LEAVE ENCASHMENT AT THE TIME OF SUPERANNUATION FULLY EXEMPTED FROM INCOME TAX

LEAVE ENCASHMENT AT THE TIME OF SUPERANNUATION FULLY EXEMPTED FROM INCOME TAX W.E.F. 01.03.2018 FOR RETIREES RETIRED DURING 2018-19. WE OFFER OUR SINCERE THANKS TO SHRI M C GUPTA RETIRED SR. ENGINEER FROM SARAS DAIRY. MR I M AGRAWAL EX CM PNB FOR THEIR RELENTLESS EFFORTS WHO WAS TRYING HARD TO GET THE ANOMALY ADDRESSED BY CBDT. THE MESSAGE RECEIVED IS POSTED BELOW.

Good News for those retiree’s who retired in financial year 2018-19 and afterwards. When I was filing IT return I noticed that IT department has exempted income earned by way of earned leave encashment under Section 10 (10aa) which can be claimed under column:

Less:Allowances to the extent exempt u/S 10 under sub section 10 aa. All members retired in f/y 2018-2019 are advised to note it down and claim exemption under Leave Encashment. Regarding previously retired employees can claim it after filing revised return under the guidance of CA.

Regards

I M Agrawal

Friends, who are retired after April,2018 they are eligible for exemption of IT section (10) sub section (10aa) under this section, your leave encashment is fully exempted & no tax is to paid, so if you have already deducted tax for leave encashment above 3.00 lacs can be refunded to you. Take care while filing return.

Congratulations all reader and blog viewer we reach 1cr viewer today (10000000)

 

Congratulations  Congratulations  Congratulations  Congratulations

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Our lives are filled with us jumping from one task to another, trying to achieve success and happiness. Sometimes we are so consumed that we forget to savor the wins along the way. What we have achieved is nothing short of incredible. I’m so proud all of   you. Congratulations

 Honesty is the Best Policy
People trust each other when they know they can be honest with each other. It is impossible to trust someone who is always dishonest with you about issues. Honesty is a moral value that most people in society have because they know that telling lies won’t benefit them in the long run. Honesty is the most important value to have in the workplace, for example. If you are selling a product to a customer, you want to be honest about that product and explain what it can do to benefit that customer. If you are working with bosses or other employees, you want to be honest about your performance at work and how you feel things are going in the company.

 If You Break It, You Bought It
This is a moral value where customers in a store are kept in check. Also known as the Pottery Barn Rule, this is regularly used as a store policy where if a customer causes any damage to any products that are on store shelves they are automatically held responsible for the cost of that damage. This moral value teaches responsibility on the part of customers, encouraging them to be more careful when handling property that isn’t theirs. Alternatively, the phrase “if you break it, you bought it” can be used in political or military arenas where if the person in question creates a problem, he or she is obligated to do the necessary work to correct it.

PRIVATISATION OF PSU BANKS A PRIORITY, SAYS CEA SUBRAMANIAN

Release of stagnation increment notionally for the putpose of pension under 10 th Bipartite settlement

100%DA Issue. Fact behind it

100%DA Issue.

In 2005,

When 100% DA Neutralisation was introduced without extending the same to pre-2002 retirees, Mr Shantaraju GS-AIBOC was the Convener. 

  Mr .Shantaraju was working in State Bank of India and was the Convener of UFBU at that time.  

 During the 10th BPS concluding days.....

Retirees' Unions tried to resolve this long pending issue through UFBU.  

When Com CHV  extended an olive branch with the benefit RETOROSPECTIVELY only,  some Super Senior Dadas spurned the offer saying that CHV FAILED TO GIVE HIS ASSURANCE IN WRITING.  

Finally, 

when Apex Retiree Unions appealed to the Litigants NOT to proceed with CURATIVE PETITIONS ,  

they defied every one and got the CPs DISMISSED by the Supreme Court squandering the Money and the Opportunity to resolve it. 

 I do understand that most of  the Pre 1/11/2002 retired Super Seniors  who have developed a hatred for Award Staff and AIBEA and more particularly against Com. CHV  continue to hate them  even after retirement. 

