Pollution in Kolkata – Why a Whole City is Turning Into a Health Hazard!

Pollution levels across India are some of the highest anywhere in the world. And on top of this pile of polluted places sits Kolkata. A once beautiful city has been reduced to a huge garbage yard with tons of plastic waste strewn on every square inch of the city. Along with the number of aging buses and trucks spewing smoke – the various coal fires and dusty construction sites, have made the landscape a wasteland. But what has conspired to create this situation? Why has the West Bengal government turned a blind eye to the transport contractors?

Politics has always been a prominent part of the Kolkata culture. However the excessive politicizing of every issue has made it extremely difficult for legislation to be formed. The government in its quandary chooses to sleep over the various bills in the interest of protecting the environment – rather than irk the contractors who pay for the party funds. This has led to an unhealthy environment of government apathy and general callousness, especially in taking care of the living conditions. In its mandate to “provide rights to the poor” they have totally neglected the harm being caused to the environment by the millions of poor in the city.

The classic case of rampant pollution in the city of Kolkata are the buses and trucks plying the roads. In a recent move, a number of NGOs had petitioned that the pollution norms be strictly applied to the errant bus contractors. However the ministry decided to make the announcement with a rider that “people with genuine reasons can get a reprieve from the pollution control measures”!! This kind of obvious molly coddling of the transport contractors have further emboldened them, making it impossible for the police on the ground to fine the law breakers.

Plastic bags is another area where the West Bengal government has failed to check pollution. Elsewhere in all other major cities of India, plastic bags are banned as they cause widespread pollution which is difficult to remove. But not in Kolkata – where the “poor” have to carry their daily bread in plastic bags! The result is that the drainage system is choked in the city and the roads look like an unending garbage yard. Filth and disease accumulate in this waste causing diseases and generally making the whole city an unhealthy place to live in.

The present CPIM government is on its way out. They lost in all the by-polls. Here is hoping that the new government when it arrives, will be able to get rid pf the lethargy and inaction. If the laws are not implemented soon this city is going to become uninhabitable in the next few years! It is time the West Bengal government understood that “giving rights to the poor” does not mean that the environment can be abused!

The Capital Budgeting

A number of factors combine to make capital budgeting decisions perhaps the most important ones financial managers and their staff must make. There are a huge number of variables that must be considered although many can be defined as legible due to their probability of occurrence. However the cost of failure is great with companies facing bankruptcy if their market judgment is vastly incorrect. This report then focuses on evaluating the major risks that effect capital budgeting decisions and how that information can aid the techniques used to analyze fixed asset investments.

First, since the result of capital budgeting decisions have an impact for many years, the firm will lose some of its flexibility. For example, the purchase of an asset with an economic life of ten years locks the firm in for a ten year period. Further because asset expansion is fundamentally related to expect future sales a decision to buy an asset that is expected to last ten years requires a ten year sales forecast. If the firm invests too much in assets, it will incur unnecessarily high depreciation and other expenses. On the other hand, if it does not spend enough on fixed assets, two problems may arise. ‘First, its equipment may not be efficient enough for least-cost production and second, if it has inadequate capacity it may lose a portion of its market share to rival firms, and regaining lost customers will involve heavy selling expenses and price reductions, both of which are costly’. If a firm forecasts its needs for capital assets in advance, it will have an opportunity to purchase and install the assets before they are needed. Unfortunately, many firms do not order capital goods until existing assets are approaching full-capacity usage. If sales grow because of an increase in general market demand, all firms in the industry will tend to order capital goods at about the same time. This results in ‘backlogs, long waiting times for machinery, and an increase in their prices’. The firm which foresees its needs and purchases capital assets during slack periods can avoid these problems. Capital budgeting typically involves substantial expenditures, and before a firm can spend a large amount of money, it must have the funds available – large amounts of money are not available automatically. Therefore, a firm contemplating a major capital expenditure program should plan its financing far enough in advance to be sure funds are available.

A key area concerned with the capital budgeting decisions made by firm’s lies within the capital structure policy as this sets the tone for all future financial decisions.

Incorporating the tax deductibility of interest but not dividends and bankruptcy costs leads to the trade-off theory of capital structure. Some debt is desirable because of the tax shield arising from interest deductibility but the costs of bankruptcy and financial distress limit the amount that should be used. This is because when companies are highly levered the threat of default risks is great. Therefore an optimal range of debt finance needs to be incorporated into capital structure policy.

