This recession if not anything else, has been a learning experience for all of us. We have learnt to focus on the regular NEWS items in more detail. We have started to appreciate that the bigger things in the economy and world does affect us – “the common man”. Call us “Joe the plumber” or “joe the six pack” or any other common noun you might get a hold of. But, the bottom line is that we are the drivers of the economy and we have to be more knowledgeable that we are today.
I also have been reading papers and following news items on TV, radio and internet more closely. Recently, I was reading an article on “Harvard Endowment Regroups”. (I am not going into the details of the article. For the article please visit http://online.wsj.com/article/SB125106917476952351.html). While reading the article, I pondered on the word “Endowment” and its meaning.
Being a finance professional, I know “Financial Endowment” is a transfer of money or property which is invested keeping the principal intact and extracting a perpetuity out of it for a defined period.
Let us understand this with a simple example. A university has agreed to conduct a project for me. The project span is 5 years. The university calculates that it needs $50 at the end of every month and at the end of the 59th month it needs $12,050 to complete the project. But, university instead of asking me for a total project cost of $15,000 asks me to make a payment of $12,000. After I make the payment the university puts this amount in its endowment, which is a fixed income financial tool (like debts, bonds, T Bills, T notes etc) which gives a 5% coupon payment on a monthly basis. (equals to $50 per month). So, this instrument pays $50 at the end of every month for the project and on the 59th month makes a payment of $12,050 to complete the project. Hence, this project has an endowment of $12,000.
Having understood “Financial Endowment”, lets look up in the dictionary meaning of the word – “Endowment”:
1. (n.) The act of bestowing a dower, fund, or permanent provision for support.
2. (n.) That which is bestowed or settled on a person or an institution; property, fund, or revenue permanently appropriated to any object; as, the endowment of a church, a hospital, or a college.
3. (n.) That which is given or bestowed upon the person or mind; gift of nature; accomplishment; natural capacity; talents; -- usually in the plural.
Wow it is indeed overwhelming definition. In a nutshell “Endowment” is something that is given or bestowed upon.
But, why the word “Endowment”? Endowment comes from a word “Endue” which means the same. Endue comes from the words:
“duek” which means “to lead” in Latin and Old French and
“indue” which means “to put on (like a piece of clothing)” in modern english
So, when you combine these, endowment means to put on something on someone and lead the way. Again, in simple language it means – something that is given or bestowed upon for future benefit based on past achievement.
But, What caught my eye was the “bible”. The King James version of Bible, in “Old Testament”, Genesis, Chapter 30, verse 20 quotes:
“And Leah said, God hath endued me [with] a good dowry; now will my husband dwell with me, because I have born him six sons: and she called his name Zebulun”
Leah is the first of the four concurrent wives of the Hebrew Partiarch Jacob and mother of six sons and a daughter. She is the daughter of Laban and older sister of Rachel. Leah and Rachel wanted to bear as many sons as possible with “Jacob” (God’s personal emissary). These sons would continue Jacob’s mission to the next generation. So, these two in addition to their own sons, offered Jacob their Handmaids as wives so they could share in the upbringing of their handmaid’s sons too.
The words above are Leah’s words after she conceived her sixth son. Here she is implying that after offering her Handmaids and giving her sons her husband (Jacob) should now dwell with her.
In these lines above “endue” is translated from a “Hebrew” word meaning “to bestow upon or endow with”, while at the same time referring explicitly to a dowry.
So, logically we can see that “Endow” is a combination of two words – “Endue” and “Dowry”.
Now, isn’t that something to ponder on and food for further thought?
References:
Genesis Chapter 30 - http://www.kingjamesbibleonline.org/Genesis-Chapter-30/
Bible - http://en.wikipedia.org/wiki/Bible
Leah - http://en.wikipedia.org/wiki/Leah
An LDS Lexicon: endue, endow, endowment - www.sixteensmallstones.org
Tuesday, August 25, 2009
Monday, June 16, 2008
How Can We Be Happy
I have mentioned that my blog is named "Life In General" and the first post on blog is on "Balanced Score Card". So, I thought let me start with something more appropriate.
This blog is dedicated to those lucky few, who know what they are interested in and can afford to overlook or neglect what does not interest them. Reminds me of my adolescent days, when I thought budget, politics and economy does not affect me as I am a middle class person. Little did I realize that inflation directly affects my day to day life. My friend who is a very established engineer is interested only on technology related jobs and will only do so till the end of his life. When asked, whether he is interested in managing a team and technology, he replies - No ... I will always be an implementer and since I am not good at people skills, I do not want to manage. Another friend says MBA is a stepstone to become a "finance whiz" and does not want to look at any other options. Being an engineer he feels he can relate more to finance and can afford to neglect other branches of management.