Being ex-Officers/Managers/Executives , they never bother about Aiboc or any other Union/Association which fought AGAINST Pension in 1993 & 1995.  

I have gratitude towards AIBEA, because of which I am drawing pension today, 

because of which I am demanding updation of pension,

because of which many retirees' organisations were born and they are demanding the right to participate in negotiation,

because of which pension was secured again in 2010 to even those who did not agree with organisation's views.

When Com. Tarakda was alive, people said Com. Prabhakar and Com. Parvana were giants. 

 Those who were a part of AIBEA should recollect how Com. Tarakda was treated in Jaipur Conference. 

What do we say about Com. Tarakda, now?  

The same practice of hatred  continues against Com CHV ! 

 (MP with additional inputs from CNP)

Thanks Com. Perumal Maruthu, Canara Bank

BANK UN-ION SENT LETTER TO SITARAMAN OPPOSE PRIVATISATION OF PSU BANK

Date: 29.01 2021

Smt Nirmala Sitharamani

Hon'ble Minister of Finance and Corporate Affairs Government of India

New Delhi

Madam

OPPOSITION TO PRIVATISATION

OF PSU BANKS

Greetings on behalf of four Officers organisations of the entire banking industry viz. AIBOC-AIBOA-INBOC-NOBO.

01.We draw your kind attention to the various media reports announcing that the Union Cabinet has approved a policy to privatise public sector undertakings (PSUs), which is expected to be announced in the forthcoming Budget. Ironically, this PSU privatisation policy, which was first announced along with the Aatmanirbhar Bharat Package in May 2020, will only weaken India's self-reliance and make us dependent on foreign and domestic private capital. The announcement made last year identified "strategic sectors where the number of PSUs would be brought down between one and four. Banking along with insurance, steel, fertilizer, petroleum, coal and minerals etc. figure in the list of 18 strategic sectors

02. Even after the wave of mergers in the public sector banks undertaken by the Government, the number of Public Sector Banks (PSBS) stands currently at 12. These PSBs own around 60% of the total banking assets in the country and account for 64% of all bank deposits and 60% of total loans and advances. If the proposed privatisation policy is to be implemented, it would amount to privatisation of at least 8 PS&s, which will put an end to the market dominance of the PSBs

03. You are very much aware that it was the PSBs, created through nationalisation, which led to the growth and devet opment of banking across the length and breadth of the country, including unbanked rural and remote areas. The dom nance of the Psas insulated the Indian economy from the worst consequences of the 2008-09 financial crisis. Crucial schemes of financial inclusion like the Jan Dhan Yojana and MUDRA have been implemented by the PSBs much more ngorously than the other segments of the banking industry. Despite the sordid saga of humongous bad-debt accumula tion in the recent past, owing to big-ticket corporate debt-defaults, massive haircuts through the debt-recovery channel under the IBC and burgeoning NPA write-offs, the PSBs have registered positive operating profits year after year, which stard testimony to the hard work and efficiency of the officers and employees of the PS8S.

04. In this backdrop and at a time when the rational economy is still reeling under the impact of a severe recession caused by the Covid-19 pandemic we cannot fathom why the Union Government is keen on privatisation of PSUS in general and the PSBs in particular. It was the PSBs Regional Rural banks and old generation private banks have suc cessfully implemented all the schemes of the government to provide the much-needed fiscal stimulus during Covid times. The development of infrastructure can only be attributed to the contribution of PSøs in the absence of any major DFIs It is as clear as daylight that the only beneficiaries of PSB privatisation would be those entities who still owe the state-owned banks thousands of crore in corporate debt. While private sector banks like the Yes Bank, and earlier the Global Trust Bank, NBFCS ike IL&FS and DHFL co-operative banks like Punjab and Maharashtra Cooperative Bank (PMC) etc. have witnessed failures in the recent times, the PSBs have continued to ensure financial stabity and securi ty for the depositors. Experience tells us that strengthening the PSBs is the way forward for building an efficient, robust and stable financial sector in India,