This is an extremely important concept for companies to consider when undertaking in capital budget decisions as their capital structure will have a large influence in determining which investment options to pursue. For example if the company decides to follow an investment proposal where the discounted payback period is great during the later stages of the project although the initial cash outlays are large. If the company is heavily financed through debt then the risk placed on that project will be high due to the probable default risk occurring if the short term future produces an uncertain event that throws the investment into doubt. A recent example of this case is described below:

The recent crisis in the football industry has demonstrated the importance of keeping a tight control of a company’s finances. As the industry became increasingly profitable throughout the 1990’s many clubs operated under the trade off theory principles. To incorporate increased spending in parallel with exponential transfer and wage increases clubs borrowed excessively to a point where the industry could not sustain itself any longer. This reached a head during May 2002 when the sudden collapse of ITV Digital resulted in the threat of bankruptcy for many smaller clubs. This situation was due to fact that smaller clubs had gambled their future on the excessive amounts of capital they were receiving from ITV Digital. Capital budget decisions had been based around spending for short term gains thus allowing football clubs to neglect their long term survival and as a result over six hundred footballers were made redundant during the summer in order to cut costs.

For example the highly profitable semi-conductor companies of the mid 1990’s like Samsung, did not shift their capital budgeting decisions policy towards higher levels of debt as the trade off theory suggests. This can be explained through the fact that in high-tech growth industries current assets are best described as risky and intangible. Therefore borrowing heavily would appear foolish as in times of crisis the company’s current assets would be rendered worthless resulting in nothing tangible to safeguard against spiraling default payments. This does appear slightly pessimistic considering during times of prosperity one would expect expansion and growth however there are many other risk factors that need to be taken into account when forming capital budgeting decisions.

Sales Stability: Companies with a stable source of income can feel more comfortable about supporting higher levels of debt because they are able to service the debt.

Asset Structure: When fixed assets are at a higher percentage relative to current assets, higher levels of debt can be supported due to the security factor. The lender is aware that if the interest can not be paid, fixed assets can be sold off.

Operating Leverage: The relationship between fixed and variable costs suggests that a high level of operating leverage will result in a high level of fixed costs. Therefore a company that is highly levered in operating leverage should have low levels of financial leverage to prevent the increase of costs.

Management Attitudes: These attitudes change regarding the current financial climate and whether personal styles tend to be more conservative or aggressive.

Lender and Rating Agency Attitudes: The credit rating of a firm has implications regarding the entire capital structure policy of a firm.

It is essential that top management is aware of the information gained from producing the capital budgeting decisions and it is not just limited to the financial management department. Often within companies there is a capping of the capital budget made by top management which can extinguish any investments projects no matter how profitable they might be. Therefore there needs to be a good two way communication process between senior management and financial management to prevent conflict occurring.

One way of achieving this is through SWOT analysis. Before developing strategies to accomplish the firm’s objectives, a manager needs to access the internal strengths and weaknesses of the firm. This evaluation should include the firm’s financial health, physical capital, human resources, production efficiency, and product demand. External threats and opportunities that impact the firm’s ability to accomplish its objectives also need to be considered. An external threat and opportunity analysis might include evaluating the behavior of close competitors or assessing the impacts of the business cycle on clientele incomes and the resulting product demand. The SWOT analysis helps the firm understand the current constraints placed on it by both internal and external forces and enables the firm to take corrective action, when possible to better position itself to accomplish its objectives.

Through implementing SWOT analysis correctly a greater amount of information is available to make informed capital budgeting decisions. The technique can then be implemented with in standard investment appraisal techniques such as NPV, discounted payback period and IRR. By providing SWOT analysis to aid capital budgeting decisions the threat of failure deceases. However reviewing or post-auditing is a final step to review the performance of investment projects after they have been implemented. While projected cash flows are uncertain and one should not expect actual values to agree with predicted values, the analysis should attempt to find systematic biases or errors by individuals, departments, or divisions and attempt to identify reasons for these errors. Another reason to audit project performance is to decide whether to abandon or continue projects that have done poorly. Therefore in order to eliminate poor performance the various risks associated with capital budgeting decisions need to be applied as strictly in the auditing process to aid in the decision making process for future capital budgeting decisions.

