Financial management

FINANCIAL MANAGEMENT PRACTICES: Prof. P. K. Jain and Dr. Surendra S. Yadav, Jyoti Gupta; Hindustan Publishing Corporation (India) Ltd., 4805/24, Bharat Ram Road, First floor, Flat No. 1 and 2, Daryaganj, New Delhi-110002. Price not mentioned.

THE AUTHORS have dealt with in the book under review in detail the financial management practices in India, Singapore and Thailand covering capital budgeting, capital structuring, dividend policy, working capital management and professionalism in financial management. The study covered 238 companies from India, 126 from Thailand and 86 from Singapore. The data furnished are largely based on secondary sources published by stock exchanges and CMIE, etc.

While a substantial part of data are reliable and critical in nature, the authors have suffered certain handicap in collecting additional data from the individual corporates, more particularly from Thailand and Singapore. However, the data collected, analyses made and the conclusions arrived at are reliable and consistent. The convention and practices of financial management followed in all the three countries are in a way similar and comparable.

First of all in setting financial goals, no corporate works with single goal but always with multiple goals. No doubt profitability is the primary financial goal but the details vary to a great extent. Secondly, it is revealed that the financial decisions pertaining to new long term investments are decided by the top management and communicated down below. Although this is in contrast to the earlier study under this series the reasons for the change have been traced in the ever-increasing competition and wafer-thin profit margin. The corporates do not have long term strategic planning and no one thinks a decade ahead. It is by and large established by the study that there is no paucity of funds with respect to capital budgeting decisions for the vast majority of corporates under study.

As far as the financing pattern of capital investment both in India and Singapore, sound tenets of financial management are followed and only in respect of Thailand there is an excessive dependence on short-term funds for long-term requirements. It is interesting to note that both in India and Thailand, majority of the corporates, most of the time use traditional techniques viz, pay-back period method in assessing the return on capital.

But Singapore follows accounting rate of return. There is increasing use of discounted cash flow techniques, internal rate of return and net present value. But these sophisticated methods are yet to gain acceptance widely. The data reveal that Indian corporates lack proper perspective on the role of equity and also the cost of equity.

The Indian companies depend more on debt finance as compared to Singapore and Thailand. As a result of debt dominated capital structure, the author is of the opinion that the corporates suffer higher cost and take more risk. In all the countries the corporates do not ensure acceptable interest cover and debt service cover ratios. In the matter of dividend payment, there is uniformity in paying better dividends to shareholders, although comparatively Indian companies pay less. Yet another important area of importance is working capital management in which the corporates in all the three countries are satisfactory and adopt certain uniform practices. However, there are certain variations in the level of inventory and sundry creditors. In the overall assessment of the corporates in these countries, the financial management practices are largely sound and there is not much difference between theory and practice. The book will be of great use to all the finance managers of Indian corporates.

S. ARUNAJATESAN

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