05. We consider that any proposal for privatisation of Psas is retrograde, ill-conceived and thoroughly inimical to the national interest. Any step towards privatisaton, dilution of government equity and/or further mergers and amalgamation of PSBs would face stf resistance, nat only from our organisations but also from all the major stakeholders. We urge

upon your good office to kindly rescind any such privatisation proposal, if on the anvil not only for the PS8s but for all the PSUs The Union Government should rather initiate policy discussion on the ways and means of reforming and strengthening the PSBS

With best regards,

CABINET CLEAR POLICY ON PSU PRIVATISATION

DA INCREASE FOR BANKER MINIMUM RS 400 AND MAXIMUM RS 3600 FROM FEB 2021

 

DA INCREASE FOR BANKER 33 SLAB FROM FEB 2021 AND NEW DA STOOD 26.18%

Today i.e. on 29.01.21 CPI for the month of Dec'20 announced with decrease of 1.10 points from Nov'20 as per base year 2016 and 3.16 points of base year 2001. Earlier Govt vide their notification dated 22.10.20  has changed the Consumer Price base year from 2001=100 to 2016=100 for Industrial Workers.

On the basis of CPI data announced by the Govt for the months of Oct'20 to Dec'20 the percentage of increase in DA is 33 slabs. In terms 11 th BPS the revised DA slabs would become payable from Feb'21 is 374 slabs i.e. total percentage of DA payable would become payable on revised pay = 26.18%.

EVERYTHING WILL BE SOLD OUT IN COMING DAYS

After Modi became PM, read a little bit of the account of the alms that he distributed to neighboring countries and wasted...

10000 crore to Bhutan

70000 crore to Mongolia

15000 crore to Bangladesh

5000 crore to Maurasius

39 billion in Nepal and African countries

3500 crore for Sardar Patel Statue

Industrialists loans waived 5 lakh 55 thousand crores

Modi's foreign trips spend more than 2500 crore

BJP's headquarters expenditure 350 crores

Advertisement of Modi and BJP is more than 1,5000 crore

24 hours spent in Modi's security is 1 crore 62 lakh rupees. Means 591 crore 30 lakh rupees for one year

In the last five years, the cost of Kumbh fairs is about 15000 crores

300 crore to welcome USA President Trump

Modi's full report card (if you find it wrong, go to Google and see).....

You will be shocked to see how India has changed in the last 6 years, if you find anything wrong in it, then tell me... otherwise accept this truth..

1. India is now suffering from the highest unemployment rate! (NSSO DATA)

2. Top 10 Most Polluted Cities In The World Now In India! (WHO Data)

The number of 3. Indian soldiers martyred is the highest in 30 years! (Washington Post)

4. India has the highest income inequality in 80 years now! (Credit Suis Report)

5. India has become the world's worst country for women! (Thomas Reuters Survey)

6. Kashmiri youths joining extremism are the highest in these years! (Indian Army Statistics)

7. This time Indian farmers have faced the worst price in last 18 years! (WPI DATA)

8. After Modi became PM, the most cow-related violence and record mobling incidents have happened. (India Spend Data)

9. India is now the second most unequal country in the world! (Global Wealth Report)

10. Indian Rupee is now Asia's worst performance currency. (Market Data)

11. India has become the third worst country in the world in environmental conservation. (EPI 2018)

12. For the first time in the history of India, foreign money and corruption has been made Vaid. (Finance Bill 2019)

13. Our current Prime Minister is the least accountable PM in 70 years. (0st PM to do 0 press conference)

14. For the first time in the history of India, CBI vs CBI, RBI vs Govt, Supreme Court vs Govt fights took place because Modi wants his control over all democratic institutions.

15. For the first time in the history of India, 4 Supreme Court judges held a press conference and said ′′ Democracy is in danger, we are not allowed to work!"