The Making of a Patachitra Painting

We have all seen contemporary artists in action. We have seen them splash paint on giant canvases. But there is another way to make great art. And that is through the rigor of practice and the perfect control over one’s fingers. In the world of traditional artists – practice marks out the best from the rest. Through eyes that can barely see, and through the strength of their frail fingers – the older generation of indigenous artists, create art that simply tantalizes the perfectionists.

Patachitra art has been around for a long time. However the alienation of indigenous art forms has made it difficult for the enthusiast to find out the techniques and methods which produce a great Patachitra. Conversely some of the traditional techniques require upgrading to the latest available materials and tools. With the intention to understand how authentic Patachitra is made, I traveled to Raghurajpur in Orissa to get a first hand view of some of the best Patachitra artists.

So how is good Patachitra made? There a number of steps in the traditional style. The first is of course the preparation of the materials required for the painting. Tamarind seeds are soaked in water in an earthen pot and then boiled to get a gummy solution. Rice powder may be added to give a stiffer feel to the canvas. This process knows as ‘Niryas Kalpa’ takes a few days.

After this, two course cotton cloth pieces of the same dimensions are selected and pasted together using this solution. This forms the ‘Pata’ or the base canvas for the painting. Chalk, clay or stone powder is then mixed with the tamarind solution and applied on both sides of the canvas to give it a semi-absorbent surface coat. After canvas has dried it is burnished first with coarse grain, and then with polished stones to give it a smooth surface. The process of polishing involves many hours of careful work. The result is a canvas with high tensile strength and an excellent surface coat for the intricate lines that are to be made on it.

‘Chitrakarita’ or the process of painting begins once the canvas has been polished. The first step called ‘pahili ranga bhara’, involves painting a red background and the borders and outlines of the composition. The central solid colors are then painted in. The main colors used are red, brick red, yellow, white and lamp black. Many different types of brushes are used to make the different details on the painting. For fine lines, brushes made of the hair of a rat or mongoose is used. For thicker lines buffalo hair is the traditional choice. Kiya plants have been used to make the bolder lines, in the past. However in the last few years some of the artists have started using standard painting brushes made of synthetic materials.

The painting is finished with a coat of lacquer, applied using a soft cloth. After the lacquer has dried completely, the edges are clipped down to the decorative border. The lacquer layer is called ‘jausala’, and is glazed in the final step. In earlier times the lacquer layer was made by sprinkling resin powder on the painting and then holding it down with a hot bag of sand. Synthetic varnish has been used as a substitute in recent times with mixed results. A fallout of the varnish is the brown tinge to the painting.

In the past the themes of the Patachitra paintings belonged to a few major categories

  • Pictures of the god Jagannath
  • Hindu epics and episodes especially “Krishna Leela”
  • Stories from Folklore
  • Worship of various gods and goddesses
  • Animal and bird themes
  • Erotic themes

In recent times modern themes have started appearing on these paintings, even including themes from other religions. However the newer themes are mostly secular and center around modern day events and stories. The depictions however are not uniform and the structure of the paintings can vary from circular paintings to long rectangular panels.

The Patachitra artist also paints on a variety of mediums other than the ‘Pata’. ‘Talapatachitra’ is a variation of the style done on dried palm leaves stitched together to make a canvas. The design in this technique are primarily made with a needle head and etched on to the surface of the dried leaves. This is an extremely difficult and time-consuming process requiring many hours concentration at a time. The older artists develop eye problems mainly due to the extremely detailed designs they make using this technique.

Other mediums that have been used are wooden boxes, tassar silk apparel, coconut shells, wooden doors and panels and even traditional playing cards called ‘Ganjifa’. Compendiums of mythological stories called ‘Chitra-pothies’ are made from many palm leaf paintings stacked together between decorated wooden covers and held by strings or silk threads. These form interesting and memorable gifts, especially desired by the discerning tourists visiting the state of Orissa.

In a following article we are going to examine what differentiates a good painting from an average one. Also on the cards is a an indepth look at the life of a Patachitra artists and the hardships which have made most of them abandon this most delectable art form.

Revenue-Based Financing for Technology Companies With No Hard Assets

WHAT IS REVENUE-BASED FINANCING?