As a kid whenever asked, what I wanted to become when I grew up; I would answer - I WANT TO BE AN ENGINEER JUST LIKE MY FATHER...wow how sure I was about doing engineering till I finally plunged into it. Those 4 years were the toughest and most turbulent. After this experience, I learnt a valuable lesson - DO WHAT YOU LIKE, LIKE WHAT YOU DO. So, after engineering I came out more knowledgable and more matured and so started to look out what I liked and wanted to do. And believe me, thats not the easiest of things to do. If it was easy to know what you like and do what you like, everyone of us would be so happy and the world will become a much better place to live. Unfortunately this is not the case. So, how do we know what do we like? There have been books written on this, there have been training program designed on this and there have been lot of Gurus who have spoken about it. But, still only about 10% of us actually do what we like to do. And out of those 10%.... about 3/4th are the people have mundane jobs like - a clerk in an office, a butler in a hotel, Delivery person, construction worker etc. Only 1/4th have professions such as writer, poet, artist, CEOs or executives. Surprised????????
Oh yeah it is surprising. But, you know how do the 7.5% (3/4th of 10%) do what they like? They wake up everyday, with enthusiasm, looking forward to things they would do, tasks they would accomplish and smile the whole day. How do they manage to do that? What is their "Gurumantra"? (Indian version of "Trade Secret")
The most common thought process of us Human is - The Grass Is Greener On The Other Side.
When we are kids, we envy our friends that they have better parents than us. Their parents dont raise voices or restrict their outdoor duties or always pester to study and get good grades. Their parents bring home ice creams, chocolates, sodas take them out on weekends.
As teenagers, we admire our friend's girlfriends or boyfiends (even if the hottest girl or boy is your own girlfirend or boyfriend). We get the best grades, but feel it is cool to be good in Football. We are the star Football player in school, but we feel its cool to get good grades. We might be the best in Arts, but we feel its cool to be a Math Geek.
When we grow up to become young adults, we might have the best engineering job, but we feel, its cool to get into management. We might be one of the senior management, but we feel its cool to have an engineering job. We might have a beautiful wife, whom we love a lot, but still the other person's wife is hot. We might have ordered a nice big Steak in a restaurant, but the guy in the next table has a better burger.
And the story continues. ......
So, the moral of the story is that the people who are happy, are the ones who do not see the "Green Grass on the Other Side". If they see the grass green on the other side, they try and grow green grass on the side where they stay.
So, the best way to find out what you like to do, is to look within yourself and find out without looking at others. Look at others to set benchmarks, but do not get carried away by it. Before, setting benchmarks do a soul searching and ask yourself the question..... What is the ultimate outcome? Do, I really want this outcome? If the answer to these question is "YES", then go ahead and set benchmarks and chalk out a path to attain it. But if the answer is "NO", dont even proceed further.
Because the further you proceed, the more frustrated you will get and the more things you do what you dont like to do.
This blog is dedicated to those lucky few, who know what they are interested in and can afford to overlook or neglect what does not interest them. Reminds me of my adolescent days, when I thought budget, politics and economy does not affect me as I am a middle class person. Little did I realize that inflation directly affects my day to day life. My friend who is a very established engineer is interested only on technology related jobs and will only do so till the end of his life. When asked, whether he is interested in managing a team and technology, he replies - No ... I will always be an implementer and since I am not good at people skills, I do not want to manage. Another friend says MBA is a stepstone to become a "finance whiz" and does not want to look at any other options. Being an engineer he feels he can relate more to finance and can afford to neglect other branches of management.
As a kid whenever asked, what I wanted to become when I grew up; I would answer - I WANT TO BE AN ENGINEER JUST LIKE MY FATHER...wow how sure I was about doing engineering till I finally plunged into it. Those 4 years were the toughest and most turbulent. After this experience, I learnt a valuable lesson - DO WHAT YOU LIKE, LIKE WHAT YOU DO. So, after engineering I came out more knowledgable and more matured and so started to look out what I liked and wanted to do. And believe me, thats not the easiest of things to do. If it was easy to know what you like and do what you like, everyone of us would be so happy and the world will become a much better place to live. Unfortunately this is not the case. So, how do we know what do we like? There have been books written on this, there have been training program designed on this and there have been lot of Gurus who have spoken about it. But, still only about 10% of us actually do what we like to do. And out of those 10%.... about 3/4th are the people have mundane jobs like - a clerk in an office, a butler in a hotel, Delivery person, construction worker etc. Only 1/4th have professions such as writer, poet, artist, CEOs or executives. Surprised????????
Oh yeah it is surprising. But, you know how do the 7.5% (3/4th of 10%) do what they like? They wake up everyday, with enthusiasm, looking forward to things they would do, tasks they would accomplish and smile the whole day. How do they manage to do that? What is their "Gurumantra"? (Indian version of "Trade Secret")
The most common thought process of us Human is - The Grass Is Greener On The Other Side.