16. For the first time in the history of India, top secret defense documents stolen from the Defence Ministry Office! (Rafael)

17. Intolerance and religious extremism has the highest in the last 70 years!

18. Indian media is the worst in years so far!

For the first time in the history of 19. India, if you criticize Modi government, then you seem to be a traitor label which is very shameful.

Whatever is said in this message is not a jumla. All the data above are 100 % verified facts. You can verify them yourself by doing a Google search at any point. This is the reality of what has happened to our India.

Modi government is the worst Indian government in last 70 years. There is no contribution of two pennies in making the country stand up. In the security of Modi, the cost of 24 hours is 1 crore 62 lakh rupees. Means 591 crore 30 lakh rupees for one year.

Some people say 2019 election is the last election in India, because Modi has taken all the institutions of our democracy under his control and become a dictator after winning.

Today, between the debate of ′′ thief ′′ and ′′ watchman ′′ all the issues of livelihood-bread, education, health, security, corruption, black money, demonetization, employment, inflation etc. have started flying.

But it is decided that when the list of people who destroy the country will be ready, the name of these two classes will be at the top...

1. media for sale

2. Foolish Blind Devotees (sheep)

There is no proof of whether tea was sold or not, but the country is definitely selling its evidence by looking at the national property sold daily.

● Red Fort SOLD OUT...

● Railway stations sold out...

● Airport SOLD OUT...

● COAL MINES SOLD OUT...

● TRAIN SOLD OUT...

● THE PORT IS SOLD OUT...

Preparing to sell....

● LIC will be sold...

● IDBI will be sold...

● Air India will be sold...

● BSNL will be sold...

● ONGC will be sold...

● Indian Oil will be sold...

● HPCL will be sold...

Sir used to say that he will not let the country sell and now only the name of the country is left!

★ Selling is a very easy task!

★ This government has created a single public undertake, can anyone tell??

★ Brothers, the government was formed to create something new, not to sell! Any common thug can do the work of selling?

★ Is such a government in the interest of the public???

The public has to think seriously???

The pleasant thing of this government is that gas from drain, oxygen from duck, kohinoor from dung, gold from cow urine, pakoras in employment, clapping plate for corona, such an entertaining government how to cut 6 years Didn't even realize that..

The total no of complaints stood at 308630---RBI says it will charge banks if they do not improve customer grievance

 

 :  Reserve Bank of India (RBI) asked banks to step up disclosures on customer complaints and cost of redressal, cautioning lenders that fail to improve their redress mechanism quickly will be charged.

At the end of March 2020, the total number of complaints across various offices of RBI stood at 3,08,630. This is a steep rise from 1,95,901 complaints outstanding at the ombudsman offices, as per data from the Trends and Progress Report of the RBI.

If a lender has higher unresolved complaints than average, it will be charged. Bank customers, however, will continue to enjoy free cost of redressal.

The central bank said on Wednesday night this was necessitated because of increasing customer grievances lodged with the banking ombudsman, which merited greater attention by banks.

Disclosures, according to the central bank, "serve as an important tool for market discipline as well as for consumer awareness and protection.”

“Appropriate disclosures relating to the number and nature of customer complaints and their redress facilitate customers and interested market participants to better differentiate among banks to take an informed decision in availing their products and services.”

To operationalize the cost-recovery framework for banks, peer groups based on the asset size of banks as on March 31 of the previous year will be identified. The central bank will consider three parameters – average number of maintainable complaints per branch, average number of maintainable complaints per 1,000 accounts held by the bank; and average number of maintainable digital complaints per 1,000 digital transactions executed through the bank by its customers.

If there is an excess of one parameter, 30 per cent of the cost will be recovered from banks. In case of excess in two parameters, 60 per cent of the cost will be recovered, and if the bank is found lacking in all three parametsrs, 100 per cent of the cost would be recovered from the bank.

ED arrests Yes Bank co-founder Rana Kapoor in fresh money laundering case

Yes Bank co-promoter Rana Kapoor was arrested by the Enforcement Directorate on Wednesday in a fresh money laundering case linked to alleged diversion of Rs 200 crore bank loan fund, official sources said.