Revenue-based financing (RBF), also known as royalty-based financing, is a unique form of financing provided by RBF investors to small- to mid-sized businesses in exchange for an agreed-upon percentage of a business’ gross revenues.

The capital provider receives monthly payments until his invested capital is repaid, along with a multiple of that invested capital.

Investment funds that provide this unique form of financing are known as RBF funds.

TERMINOLOGY

– The monthly payments are referred to as royalty payments.

– The percentage of revenue paid by the business to the capital provider is referred to as the royalty rate.

– The multiple of invested capital that is paid by the business to the capital provider is referred to as a cap.

CASE STUDY

Most RBF capital providers seek a 20% to 25% return on their investment.

Let’s use a very simple example: If a business receives $1M from an RBF capital provider, the business is expected to repay $200,000 to $250,000 per year to the capital provider. That amounts to about $17,000 to $21,000 paid per month by the business to the investor.

As such, the capital provider expects to receive the invested capital back within 4 to 5 years.

WHAT IS THE ROYALTY RATE?

Each capital provider determines its own expected royalty rate. In our simple example above, we can work backwards to determine the rate.

Let’s assume that the business produces $5M in gross revenues per year. As indicated above, they received $1M from the capital provider. They are paying $200,000 back to the investor each year.

The royalty rate in this example is $200,000/$5M = 4%

VARIABLE ROYALTY RATE

The royalty payments are proportional to the top line of the business. Everything else being equal, the higher the revenues that the business generates, the higher the monthly royalty payments the business makes to the capital provider.

Traditional debt consists of fixed payments. Therefore, the RBF scenario seems unfair. In a way, the business owners are being punished for their hard work and success in growing the business.

In order to remedy this problem, most royalty financing agreements incorporate a variable royalty rate schedule. In this way, the higher the revenues, the lower the royalty rate applied.

The exact sliding scale schedule is negotiated between the parties involved and clearly outlined in the term sheet and contract.

HOW DOES A BUSINESS EXIT THE REVENUE-BASED FINANCING ARRANGEMENT?

Every business, especially technology businesses, that grow very quickly will eventually outgrow their need for this form of financing.

As the business balance sheet and income statement become stronger, the business will move up the financing ladder and attract the attention of more traditional financing solution providers. The business may become eligible for traditional debt at cheaper interest rates.

As such, every revenue-based financing agreement outlines how a business can buy-down or buy-out the capital provider.

Buy-Down Option:

The business owner always has an option to buy down a portion of the royalty agreement. The specific terms for a buy-down option vary for each transaction.

Generally, the capital provider expects to receive a certain specific percentage (or multiple) of its invested capital before the buy-down option can be exercised by the business owner.

The business owner can exercise the option by making a single payment or multiple lump-sum payments to the capital provider. The payment buys down a certain percentage of the royalty agreement. The invested capital and monthly royalty payments will then be reduced by a proportional percentage.

Buy-Out Option:

In some cases, the business may decide it wants to buy out and extinguish the entire royalty financing agreement.

This often occurs when the business is being sold and the acquirer chooses not to continue the financing arrangement. Or when the business has become strong enough to access cheaper sources of financing and wants to restructure itself financially.

In this scenario, the business has the option to buy out the entire royalty agreement for a predetermined multiple of the aggregate invested capital. This multiple is commonly referred to as a cap. The specific terms for a buy-out option vary for each transaction.

USE OF FUNDS

There are generally no restrictions on how RBF capital can be used by a business. Unlike in a traditional debt arrangement, there are little to no restrictive debt covenants on how the business can use the funds.

The capital provider allows the business managers to use the funds as they see fit to grow the business.

Acquisition financing:

Many technology businesses use RBF funds to acquire other businesses in order to ramp up their growth. RBF capital providers encourage this form of growth because it increases the revenues that their royalty rate can be applied to.

As the business grows by acquisition, the RBF fund receives higher royalty payments and therefore benefits from the growth. As such, RBF funding can be a great source of acquisition financing for a technology company.

BENEFITS OF REVENUE-BASED FINANCING TO TECHNOLOGY COMPANIES

No assets, No personal guarantees, No traditional debt:

Technology businesses are unique in that they rarely have traditional hard assets like real estate, machinery, or equipment. Technology companies are driven by intellectual capital and intellectual property.

