Difference between first world and 3rd world countries.

If you observe closely first world countries depends on borrowing or has cash flow inhouse. Where else 3rd world countries depends on foreign direct investment. This is because 3 world country bonds rating is lower.

Currently with recession 3rd world countries will face more difficulties to overcome it. But when the recession is over the inflation rate of 3rd world countries compared to the first world countries. This is because there is no excess cash flow in the 3rd world countries.

The link between BCG matrix and balance sheet

The BCG matrix categories a business into this 4 class Star, Cash Cow, Dog, and Question Mark. But what is the link to their balance sheet.

For Question Mark – You will see the business is investing more into their asset to generate profit and also see their P&L will have high interest expenses. This will be business like Air Asia that looking for growth.

For Cash Cow – You will see their asset remain stable but their liability reduce year by year. This is because they use the cash to generate better profit.

Star – You will see they have strong liquidity and they have right balance between fixed asset and current asset. And the AR and Inventory turns will be high.

Dog – I just don’t need to say anything.

Right ratio between fixed and variables cost

What is the right balance between fixed cost and variables cost? My take on this, there is no right balance but it depends on what stage the organization is in. Typically during start up, the business would have higher fixed cost but when the business grow their capacity and capture more market share the fixed cost ratio reduce.

This reduction will also have clear direction on the business profitability. When fixed cost ratio reduces business use their current asset more to generate income.

Difference between Internal and External Audit

External auditors focus more on presentation of financial statement. Where else internal auditors focus more on controllership from account reconciliation to internal controls process. The problem with external auditors they are not really independent. I’m saying this because external auditors does not quality an account for missing backup, close open item on timely manner and other controllership issue.

I belief this is because, of their appointment as auditors on yearly basis and their services is paid by the company.

My opinion – There should be an independent body to oversee these controls like SEC in US but this is only applicable for listed companies. And in Malaysia I don’t see Bursa taking the lead in account policy and controllership.

Small and medium companies do not have the fund to set up their own Internal Audit committee and they are not regulated. I would suggest the tax department provide some kind of internal audit support for SME.

What is Stimulation Package is about….

Most of the government in various country has come up with stimulation package but allot of this money is channeled through the same government link companies(GLC). This is the same government that has help the GLC before with tax incentive and other incentive. This is why we as public do not see the cash being flow. I belief the reason why they do this is to protect employment. Government looks at 3 main indexes – employment, GDP where the employee spend back and inflation where I don’t see the logic and how transparent this index is.

I really hope too see government change the direction of the stimulation package offering to public through reduce inflation and reduce the cost of ownership of public long term investment like house and cars.

I would like to suggest that government should give 1 house installment as tax relief to the public.