Kapoor, 63, is lodged in a Mumbai jail since March last year after he was arrested by the central probe agency in connection with alleged financial irregularities and purported kick backs paid to him and his family members in return for certain dubious loans provided by the Yes Bank to a number of high-profile borrowers.

The Bombay High Court had recently rejected yet another bail plea of Kapoor in the Yes Bank case.

In the latest case, sources said, Kapoor was placed under arrest in prison as per provisions of the Prevention of Money Laundering Act (PMLA).

He was later produced before a special PMLA court in Mumbai that sent him to ED custody 

Sources said the ED is probing the role of Kapoor, a company called Viva Group promoted by Maharashtra MLA and Bahujan Vikas Agadhi (BVA) party chief Hitendra Thakur, Housing Development Infrastructure Ltd (HDIL), its promoters Rakesh Kumar Wadhawan and his son Sarang Wadhawan for allegedly “siphoning off” a Rs 200 crore loan sanctioned by the Yes Bank to a company called Mack Star Marketing Pvt Ltd.

This fresh ED case is based on a CBI FIR filed against the accused.

“This loan was siphoned by the Wadhawans by showing it for fictitious purpose,” the ED had said in a statement issued last week after it raided the premises of Viva Group in the Vasai-Virar area of Palghar district and Mumbai.

Pension upgradation in banking sector on cards

Cabinet clears policy on PSU privatisation

No withdrawal of old series of Rs100, Rs10 and Rs5 banknotes from circulation: RBI

The Reserve Bank of India(RBI) today clarified that the central bank has no intention of withdrawing old series banknotes of Rs100, Rs10 & Rs5.

The RBI has put out a tweet from its official Twitter handle stating that" With regard to reports in certain sections of media on withdrawal of old series of ₹100, ₹10 & ₹5 banknotes from circulation in near future, it is clarified that such reports are incorrect."

The RBI introduced a new Rs100 denomination currency note as a part of the Mahatma Gandhi (new) series of banknotes, the new Rs100 prominently carries the motif of ‘Rani-Ki-Vav’ (The Queen’s Stepwell), a UNESCO World Heritage site in Gujarat.

The new ₹ 10 note in the Mahatma Gandhi series is designed in the base colour of chocolate brown and has the motif of the Konark Sun Temple in Odisha on the reverse.

Also the Press Information Bureau (PIB) conducted a fact check and debunked the reports of RBI discontinuing the old series banknotes of Rs100, Rs5 and Rs10 . “It is being claimed that hundred, ten and 5 rupee notes will no longer be legal tender from March 21, as per the information given by RBI. This claim is false", the PIB tweeted from its Twiiter handle.

Bank gives pandemic bonus of its 170,000 staff Rs 55000/- each

Bank of America is rewarding its over 1.7 lakh staff worldwide, including over 24,000 in India, with a cash award of USD 750 each to those earning under USD 1 lakh in annual compensation for the appreciation of their work through the pandemic.

Called 'delivering together' compensation awards, the bank expects over 97 per cent of its employees to get the special one-time cash bonus.

In an internal memo sent to the employees worldwide, which has been accessed by PTI, Bank of America chief executive Brian Moynihan said in appreciation for the outstanding efforts, the management team and board have decided to recognise employees with 'delivering together' compensation awards.

During the first quarter of 2021, all eligible employees with USD 1 lakh or less in annual total compensation will be paid a cash bonus of USD 750 each. Those in the US will receive this award in late February and those outside the US will receive the payment in March, Moynihan said.

He pointed out that these awards build on the shared success cash awards of USD 1,000 and related stock awards announced to employees in the fourth quarter of 2017, 2018 and 2019.

Moynihan also expects almost 97 per cent of employees who he calls as teammates will receive the delivering together award.

In addition, all eligible teammates with greater than USD 1 lakh to USD 5 lakh in annual total compensation will receive a grant of 150-750 restricted stock units, based on their compensation tier.

This stock award from March will be delivered in equal payments over four years starting 2022.

He said these awards are in addition to any regular annual incentives that eligible employees may receive.