These intangible IP assets are difficult to value. As such, traditional lenders give them little to no value. This makes it extremely difficult for small- to mid-sized technology companies to access traditional financing.

Revenue-based financing does not require a business to collateralize the financing with any assets. No personal guarantees are required of the business owners. In a traditional bank loan, the bank often requires personal guarantees from the owners, and pursues the owners’ personal assets in the event of a default.

RBF capital provider’s interests are aligned with the business owner:

Technology businesses can scale up faster than traditional businesses. As such, revenues can ramp up quickly, which enables the business to pay down the royalty quickly. On the other hand, a poor product brought to market can destroy the business revenues just as quickly.

A traditional creditor such as a bank receives fixed debt payments from a business debtor regardless of whether the business grows or shrinks. During lean times, the business makes the exact same debt payments to the bank.

An RBF capital provider’s interests are aligned with the business owner. If the business revenues decrease, the RBF capital provider receives less money. If the business revenues increase, the capital provider receives more money.

As such, the RBF provider wants the business revenues to grow quickly so it can share in the upside. All parties benefit from the revenue growth in the business.

High Gross Margins:

Most technology businesses generate higher gross margins than traditional businesses. These higher margins make RBF affordable for technology businesses in many different sectors.

RBF funds seek businesses with high margins that can comfortably afford the monthly royalty payments.

No equity, No board seats, No loss of control:

The capital provider shares in the success of the business but does not receive any equity in the business. As such, the cost of capital in an RBF arrangement is cheaper in financial & operational terms than a comparable equity investment.

RBF capital providers have no interest in being involved in the management of the business. The extent of their active involvement is reviewing monthly revenue reports received from the business management team in order to apply the appropriate RBF royalty rate.

A traditional equity investor expects to have a strong voice in how the business is managed. He expects a board seat and some level of control.

A traditional equity investor expects to receive a significantly higher multiple of his invested capital when the business is sold. This is because he takes higher risk as he rarely receives any financial compensation until the business is sold.

Cost of Capital:

The RBF capital provider receives payments each month. It does not need the business to be sold in order to earn a return. This means that the RBF capital provider can afford to accept lower returns. This is why it is cheaper than traditional equity.

On the other hand, RBF is riskier than traditional debt. A bank receives fixed monthly payments regardless of the financials of the business. The RBF capital provider can lose his entire investment if the company fails.

On the balance sheet, RBF sits between a bank loan and equity. As such, RBF is generally more expensive than traditional debt financing, but cheaper than traditional equity.

Funds can be received in 30 to 60 days:

Unlike traditional debt or equity investments, RBF does not require months of due diligence or complex valuations.

As such, the turnaround time between delivering a term sheet for financing to the business owner and the funds disbursed to the business can be as little as 30 to 60 days.

Businesses that need money immediately can benefit from this quick turnaround time.

A Peep Into the Future Tech Innovations at CES 2017

Consumer Electronics Show (CES) held every year in January at Las Vegas is a premier electronic convention held annually for showcasing exceptional technological advancements in the consumer electronics industry. This year, the 4-day event held from January 5 through January 8, 2017, marked its 50th anniversary with 3,886 exhibitors showing off myriad revolutionary tech trends and avant-garde gadgets that will drive the future of technology globally.

It goes without saying that Amazon’s Artificial Intelligence voice assistant ‘Alexa’ has been the star of the show as several Alexa-enabled next-generation devices including voice-controlled smart-home gadgets, cars, and robots were displayed at the event. Alexa, which has outperformed Google Assistant and Siri can be programmed to perform multiple functions such as starting your car, locking doors, adjusting thermostats, controlling lights, and finding locations.

Now let’s throw light on the futuristic innovations witnessed at CES 2017 that will have a major impact in the coming years.

1. Tech innovations in Smartphones: Qualcomm unveiled its latest processor named Snapdragon 835 for revolutionizing mobile technology. Snapdragon 835 aims to bring High Dynamic Range to smartphones besides facilitating better virtual experience by enhancing sight and sound for mobile Virtual Reality. The new processor will also enable smartphones to produce high-resolution photos even in poor lighting conditions. It will also facilitate faster connection by paving the way towards 5G network. Moreover, the chip also guarantees longer battery life as it consumes 50% less power compared to Snapdragon 801. Additionally, biometric sensors embedded in the 835 promises better security to smartphone users.

