Tag: Customer Relationship Management

The Patent is granted by the sovereign of the country for the Invention claimed by the inventors which gives him/her territorial rights for excluding others from making, using, selling, and offering to sell or for importing. To get the granted Patent, which is essential for the enforceability, every country has its criteria to judge the invention. Usually, Novelty, Inventive Step/Non-Obviousness and Industrial Applicability are the common criteria for judging an invention.

Conditions:

Inventive Step:

The invention must have some creative input from the inventor. It should be something which is not expected by the person skilled in the art. If an inventor is solving some technical problem by inventing something and if the person skilled in the art who is from the same field is providing the same solution by using his acquired knowledge or by taking teaching, suggestion or motivation, in that case the technical solution provided by the inventor will not be considered as inventive in nature.

Novelty:

The invention must create new knowledge or product or process. It should not be anticipated by the document, granted Patent, published Patent, non-Patent literature or in any form which is already available in the public domain. It must be different from what is already known.

Industrial Application:

Patents are granted to ensure that the inventor can exploit his/her invention freely, without the fear of competition. In this context, it is necessary that the invention is capable of being used and has industrial application. An invention should be used or manufactured in the form of a product or process.

Non-Patentable Subject matter:

In addition, an Invention must relate to the patentable subject matter. Every country has its criteria to judge the Patentable subject matter. In India, the list of non-Patentable subject matters is specifically mentioned.

For example: Frivolous invention or anything which is contrary to the natural laws, mere discovery, abstract theory, discovery of living or non-living things, discovery of new form of known substance, mere admixture, mere arrangement or re-arrangement, method of horticulture/agriculture, surgical process, mathematical/ business method, algorithm or computer program per se, mere scheme or rule, topology of integrated circuit, literary or artistic work, presentation of information, traditional knowledge or an invention related with atomic energy are not Patentable subject matter.

Patent infringement is the commission of a prohibited act with respect to a patented invention without permission from the patent holder. Permission may typically be granted in the form of a license. The definition of patent infringement may vary by jurisdiction, but it typically includes using or selling the patented invention. In many countries, a use is required to be commercial (or to have a commercial purpose) to constitute patent infringement.

The scope of the patented invention or the extent of protection is defined in the claims of the granted patent. In other words, the terms of the claims inform the public of what is not allowed without the permission of the patent holder.

Patents are territorial, and infringement is only possible in a country where a patent is in force. For example, if a patent is granted in the United States, then anyone in the United States is prohibited from making, using, selling or importing the patented item, while people in other countries may be free to exploit the patented invention in their country. The scope of protection may vary from country to country, because the patent is examined or in some countries not substantively examined by the patent office in each country or region and may be subject to different patentability requirements.

Remedy for Infringement of Patent

An action for infringement must be instituted by way of a suit in any District Court or a High Court having jurisdiction to entertain the suit.

The plaintiff on satisfying the court about infringement of his patent would be entitled to the following relief:

• Interlocutory injunction
• Damages
• Account of profits

Interlocutory Injunction

The Plaintiff may at the commencement of the action move for an interim injunction to restrain the defendant from committing the acts complained of until the hearing of the action or further orders. The plaintiff should make out a prima facie case and also show that the balance of convenience lies in his favour.

Damages

In assessing the damages the important question is what is the loss sustained by the patentee. The loss must be the natural and direct consequence of the defendant’s acts. The object of damages is to compensate for loss or injury.

Accounts of Profits

Where a patentee claims the profits made by the unauthorised use of his patent, it is important to ascertain how much of his invention was appropriated, in order to determine what proportion of the net profits realized by the infringer was attributable to its use.

Ways to prevent patent infringement

Creation of original products

companies can hire staff members who can create original products using their creativity and intellect. However, the company should not forget to add a clause in the contract that the product produced would be the exclusive right of the company so that the staff does not claim its own rights over the invention at a later stage.

Obtaining appropriate licenses from patent holders

If the companies or corporations plan on using any registered material for further use, then they should seek permission from the patent holder before using it otherwise the company would be made liable for using patented material.

Royalty-free material basically refers to the use of online material which can be used without any restrictions. However, in order to avoid any violations of the holder of exclusive rights over such material, it is best suited that due credit is given to the holder of such rights.