When we are kids, we envy our friends that they have better parents than us. Their parents dont raise voices or restrict their outdoor duties or always pester to study and get good grades. Their parents bring home ice creams, chocolates, sodas take them out on weekends.
As teenagers, we admire our friend's girlfriends or boyfiends (even if the hottest girl or boy is your own girlfirend or boyfriend). We get the best grades, but feel it is cool to be good in Football. We are the star Football player in school, but we feel its cool to get good grades. We might be the best in Arts, but we feel its cool to be a Math Geek.
When we grow up to become young adults, we might have the best engineering job, but we feel, its cool to get into management. We might be one of the senior management, but we feel its cool to have an engineering job. We might have a beautiful wife, whom we love a lot, but still the other person's wife is hot. We might have ordered a nice big Steak in a restaurant, but the guy in the next table has a better burger.
And the story continues. ......
So, the moral of the story is that the people who are happy, are the ones who do not see the "Green Grass on the Other Side". If they see the grass green on the other side, they try and grow green grass on the side where they stay.
So, the best way to find out what you like to do, is to look within yourself and find out without looking at others. Look at others to set benchmarks, but do not get carried away by it. Before, setting benchmarks do a soul searching and ask yourself the question..... What is the ultimate outcome? Do, I really want this outcome? If the answer to these question is "YES", then go ahead and set benchmarks and chalk out a path to attain it. But if the answer is "NO", dont even proceed further.
Because the further you proceed, the more frustrated you will get and the more things you do what you dont like to do.
Tuesday, May 6, 2008
Balanced Score Card as a Valuation Tool
Balanced Score Card as a "Valuation Tool"!!!! "Are you kidding???". "Isn’t it a "Performance Measurement Tool????" Yes I know those are the questions which you will have in mind. And why only you? Even, experienced and so called finance and valuation whiz will ask the same questions. Well in our so called love and passion for finance and valuation, what we forget is - valuation is just not Discounted Cash Flow or forecasting thru various statistical tools. Its much in depth than that. Accuracy of valuation is a derivative of forecast accuracy and this means that it depends on accuracy of assumptions. So, when one does a valuation of a company / individual, strategies of the company from all the perspectives of a business, becomes very critical. So, before laying out the numbers on table / spreadsheet, it is important to know as much about the company that is needed to be known. In this regard, I feel Balanced Score Card (BSC) is the most holistic strategic tool that has ever been developed.
BSC has four business perspectives - Finance, Customer, Internal Business Process and Learning and Growth. Finance perspective is something which is a derivative of all the three perspectives. Now the first and the most important part is to get hold of the vision and mission statement of the company under the screen of valuation. This can be then trickled down to objectives under every perspective. For e.g for a manufacturing company the vision statement can be - To be the most admired company in terms of returns to shareholders, getting customer appreciation and contributing toward society in terms of Health and Education. Hence, we can assume the objectives under various perspectives.
Objectives under financial perspective:
• ROI
• EVA
• Free Cash Flow
• Sales Growth
Objectives under customer perspective:
• Customer Satisfaction Index
• Market Share
• New Product Introduction
Objectives under Internal Business Perspective:
• On Time Delivery
• Inventories
Objectives under Learning and Growth:
• Six Sigma
• Lean Manufacturing
• TQM
Now with these objectives clear, one can narrow down to the numbers in terms of sales, profit, cash flow and others....
Forecasting by overlapping with the economic outlook will be a piece of cake and more accurate. And the valuation is done in its "True Spirits".
Remember, valuation is a combination of science and art. Strategy should be the foundation of any valuation exercise.
BSC has four business perspectives - Finance, Customer, Internal Business Process and Learning and Growth. Finance perspective is something which is a derivative of all the three perspectives. Now the first and the most important part is to get hold of the vision and mission statement of the company under the screen of valuation. This can be then trickled down to objectives under every perspective. For e.g for a manufacturing company the vision statement can be - To be the most admired company in terms of returns to shareholders, getting customer appreciation and contributing toward society in terms of Health and Education. Hence, we can assume the objectives under various perspectives.
Objectives under financial perspective:
• ROI
• EVA
• Free Cash Flow
• Sales Growth
Objectives under customer perspective:
• Customer Satisfaction Index
• Market Share
• New Product Introduction
Objectives under Internal Business Perspective:
• On Time Delivery
• Inventories
Objectives under Learning and Growth:
• Six Sigma
• Lean Manufacturing
• TQM
Now with these objectives clear, one can narrow down to the numbers in terms of sales, profit, cash flow and others....
Forecasting by overlapping with the economic outlook will be a piece of cake and more accurate. And the valuation is done in its "True Spirits".
Remember, valuation is a combination of science and art. Strategy should be the foundation of any valuation exercise.
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