This move is the next step our company is taking to significantly invest in health, safety, benefits and other resources to support you during this global health and humanitarian crisis, he said.

BALANCE SHEET ANALYSIS AND DIFFERENT TYPE RATIOS

The balance sheet analysis and of the herebelow ratios inform us about the company financial balance.

• Will your customer be able to pay you at the due dates of your invoices?
• Is he solvent ?
• Does he have sufficient liquidity to honor its short-term and medium / long term debts ?

 This analysis will enable you to determine it.

Solvency Ratios

 Total liabilities / total equity: It’s showing the proportion between equities (internal financing) and debts (external financing). The more important the internal financing is, the lower is the risk of bankruptcy.

Who really owns the company ?

Shareholders	Equity / (equity + liabilities) = %
Bank	Bank loans / (equity + liabilities) = %
Creditors (including suppliers)	short term liabilities / (equity + liabilities) = %

The total makes 100%. The higher % are in the high part, lower is the risk.

 Loan ratio: Loans payable > 1 year / Equities. Shows the banking debt level. The lower it is, the less the company is financially dependent on its banks.
 Should not exceed "1" in which case the banking dependence level is too high.

Liquidity ratios (ability to honor its short term debt)

 Cash ratio: Accounts receivable + cash and cash equivalent - short term debts. This ratio is an excellent indicator about the capacity to refund the short term debts (thus to pay its suppliers).
  >1 solvency is good. <1 The company must sell its inventories to ensure the payment of its creditors. Tensions of treasury and delays of payment can appear.

 Daily Sales Outstanding (DSO): Accounts receivable / Gross revenues x 360. This indicator is showing if the accounts receivable is well or badly managed and if the company is able to be pay by its customers.
60 days if the accounts receivable are well managed (LME law in France restricts payment term up to 60 days maximum). Above 90 days is worrying especially if its customers are French (payment terms can be longer with foreigners customers).

 Daily Payable Outstanding (DPO): Accounts payable / cost of goods x 360. DPO is showing the payment behaviour with suppliers. Be careful with companies having a high DPO, you may be paid with delay.
This indicator should remain below 90 days.

 Inventory tunrover days: average inventory / cost of goods sold x 360 days. A ratio showing the days it takes to sell the inventory on hand.
More the result is low (< 20 days) more the company is controlling successfuly its purchasing processes and its WCR. If it is high (> 30 days), the WCR is increasing that may generate tensions of treasury. High inventory levels are unhealthy because they represent an investment with a rate of return of zero.

The financial statements falsifications

Some companies balk to publish financial statements representative of their real situation and falsify their balance sheet to post a situation in conformity with their wishes. By this way they try to:

• hide financial problems which could worry their partners (customers, bankers, suppliers, shareholders etc).
• diminish the net income in order to pay less taxes or to not reveal their business margin.

 In order to perform a relevant solvency analysis it is needed to detect this falsifications which can skew the assessment and the analysis which results from this.

Real example of balance sheet falsification

  Accounts receivable falsification: here is an assessment which shows seemingly a correct financial situation.

P & L	K€	Assets	K€	Equity & Liabilities	K€
Gross revenues	12 625	Fixed assets	413	Equity	895
EBIT	516	Current assets*	5652	Liabilities	5170
Net income	265	*including accounts receivable	4983

 If we look in details to the balance sheet we can see that the DSO is 144 days, which is very high.
Why ?
because this company underwent 2 unpaid for a total amount of 2 millions euros without reflecting it in their balance sheet and income statement which are in fact completely wrong.  Normally, the unpaid invoice should have been written off, which impact the EBIT and the Net income which become largely negative. The loss comes in reduction from equities to -1.1 million euros. The "fair" financial statements are completely modified like below:

P & L	K€	Assets	K€	Equity and liabilities	K€
Gross revenues	12 625	Fixed assets	413	Equity	-1105
EBIT	-1484	Current assets*	3652	Liabilities	5170
Net income	-1735	*including accounts receivable	2983

Current assets are largely lower than the debts short terms. The company is unable to refund its debts and goes for bankruptcy (what happened a few months after the publication of the false financial statements).