Patent Infringement suit

The Patents Act, 1970 empowers the patentee to file a suit in case there is an infringement of his exclusive patent rights. In order to file a suit, the limitation period as specified under the Limitation Act is 3 years within the infringement of the patent rights. The burden of proof usually lies on the plaintiff to prove that there was patent infringement by the defendant but in certain cases, it is at the discretion of the court to decide the burden of proof. In India, both districts and the high courts have the power to hear cases related to patent infringement. However, in case there is a counterclaim for revocation of the patent filed by the defendant, then only the High Court has the right to hear the case. The patentee can file the case in the place of his residence or the place where he carries out his business or where the cause of action arises. Section 48 of the Indian Patents Act contains the rights of the patentees. It list down the following activities as the infringement of the patentee’s rights:

• Using
• Making
• Importing
• Offering for sale
• Selling the patented process

If the defendant is involved in any of the above-mentioned acts, then he will be considered liable for infringement of the rights of the patentee. Section 108(1) of the patents act, 1970 provides for relief to the plaintiff in case his patent rights have been violated. The remedies available to the patentee are:

Temporary/Interlocutory Injunction

A temporary injunction is invoked by the court at the initial stages of the suit filed by the plaintiff. This is passed in order to prevent the defendant from getting further gains by using other patented products. In order to invoke a temporary injunction, it is important for the patentee to prove that the patent is valid and has been infringed by the defendant. Also, the subsequent infringement in his patent rights has caused irreparable loss to him.

Permanent injunction

A permanent injunction is invoked when the case is finally decided by the court. The interim injunction is transferred to a permanent injunction if the defendant is found guilty of patent infringement rights. But if the defendant is absolved from the liability, then the interim injunction stands dissolved and is not converted into a permanent injunction.

Damages

In case the defendant is proven guilty, the plaintiff is either awarded damages or an account of profits by the defendant. Damages may not be provided to the plaintiff in case the defendant pleads ignorance and proves that he had no reasonable grounds to believe that the said patent existed at the time of infringement.

Defences available in the suit

There are various defenses provided in a patent infringement suit which absolves the defendant of his liability:

• When a defendant denies infringement by proving his lack of intention.
• In case of estoppels or res judicata.
• When a plaintiff is not entitled to sue for infringement.
• When the defendant has the express/implied license to use the patented product.
• When there is a revocation of patents for reasons of it being illegal.
• In the case of pharmaceutical drugs/medicines, the government can retain the exclusive right to manufacture patented products in public welfare.
• in case the alleged infringement is obvious and not novel.

What does not amount to infringement

Section 107A in the Patents Act incorporates bolar provision and provision for parallel imports:

Bolar provision: It gives rights to the manufacturers of pharmaceutical products to conduct research on various patented products so that the products can be brought into the market for the welfare of the general public. But this research can only come into effect after the expiry of the patented product.

Parallel import provisions: This gives the right to import the product to the person authorised by the patentee. This importation will not be considered as an infringement of the patent rights of the patentee. This meant any person who is in possession of the license can import the patented products without seeking permission from the patentee and this will not be considered as an infringement.

The Competition Appellate Tribunal is a statutory organization established under the provisions of the Competition Act, 2002 to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India under sub-sections (2) and (6) of section 26, section 27, section 28, section 31, section 32, section 33, section 38, section 39, section 43, section 43A, section 44, section 45 or section 46 of the Competition Act, 2002. The Appellate Tribunal shall also adjudicate on claim for compensation that may arise from the findings of the Competition Commission of India or the orders of the Appellate Tribunal in an appeal against any findings of the Competition Commission of India or under section 42A or under sub-section (2) of section 53Q of the Act and pass orders for the recovery of compensation under section 53N of the Act.

The Central Government has set up the Appellate Tribunal on 15th May, 2009 having its Headquarter at New Delhi. Hon’ble Dr. Justice Arijit Pasayat, former Judge of Supreme Court, has been appointed as the First Chairperson of the Appellate Tribunal. Besides, the Chairperson, the Appellate Tribunal shall consist of not more than two Members to be appointed by the Central Government. The Chairperson of the Appellate Tribunal shall be a person, who is, or has been a Judge of the Supreme Court or the Chief Justice of a High Court. A Member of the Appellate Tribunal shall be a person of ability, integrity and standing having special knowledge of, and professional experience of not less than twenty-five years in, competition matters, including competition law and policy, international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which in the opinion of the Central Government, may be useful to the Appellate Tribunal. The Chairperson or a Member of the Appellate Tribunal shall hold office for a term of five years and shall be eligible for re-appointment. Provided that no Chairperson or other Member of the Appellate Tribunal shall hold office after he has attained the age of sixty-eight years or sixty-five years respectively.