World’s first smartphone with molecular-sensors “H2” was also unveiled at CES. This 6-inch Android phone can scan any object to provide you with instant feedback on its chemical composition, be it food items or medicines.

2. A Glimpse Into the 5G future: Qualcomm demonstrated the various ways its technology is going to empower the 5G future. At CES, the CEO of Qualcomm Stephen Mollenkopf asserted that 5g will be a ground-breaking network that will support a wide array of devices with exceptional speed and scale. Moreover, it will have a significant impact on world economy.

At the convention, American technology company Intel too launched its 5G Modem which can deliver 5G in both mmWave spectrum and 6GHz bands. Besides this, Intel also unveiled its new automotive 5G platform named Intel Go to support automated driving.

3. Cloud-Based Innovations: CES 2017 also witnessed numerous cloud-based announcements. Nvidia grabbed the attention of PC gamers by launching its cloud program ‘GeForce Now’ for PC and Mac that will enable gamers to transform their PC into a sophisticated gaming rig to stream and play the latest games of their choice.

Besides this, world’s first cloud-based keyboard ‘the 5Q’ also made its debut at the event. The special function of this keyboard is that it will be connected to the cloud and display color-coded email notifications, sports updates, and stock quotes on the keys of the keyboard.

4. Artificial Intelligence (AI) Stole the Show: AI undoubtedly took centre stage throughout CES 2017. AI has been featured as an integral part of almost everything- from smart jeans that show directions, and smart pet collars to feel your pet’s emotions, to smart gloves for stroke victims and smart vehicles. These computerized brains are empowering humans to replicate virtual worlds besides endowing computers with the intelligence to comprehend the real world.

· AI-powered Cars: Automobile companies are focusing on AI-powered vehicles as the day is not far when customers will seek self-driving cars. Smart car manufacturers will soon come up with AI-powered cars that can generate their own emotions because soon customers will opt for cars with which they can establish the best emotional relationship. CES 2017 saw the launch of many AI-powered emotional cars including Honda’s NeuV that features HANA (Honda’s Automated Network Assistant) to personalize the driver’s experience. HANA’s face recognition technology and heart-rate monitor assist the electric car to understand your happy and melancholic moods. It can also suggest music based on your mood besides remembering your favorite places such as cafe’s, parks, etc.

Toyota too released its futuristic car the “Concept-I”, powered by AI technology that can comprehend the need of the driver as well as passengers. Likewise, Nvidia introduced its self-driving car system named Drive PX designed to comprehend the driver’s mood, the car’s environment and figure out what is going on in the interior of the car.

· AI-powered Health-tech Devices: In order to incorporate advanced technology and new-age thinking to the workout routine of fitness freaks, fitness technology companies unveiled a range of sophisticated fitness wearable devices at the CES. For example,Boltt, a Mumbai-based fitness tech company unveiled AI-packed fitness trackers, smart shoes embedded with stride sensor, and a virtual health assistant named “B” that provides users with real-time feedback and voice coaching on health and fitness.

The show also displayed digestive trackers to help users determine the type of diet that is ideal for their body, and a smart hairbrush embedded with sensors that can detect how you brush your hair so that it can train you to correctly brush your hair by sending data to your connected smartphone.

The world’s first smart toothbrush Kolibree Ara was also launched at the show. It features deep machine learning algorithms to understand and provide feedback about your brushing habits even if it is not connected to your smartphone. What’s more, CES 2017 also saw the launch of Sleep Number 360 bed which has been designed to prevent snoring.

5. Humanoid Robots: CES 2017 also introduced the world to the mind-blowing capabilities of human-like robots. At the event, LG unveiled three robots- to mow your lawn, to take care of your daily chores, and to welcome you at the airport. Besides this, quite a few educational robots were also displayed at the event for children. Additionally, there were a lot of humanoid robots designed for making your coffee, folding clothes, pouring candy, singing lullabies to your kids and taking photos of your pet when you are away. World’s first robotic suitcase Cowarobot also stole the limelight as this four-wheel suitcase with a laser and a camera can follow its owner like a puppy.

So these are some of the futuristic trends witnessed at the CES 2017. This year the CES focused mainly on digital interactivity. This is evident from the fact that a majority of exhibitors at the show were looking to leverage the concept of interactivity for financial gain.