or Variable Pay

The secret weapon of the company's management to engineer profitability (in case it is poor or even if there is none) by short-changing the employees

Retention Bonus

The dangling carrot to force the money-minded and good for nothing employees to firmly stay put

Joining Bonus (One Time)

The dangling carrot to entice an offered candidate to join

Note: Some of the above CTC components are subject to government and statutory guidelines and may be treated differently in the future.

How to Evaluate a Job Offer?

When you decide to look for a job change it clearly means you don't like something at your current place of work!

(Image courtesy: http://cliparts.co/clipart/96793)

You should carefully analyze and note down the factors that drove you to to look for a change in the first place. These factors are very useful for evaluating a job offer.

After applying to hundreds of organizations and after interviewing with a few that decide to call you and consider you beyond the resume screening stage and if all goes well till the very end, you end up with that fantastic e-mail in your inbox.

"Congratulations! we are pleased to inform you that you have been selected; please find attached the salary details. Please note that this offer will be deemed cancelled within 1 day if you do not accept the offer in writing/email."

Suppose you are currently in a company C and you get an offer from another company O.

What do you do next? How do you evaluate the job offer?

The best way to evaluate whether to bite the bullet and go ahead with the change is to do a "Stay versus Quit" analysis for C and "Accept versus Reject" analysis for O.

Company C - Reasons to Stay

Even though you want to leave, every company has something good about it!

Examples include:

• Tax-friendly salary structure
• Get to stay with family
• Work pressure is manageable
• Company is stable
• Office is close to home and driving time/distance is bearable

Company C - Reasons to Quit

These are the reasons that got you started on this journey to move out!

Examples include:

• Decent hike over your current salary - consider both In-Hand Salary and Net Cash-flow (never go by the CTC Salary!)
• Sick reporting structure
• Problem people with big egos
• Issues related to disparities in experience versus role versus grade versus responsibilities
• Forced to report into someone who is highly toxic and totally incompetent
• Lack of motivation to do work  beyond the bare minimum due to above
• Coterie culture formed by the top man
• Group of stooges around the top man
• Glass ceiling created by the coterie and stooges
• Top man and senior folks don't inspire confidence in company's future

Company O - Reasons to Accept

You went through the hiring process and invested your energy because you would have certainly liked several aspects of the prospective organization!

Examples include:

• Better designation and job title
• Escape sick reporting structure
• Escape all reasons mentioned above in Company C - Reasons to Quit
• Get to work in an interesting area
• Chance to get into a different though related line of work

Company O - Reasons to Reject

As you went through the hiring process you may have made certain observations and in addition got to know several aspects from your sources that appear concerning!

Examples include:

• Excessive work pressure
• Office politics and cultural issues
• Work nature may be very different from what has been promised
• HR policies not in line with accepted norms in the industry (too less leaves, no work from home)
• Reporting structure different from the impression that is created around it
• Net salary not significantly higher though increase in CTC shown in the offer may appear that way
• People in top management do not seem too professional
• No laptop even at senior levels
• May need moving away from family
• Exit option not clearly visible

The last point is worth highlighting.

You should always be completely aware of "What Most Companies End Up Lying About When Hiring Someone?".

Even before you join a company you should have a clear thought out exit plan firmly in place!

The reason is when you join Company O it immediately becomes Company C and even though you decided to join, just like every company has something good about it, every company also has something bad about it!

As the curtains come apart, the play starts and the various scenes unfold in the new organization, you may soon realize that you need to look for an offer from another company O!