Every appeal shall be filed within a period of 60 days from the date on which a copy of the direction or decision or order made by the Competition Commission of India is received and it shall be in the prescribed form and be accompanied by the prescribed fees. The Appellate Tribunal may entertain an appeal after the expiry of the period of 60 days if it is satisfied that there was sufficient cause for not filing it within that period.

The Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules made by the Central Government. The Appellate Tribunal shall have, for the purposes of discharging its functions under the Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908). Every order made by the Appellate Tribunal shall be enforced by it in the same manner as if it were a decree made by a court in a suit pending therein. If any person contravenes, without any reasonable ground, any order of the Appellate Tribunal, he shall be liable for a penalty of not exceeding rupees one crore or imprisonment for a term up to three years or with both as the Chief Metropolitan Magistrate, Delhi may deem fit.

Competition Appellate Tribunal (COMPAT)

Prior to 2007, if a party was not satisfied with the decision of the Competition Commission of India (CCI), It had to file an appeal in the Supreme Court of India, thereby increasing the pendency of cases in the Court. However, after the Competition (Amendment) Act, 2007, the Competition Appellate Tribunal (COMPAT) was established. It provided the provided the parties with a proper channel for appeal and changed the hierarchy of appeal. After the establishment of the Competition Appellate Tribunal (COMPAT), the appeal from Competition Commission of India lies in front of the Appellate Tribunal and a further appeal goes to the Supreme Court.

National Company Law Appellate Tribunal (NCLAT)

However, the establishment of Competition Appellate Tribunal (COMPAT) was found not to be as effective as it was hoped would be. There were a number of conflicts between CCI and COMPAT related to their sharing of power. The result of this conflict was that in 2017 an amendment was made through which the provision of Part XIV of Chapter VI of the Finance Act, 2017 came into operation. After such amendment the Competition Appellate Tribunal (COMPAT) ceased to exist. In place if it the National Company Law Appellate Tribunal (NCLAT) was constituted.  Accordingly, Sections 2(ba) and 53A of the Competition Act and Section 410 of the Companies Act, 2013 have been appropriately amended and various other provisions of the Competition Act dealing with the Competition Appellate Tribunal (COMPAT) have been omitted.

Previously, all appeals against specified orders of the Competition Commission of India (CCI) would lie to the Competition Appellate Tribunal (COMPAT) whereas the National Competition Law Appellate Tribunal (NCLAT) dealt with, inter alia, appeals arising out of orders of the National Company Law Tribunal (NCLT) under the Companies Act, 2013 as well as the Insolvency and Bankruptcy Board of India (IBBI) under the Insolvency and Bankruptcy Code, 2016.

Filing an appeal

The Section 53B of the Competition Act, 2002 provides for ‘Appeal to Appellate Tribunal’.

Clause 1 of Section 53B

Section 53B(1) states that:

“The Central Government or the State Government or a local authority or enterprise or any person, aggrieved by any direction, decision or order referred to in clause (a) of section 53A may prefer an appeal to the Appellate Tribunal.”

This clause of Section 53B provides for the persons who can file an appeal before the Appellate Tribunal. According to it, when any direction, decision or order is passed as per Section 53A of the Act, the Central Government or the State Government or a local authority or enterprise or any person, if aggrieved, can file an appeal before the Appellate Tribunal.

Clause 2 of Section 53B

Section 53B(2) states that:

“Every appeal under Sub-section (1) shall be filed within a period of sixty days from the date on which a copy of the direction or decision or order made by the Commission is received by the Central Government or the State Government or a local authority or enterprise or any person referred to in that sub-section and it shall be in such form and be accompanied by such fee as may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of sixty days if it is satisfied that there was sufficient cause for not filing it within that period.”