 Be attentive with the figures leaving the standards. A daily sales outstanding of 144 is sufficiently high to doubt on the accuracy of the accounts and to ask explanations to your customer. 

 

Tangible Net Worth calculation and Credit analysis and Tangible Net Worth

The Tangible Net Worth (TNW) is a relevant indicator to assess the real value of a company based on the balance sheet. It can be used for credit analysis to validate the outstanding level that is granted to customers.

For example, it may be stipulated in the credit management policy that the credit limit granted to customers shall not exceed xx% of tangible net worth.

Indeed, the TNW meets the obvious need, but not so easy to get, to know the intrinsic value of a company based on what is material, ie that can be converted into cash in case termination of the activity and of liquidation of assets (sale of fixed assets, inventory and payment of receivable) and the payment of debts with third parties (banks, suppliers, taxes ... etc..).

TNW is a concept very down to earth. All intangible valuations, ie intangible assets: patents, expenses, goodwill, licenses and all other intellectual property that the company may have are excluded in the calculation.

Tangible Net Worth calculation

As a key prerequisite to any assessment of TNW, it is necessary to ensure that the balance sheet is representative of the financial reality of the business. If this is not the case and financial statements are fraudulent, the TNW will be biased and lead to a false estimate of the value of the company.

For example, if the value of the stock is overvalued (valuation in the balance sheet of dead stock), tangible net worth will also be false (see the pitfalls the of balance sheet). This principle is true for any difference in value of balance sheet assets (fixed assets, receivables ... etc..) compared to reality.

Why exclude intangibles from credit analysis

Intangible assets are immaterial and unquantifiable (cash is intangible but perfectly quantifiable), they are subject to subjectivity in large proportions. Indeed, how to define rationally the value of goodwill or a patent? It is extremely difficult because their actual value depends on external context which may rapidly evoluate.

For example, a patent may have some value for a few months and become obsolete overnight. The value of goodwill may vary depending on many criteria: competitive environment, market growth, positioning.

Consequence of this subjectivity, the valuation of intangible assets varies with the business strategy. They will swell if the executive wants to sell his company, they will decrease if it wants to reduce its net income.

Moreover, the principle of credit analysis is to determine the capacity of a company to pay its bills in a few months. However, intangible assets are hardly marketable and therefore does not strengthen the solvency of a company in the short term.

 The principle of tangible net worth is not to deny the intangible assets of a company which are, in most cases, a reality, but to put them aside because they do not help the company meet its debts .

TNW calculation method

Total assets - intangible assets - total of debts to third parties

Credit analysis and Tangible Net Worth

What to do once TNW is calculated?

First, the TNW is not enough to achieve a solid financial analysis. Many other factors must be taken into account when looking to the income statement and balance sheet.

However, TNW provides information about the financial base of the client. As a lender (a deferred payment granted to the client equals a credit given), we must ask ourselves the following question: how much can I loan to this company?

TNW plays a pivotal role in the answer to this question: it does not make sense to give to the customer a credit limit greater than 100% of his TNW. 80% is far too high.

 Tip: Never set a credit limit exceeding 50% of the TNW, which is already very high.

Every company has to define a rule that will serve as a benchmark in determining the credit limit. The calculator of credit limits developed by Credit tools weighted the "authorized %" of TNW to define credit limits based on several additional criteria.

This percentage varies depending on cases. For example, if the customer analyzed has serious cash flow problems, it is very risky to grant him an outstanding equal to 50% of its TNW because you may become his main creditor. You won't be able to disengage and you will face an agonizing dilemma:

• Cancel or reduce the credit line, which can push the customer to bankruptcy, which will result in bad debts for the supplier,
• Continue to accompany him by accepting late payments with the risk that despite this assistance he fills for bankruptcy and thus generates very large outstanding for those who have given support.

However, it may be possible to grant a credit limit of 50% of the TNW to a small company with an excellent financial structure and a good cash.