This clause of Section 53B provides for the time limit within which the appeal shall be filed. According to this section, every appeal shall be filed within a period of sixty days from the date on which a copy of the direction or decision or order made by the commission is received by specified parties. It is also provided that the Appellate Tribunal if satisfied that the applicant was prevented by sufficient cause from filing the appeal shall be allowed to file the appeal after the expiry of the said period i.e., 60 (sixty) days.

Common control business combinations will include transactions, such as transfer of subsidiaries or businesses, between entities within the group.

Business combinations involving entities or businesses under common control shall be accounted for using the pooling of interests method.

Pooling of Interest method involve:

• The assets and liabilities of the combining entities are reflected at their carrying amounts (No clarity if carrying amount to be considered of SFS or CFS)
• No adjustments are made to reflect fair values, or recognise any new assets or liabilities
• Financials of prior periods should be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination
• If business combination had occurred after that date, the prior period information shall be restated only from that date
• Consideration may consist of securities, cash or other assets. Securities issued should be recorded at nominal value. Assets other than cash should be measured at fair value.

Reduction of share capital is often resorted by companies for internal restructuring or altering their capital structure; it entails reduction of issued, subscribed and paid-up share capital (either equity shares or preference shares or both) of a company. The following are the most likely situations of capital reduction.

1. Capital reduction without pay-out or
2. Capital reduction with pay-out

• To all the shareholders
• To selective shareholders

1. Returning surplus capital: A company may have capital which is surplus to its requirements for the foreseeable future and which it may therefore wish to return to its shareholders.
2. Redeeming Shares: A company may wish to redeem its shares but it cannot do so if it has insufficient distributable reserves.
3. Distributing non- cash assets: A company may also use a capital reduction to transfer non-cash assets that it owns to its shareholders, although this is relatively unusual.
4. Structuring mergers and acquisitions as part of a scheme of arrangement: Capital reductions have become a popular method of structuring mergers and acquisitions or group restructurings.
5. Demergers: Capital reduction can be used to split one company’s activities into different companies, called a demerger. Demergers are often used with the help of a scheme of arrangement.

Capital reduction with pay-out:

Advantages of capital reduction with payout for the company are:

• Easy to distribute surplus cash to shareholders.
• No limit for distribution like in buyback or dividend.
• As a consideration, Company may give assets to the shareholders which were not allowed in the buyback.

The capital reduction is provided by section 66 of the companies act 2013 and its taxability is provided in various provisions of the Income Tax Act 1961. We shall discuss regulatory and taxation aspects in case of capital reduction of equity shares.

Capital Reduction: Provisions under the Companies Act 2013

Section 66 of the Companies Act, 2013, provides that, for a company to reduce its share capital, it should have the power under its Articles of Association (AOA) to do so. Thereafter, a special resolution for reducing share capital must be passed by shareholders. Subsequently, the reduction effected by such special resolution must be confirmed by the National Company Law Tribunal (NCLT).

As generally understood, capital reduction is uniform for all the shareholders of the particular class. In this case, it can be compulsory for all the shareholders to abide by the order of the honourable NCLT confirming the special resolution of the shareholders for the size, amount and other terms of the reduction.

Artificial intelligence systems can be very powerful and are improving quickly. They provide outputs that can be extremely accurate, replacing and, in some cases, far superseding human efforts. However, they do not replicate human intelligence. We need to recognise the strengths and limits of this different form of intelligence, and build understanding of the best ways for humans and computers to work together.

Artificial intelligence and Accountancy

Although artificial intelligence techniques such as machine learning are not new, and the pace of change is fast, widespread adoption in business and accounting is still in early stages. To build a positive vision of the future, we need to develop a deep understanding of how artificial intelligence can solve accounting and business problems, the practical challenges and the skills accountants need to work alongside intelligent systems.

ICAEW has long-standing expertise in technology-related issues, drawing on the experience across many aspects of business, finance and accounting, and will focus on building understanding of the practical use of artificial intelligence across business and accounting activities today and in the near future.

Benefits of Artificial Intelligence for Accountants and Finance Professionals

New technology is changing the way people work in every industry. It’s also changing the expectations clients have when working with companies. The same is true for accounting. Artificial intelligence can help accountants be more productive and efficient. An 80-90 per cent reduction in the time it takes to do tasks will allow human accountants to be more focused on providing counsel to their clients. Adding artificial intelligence to accounting operations will also increase the quality because errors will be reduced.

When accounting firms adopt artificial intelligence to their practise, the firm becomes more attractive as an employer and service provider to millennials and Gen Z professionals. This cohort grew up with technology, and they will expect prospective employers to have the latest technology and innovation to support not only their working preferences of flexible schedules and remote locations but also to free them up from mundane tasks that machines are better suited to complete. As clients, millennials and Gen Zers will determine who to do business with based on the service offerings they can provide. As more accounting firms adopt artificial intelligence, they will be able to provide the data insights made possible by automation while those who don’t commit to the technology will not be able to compete.

Robotic process automation (RPA) allows machines or AI workers to complete repetitive, time-consuming tasks in business processes such as document analysis and handling that are plentiful in accounting. Once RPA is in place, time accountants used to spend on these tasks is now available for more strategic and advisory work. Intelligent automation (IA) is a more sophisticated version of RPA. IA can mimic human interaction in many cases, such as understanding inferred meaning in client communication and using historical data to adapt to an activity. There are multiple applications of RPA and IA in accounting work.

AI can often provide real-time status of financial matters since it can process documents using natural language processing and computer vision faster than ever making daily reporting possible and inexpensive. This insight allows companies to be proactive and adjust course if the data show unfavourable trends.

Automated authorization and processing of documents with AI technology will enhance several internal accounting processes including procurement and purchasing, invoicing, purchase orders, expense reports, accounts payable and receivables, and more.

In accounting, there are many internal corporate, local, state and federal regulations that must be followed. AI-enabled systems help support auditing and ensure compliance by being able to monitor documents against rules and laws and flag those with issues. Fraud costs companies collectively billions of dollars each year and financial services companies have $2.92 in costs for every dollar of fraud. Machine learning algorithms can quickly sift through enormous amounts of data to discern potential fraud issues or suspicious activity that might have been otherwise missed by humans and flag it for further review.

Changing the Human mindset

It seems like the only barrier to artificial intelligence adoption in accounting is getting people on board with the change. Nearly 85 per cent of executives understand that AI will help their companies attain or sustain a competitive advantage according to a study from The Boston Consulting Group and MIT Sloan School of Management. Since the chief executives seem to understand the importance of artificial intelligence, it just requires a mindset shift from the accounting professionals to accept the changes. With an assist from AI-enabled systems, accountants are freed up to build relationships with their clients and deliver critical insights.

Enterprises that jump on the digital transformation train by adopting AI have the advantage as they can leverage AI to all aspects of accounting, including improved operational efficiency, reduced costs, and more significant ROI. For instance:

Payables/ Receivables Processing

Invoice processing is considered one of the more time-consuming and labor-intensive parts of the enterprise. AI-based invoice management systems help by increasing the volume, performing zero-error processing, and improving vendor relationships.

Supplier Onboarding

The AI-based approach helps expand customers’ reach, increase revenue, and evaluate the suppliers with minimal human intervention.

Procurement Processes

Purchasing and procurement processes mean a lot of paperwork – sometimes in different systems that are seemingly unconnected! With AI-driven workflows, finance teams can process unstructured data while automatically mitigating governance/compliance/risks.

Auditability

Data analytics establishes the scope of the audit, and risk assessment as RPA and analytics facilitate tracking of routine transactions. Cognitive computing, predictive analytics, and AI enable tracking more complex transactions that go with estimates and judgments.

Monthly and Quarterly Cash Flows

AI-based tools empower enterprises to reconcile financial activities quickly, understand historical cash flows, and predict future cash requirements. AI applications also ensure that all financial processes are secure by collecting data from many sources and integrating the data.

Expenses Management

When manually done, managing expenses-related processes is not only filled with complex paperwork but also prone to fraud and data breaches. Expenses management automation ensures almost zero errors and alerts the team to a breach if it occurs.

Chatbot Support

AI-driven chatbots help solve user queries quickly and efficiently, including queries on account balance, financial statements, account status, etc. Tracking outstanding invoices and automating the follow-up collection processes with AI ensures that accounts are kept balanced and closed promptly. Moreover, AI chatbots answer customers’ routine questions and can provide level-1 support.

The use of big data in accounting can open up massive possibilities for growth by providing valuable insights to assist leaders in decision-making regarding finances, compliance, and risk management.

Uses:

Audit

Auditing is the core of the accounting industry. It helps analyze a company’s financial assets and performance. However, in this age, traditional accounting procedures are time-consuming and don’t provide valuable insights. Big data and data analytics are transforming the audit process from being sample-based to data-based, providing information about all key areas of the business. It helps leaders understand their business better by providing detailed information. Big data helps track expenditure accurately in real-time and is, thus, highly helpful with periodic auditing. Combining the power of big data, analytics, and other tools such as RPA can not only automate the auditing process but also help reduce errors usually encountered in the manual process. Thus, they provide greater accuracy and compliance than conventional methods.

Risk management

The insights provided by big data help to identify financial risks and rectify them easily. Having a huge set of data beforehand empowers accountants to carry out predictive analytics, and thus they can predict future risks more accurately. They can warn clients and advise them to take the necessary steps required to avert any major financial issue. Big data analytics can also help to identify potential frauds. It, however, may need the support of AI, blockchain, and computer vision technology to continuously monitor an enterprise’s assets and expenditure details to determine any irregularities.

Business decisions

Since big data helps businesses take complete control of their financial operations, business leaders can make better growth-oriented decisions. With the real-time availability of data, leaders can make better short-term, and, as well as, long-term financial plans. Thus, big data works as a trusted advisor for accountants, helping them provide better services to their clients.

Big data brings enormous benefits to the accounting sector. Still, it needs a coherent partnership of other technologies such as artificial intelligence, RPA, and computer vision to be leveraged to its maximum potential. Therefore, accounting firms investing in big data in accounting practices should also look to incorporate the other technologies mentioned to maximize the benefits of big data.

How Can the Use of Big Data and Related Technologies Improve Accounting Practices?

One of the most straightforward, impactful technologies in accounting and finance sector applications is robotic process automation (RPA). With RPA, advanced AI software can automate many repetitive tasks, like data entry, as well as more complex tasks involved in auditing and other accounting practices.

This streamlines and exponentially increases the efficiency of mundane accounting processes. RPA also helps reduce errors common to manual data entry, improving process speed and accuracy as well as the resulting quality and timeliness of insight gained from analysis. Plus, with the ability to detect outliers in vast datasets, RPA and big data analytics help accountants move past the limits of narrow audit sampling.

The speed and scope of AI-driven RPA and big data analysis enable accounting insight delivery in near real-time, on demand. This availability means decision-makers get the information they need when they need it. Plus, accountants are freed up to do more impactful work. The accountant’s role becomes more of a strategic advisor than a number cruncher, helping translate big data analyses into strategy formulation insight for clients and businesses.

An Institute of Management Accountants (IMA) survey found that 70% of respondents who have implemented big data into practices use it to inform strategy formulation. Improving business decision-making and strategy is the real benefit of data analysis. Deploying big data capabilities to analyze large amounts of complex finance and accounting data can maximize the perspective and insight gained for strategy formulation.

Economic analysis involves assessing or examining topics or issues from an economist’s perspective. Economic analysis is the study of economic systems. It may also be a study of a production process or an industry. The analysis aims to determine how effectively the economy or something within it is operating. For example, an economic analysis of a company focuses mainly on how much profit it is making.

Economists say that economic analysis is a systematic approach to find out what the optimum use of scarce resources is.

Template.net, which supplies ready-made analysis templates, says that economic analysis involves comparing at least two alternatives in achieving, for example, a certain goal under specific constraints and assumptions.

Economic analyses factor in the opportunity costs that people or companies employ. They measure, in monetary terms, what the benefits of a project are to the economy or community.

Features

A typical analysis includes details of the proposal or project, estimated risks, projected costs and expected impediments. Thus, the details section for the economic analysis of a restaurant business lists the type of food it will serve and the estimated demographic. The estimated risks might include the low demand during the summer if the restaurant targets college students. The projected costs section details the kitchen equipment, food costs and wages. Expected impediments include paying higher prices for ingredients during the off-season, such as fresh peaches in January.

The analysis typically includes several economic scenarios. Because organizations perform differently during recessions and strong growth, anticipating the financial outcome for both is prudent.

Function

The purpose of an economic analysis is multifaceted: In some cases, financial institutions read the analysis to determine if they should finance a project. Directors also read the analysis to assess if the undertaking is advantageous to the company. Sometimes, the analysis provides a clear picture of the economic well-being of the company or industry. The company uses the findings to make better decisions or avoid potential problems.

Significance

A well-written analysis saves money in the long run. If, for instance, the report anticipates a sharp increase in the price of steel, an automotive company can plan for the expected increase and buy the commodity in advance. Or, a report could prevent a new business owner from starting an unsuccessful venture: An owner may realize that a luxury dog clothing store will go out of business during a recession in two years without enough savings.

Considerations

Do not attempt to write a formal economic analysis for your own business. Business owners should seek a fresh perspective from a seasoned professional in the industry. Hire a consultant to draft the analysis and use the report to assess the viability and long-term success of your business.

Warning

Even the most thorough analysis can be rendered irrelevant by unseen economic forces. For instance, the economic analysis conducted by businesses in New Orleans a month before Hurricane Katrina hit was no longer useful in light of the catastrophe. Natural disasters, terrorist attacks and a key vendor’s bankruptcy are just a few examples of unpredictable forces that derail the most detailed, well-planned economic analysis.

Industry analysis is a type of investment research that begins by focusing on the status of an industry or an industrial sector. A form of fundamental analysis involving the process of making investment decisions based on the different stages an industry is at during a given point in time. The type of position taken will depend on firm specific characteristics, as well as where the industry is at in its life cycle.

Industry Life Cycle Analysis

Many industrial economists believe that the development of almost every industry may be analyzed in terms of following stages:

• Pioneering stage: New technologies like personal computers or wireless communication portray the initial stages of an industry. At this stage, it is very difficult to anticipate which firms will succeed; some firms will be a total success while some might fail completely. Hence, the risk involved in selecting any specific firm in the industry is quite high at this stage. However, at this stage, since the new product has not yet flooded its market, there will be a rapid growth in sales and earnings at industry level. Like, for example, in 1980’s, personal computers were a part of very few houses, while on the other hand, products like fans or even refrigerators were part of almost every household. So naturally, the growth rate of products like refrigerators will be much less.
• Rapid growth stage: Once the product has proved itself in the market, several leaders in the industry start surfacing. The start-up stage survivors become more stable and market share can be easily envisaged. Thus, the performance of the industry in general will be more minutely tracked by the performance of the firms that have survived. As the product breaks through the market place and is used commonly, the growth rate of the industry is still faster than the rest of economy.
• Maturity and stabilization stage: The product has attained the full aptitude to be consumed at this stage by the users. So, any growth from this point just tracks the growth of the economy in general. At this stage, as the product gets more and more standardized, it compels the producers to compete heavily on price basis. As a result, the profit margins are lowered and add to the pressure on profits. Most often, firms at this stage are referred to as cash cows as their cash flows are quite consistent but offer very little opportunity for growth of profit. Instead of reinvesting the cash flows in the company, they are best milked from.

4. Decline stage: In this stage following features are identified.

• Costs become counter-optimal
• Sales volume decline or stabilize
• Prices, profitability diminish
• Profit becomes more a challenge of production/distribution efficiency than increased sales.

Characteristics of An Industry Analysis

In an industry analysis, the following key characteristics should be considered by the analyst. These are explained as below:

• Post sales and Earnings performance: The historical performance of sales and earnings should be given due consideration, to know how the industry have reacted in the past. With the knowledge and understanding of the reasons of the past behaviour, the investor can assess the relative magnitude of performance in future. The cost structure of an industry is also an important factor to look into. The higher the cost component, the higher the sales volume necessary to achieve the firm’s break-even point, and vice-versa.
• Nature of Competition: The top firms in the industry must be analyzed. The demand of particular product, its profitability and price of concerned company scrip’s also determine the nature of competition. The investor should analyze the scrip and should compare it with other companies. If too many firms are present in the industry, this will lead to a decline in price of the product.
• Raw Material and Inputs: We need to have a look on industries which are dependent on raw material. An industry which has limited supply of raw material will have a less growth. Labor in also an input and problems with labor will also lead to growth difficulties.
• Attitude of Government towards Industry: The government policy with regard to granting of clearance, installed capacity and reservation of the products for small industry etc. are also factors to be considered for industry analysis.
• Management: An industry with many problems may be well managed, if the promoters and the management are efficient. The management has to be assessed in terms of their capabilities, popularity, honesty and integrity. A good management also ensures that the future expansion plans are put on sound basis.
• Labor Conditions and Other Industrial Problems: The industries which depend on labor, the possibility of strike looms as an important factor to be reckoned with. Certain industries with problems of marketing like high storage costs, high transport costs etc leads to poor growth potential and investors have to careful in investing in such companies.
• Nature of Product Line: The position of industry in the different stages of the life cycle is to be noted. And the importance attached by planning commission on these industries assessment is to be studied.
• Capacity Installed and Utilized: If the demand is rising as expected and market is good for the products, the utilization of capacity will be higher, leading to bright prospects and higher profitability. If the quality of the product is poor, competition is high and there are other constraints to the availability of inputs and there are labor problems, then the capacity utilization will be low and profitability will be poor.
• Industry Share Price Relative to Industry Earnings: While making investment the current price of securities in the industry, their risk and returns they promise is considered. If the price is very high relative to future earnings growth, the investment in these securities is not wise. Conversely, if future prospects are dim but prices are low relative to fairly level future patterns of earnings, the stocks in this industry might be an attractive investment.
• Research and Development: The proper research and development activities help in increasing economy of an industry and so while investing in an industry, the expenditure should also be considered.
• Pollution Standards: These are very high and restricted in the industrial sector. These differ from industry to industry, for example, in leather, chemical and pharmaceutical industries the industrial effluents are more.

Economic analysis involves assessing or examining topics or issues from an economist’s perspective. Economic analysis is the study of economic systems. It may also be a study of a production process or an industry. The analysis aims to determine how effectively the economy or something within it is operating. For example, an economic analysis of a company focuses mainly on how much profit it is making.

Economists say that economic analysis is a systematic approach to find out what the optimum use of scarce resources is.

An economic analysis isn’t limited to medium or large-sized businesses, it’s valuable for small companies as well. In fact, small businesses probably need to perform economic analysis more often than businesses that have enough built-in capital and resources to sustain an economic downturn. There are several types of economic evaluation methods business owners can use to gain a comprehensive view of how their companies will fare in the future.

Cost-Benefit Analysis

One of the most effective types of economic evaluation is the cost-benefit analysis, also referred to as a benefit-cost analysis. This is a technique used to determine whether a project or activity is feasible by weighing the monetary cost of doing the project or activity versus the benefits. A cost-benefit analysis will always compare the cost of the effort against the benefits that result from that effort. Because it deals solely in monetary terms, a cost-benefit analysis is one of the most bottom-line types of economic evaluation. It can provide valuable insight in comparing and contrasting work projects, help determine whether an investment opportunity is ideal, and help assess the consequences of implementing changes to your business. However, there is a drawback to this analysis as it is difficult to place a monetary value on some activities such as the benefits of increased public safety versus the cost to increase law enforcement presence in major cities. After performing the cost-benefit analysis, a small business owner can make an educated business decision.

Cost-Effective Analysis

In a cost-effective analysis, you weigh the effectiveness of a project against its price. Unlike with cost-benefit analysis, however, a low cost doesn’t mean high effectiveness, and the reverse is also true. For example, let’s say you’ve determined that installing an automated system that can handle customer orders 24-hours a day, seven days a week, is the cheapest way to boost your incoming orders. After research, however, you determine that many calls that come into the automated system are not complete, because callers hang up when they hear the automated voice on the system. Your market research also indicates that your customers want to speak to a live representative. A cost-effective analysis would tell you that the cheaper route of installing an automated system is not effective in processing more orders. Depending on the type of business you own, you may find that saving money doesn’t result in creating a desirable effect on your business.

Cost-Minimization Analysis

As the term suggests, cost-minimization analysis focuses on finding the cheapest cost to complete a project. This is one of the economic evaluation methods that business owners use when cost savings are at a premium and outweigh all other considerations. It is also used when there are two or more ways to accomplish the same task. Cost-minimization analysis is most often used in healthcare. For example, drug manufacturers may compare two drugs that have been shown to produce the same effect in patients, or a pharmaceutical company may implement cost-minimization analysis, to determine which of two medications that treat the same illness will cost the least amount of money to produce. In many instances, the generic equivalent of a name-brand drug is the least expensive drug to manufacture, especially if it produces the same therapeutic effect in patients.