Books - Chanakya’s 7 Secrets of Leadership, How to Read a Balance Sheet - Reviews published in Business Advisor, dated July 10, 2014 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

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Seven pillars
Swami, amatya, janpada, durg, kosha, dand, mitra iti
prakritya. Thus reads verse 1, in chapter 1 of book 6 of
Arthashastra, which forms the basis of ‗Chanakya‘s 7
Secrets of Leadership‘ by Radhakrishnan Pillai, and D.
Sivanandhan (Jaico). The verse, in translation, says, ―The
king, the minister, the country, the fortified city, the
treasury, the army, and the ally are the constituent
elements of the state.‖ A happy kingdom consists of an
ideal king (swami) as a leader, guided by able ministers
(amatya), who takes care of the citizens (janpada),
providing them good infrastructure and facilities (durg), making sure the
treasury (kosha) of the state and the people is always full, which is
protected by an able army (dand), and helped by good allies (mitra), the
authors explain, of Chanakya‘s saptangah. This model, they find, gives us a
big picture of leadership. ―In a company, a person working in the IT
department will focus on issues connected to his area of work. The accounts
department only looks at financial numbers. The marketing and sales team
will focus only on customers and clients. The production department is
concerned about the number of units manufactured. This is looking at the
company in parts. A chairman or CEO will need to understand all these
departments separately and in a unified manner.‖
The chapter on ‗Swami‘, the leader, lists the requirements, viz. intelligent
and dynamic, associates with elders, truthful in speech, does not break
promises, grateful, desirous of training, and easily approachable.
Intelligence and dynamism are two sides of the same coin, the authors
state. ―If a leader has understood the key problem through study, research,
discussion and analysis, and reached a solution for the problem, that is
only the starting point. The next step is to implement his findings…
Therefore, the second aspect is being dynamic.‖
In the ‗Amatya‘ chapter, the authors describe the equivalent of mantri in the
corporate context – the managers, VPs for the CEO, and CEO for the
chairman. A section on ‗Management‘ introduces us to verse 42 in chapter
15 of book 1 of Arthashastra, that the means of starting undertakings, the
excellence of men and material, (suitable) apportionment of place and time,
provision against failure (and) accomplishment of work – this is deliberation
(management) in its five aspects. ―Rulership can be successfully carried out
(only) with the help of associates. One wheel alone does not turn. Therefore,
he (the ruler) should appoint ministers and listen to their opinion,‖ advises

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another verse in Arthashastra. Why is it important to listen to the managers‘
opinion? Because they are not machines, clarifies the book. ―They too are
continuously thinking and applying their minds to the job. They may have
insights that they want to share with you. They have a hold over ground
realities; they are the eyes and ears of your organisation. But all this
experience is useless if you do not ‗listen‘ to their opinion.‖ Book 6, chapter
1, verses 4-6 outline the qualities required of amatya, thus: Desire to learn,
power of retention, thorough understanding, intentness on truth, ability to
lead an army, and sweetness of speech.
The janpada are the citizens of the country, one learns from the third
chapter. ―In the context of the corporate world, janpada refers to customers
or clients… For a leader, it is important to be in touch with the customers
on a regular basis. If you can think like the customer, you will be a good
market leader in your business. Even in governance, the challenge is to
understand how citizens think.‖ The fourth secret is ‗Durg‘. To those in
business, what is durg, or fort? The head office of a business, from where
the CEO or chairman operates, can be called its control tower, the authors
liken. If the business is in the manufacturing segment, the factory,
including the plant, machinery, and other equipment, becomes part of the
infrastructure, they add. ―Expand the concept of the durg in the case of a
modern nation. Good roads, flyovers, bridges, houses are all important for
nation building… As a leader, it is important to ensure world-class
infrastructure for your organisation. Move with the times and get the best
that is available.‖
In the chapter on ‗Kosha,‘ the authors note that there is a misconception
that India and Indians do not understand much about money, economics
and the practical ways of life; and that, since Indians are spiritual, they
think more about life after death, heaven, moksha, etc., than about wealth
and material possessions. ―For thousands of years, we were the wealthiest
nation and had even evolved a theory of economics which the Western world
has not even understood. The Arthashastra is proof of this. It is a book on
wealth and its management.‖
Interpreting ‗Dand‘ as the team, for today‘s managers, the authors remind
that teamwork begins with the leader. ―A good leader is someone who gets
work done from people who may not even think they were capable of doing
it. Thus, the leader should have the subtle vision to understand a person
better than the person understands himself.‖ And, the final chapter, on
‗Mitra,‘ underlines that a king is good or bad as his advisors.
Ancient guidance retold for contemporary age.

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Assets, liabilities
Balance sheet is a summary of the financial position of a
company at a particular point of time, defines ‗How to
Read a Balance Sheet,‘ by N. Ramachandran, and Ram
Kumar Kakani (McGraw-Hill). This position is conveyed by
listing all the things of value (assets) owned by the
company, on one side, and the payables owed (liabilities)
by the company, on the other, they add, in the book, which
is part of Finance Made Easy Series. Balance sheet gives a
snapshot of the organisation, for the moment, and the
balance sheet position of the company changes with every transaction,
clarifies a ‗Finnova and Bholuram‘ chat box. A few pages later, you will find
Bholuram wondering if the balance sheets of two different entities change
simultaneously due to a transaction…
All the elements in the balance sheet should be measurable in clear-cut
monetary terms, the authors explain. ―Their value should be ascertained
and only then should they be included in a balance sheet. This is precisely
the reason why something like the value of human resources a company
possesses is not shown in a standard balance sheet. Similarly, this is also
the reason most companies are not able to state their brand value in a
standard balance sheet, i.e. there is no standard and widely accepted way of
measuring these items.‖
Bholuram is not comfortable with the idea that net worth or the owners‘
fund is shown under liabilities. Finnova points out that, when seen from the
perspective of a company, both the amounts, viz. the one shared with the
owners (shareholders), and one that is owed to other (external) parties, are
liabilities. ―A company is standalone, its shareholders have to maintain their
own balance sheets, their investment into the company‘s shares is
considered as part of the liability by the company, as it has to pay them
back in future. Hence, both are classified as liabilities in a balance sheet.
However, in common parlance and for practical purposes, liabilities have
come to mean only the part which is owed to the other external parties.‖
In the authors‘ view, the most important equation in the world of finance is
that of the balance sheet, thus: Assets = Liabilities + Net worth (owners‘
equity). This equation, they note, is the one from which balance sheet
derives its name. ―The two sides of a balance sheet, i.e. the assets and
liabilities, as a thumb rule always balance out. This is perfectly logical too. A
company basically purchases assets by using the funds that it generates
through the liabilities. So, the sides have to balance out.‖

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A chapter on the importance of balance sheet reminds us that this
statement, usually prepared at the close of an accounting period such as
month-end, quarter-end, or year-end, is a decision-making tool, and one of
the best indicators of the financial position of a company. ―A company‘s
future and value is decided by its flexibility to take loans. It is the balance
sheet that can tell you if a company has enough money to continue to fund
its own growth or whether it is going to have to take on debt, issue debt or
needs infusion of more owner(s) equity in order to keep on continuing.
Furthermore, it provides information to various stakeholders about the
company.‖
Analysing the balance sheet of a company for one particular period of time
may not give you a clear picture of the financial health of the company, the
authors observe. ―Ideally, one would prefer to have data for more than one
period of time to get a reasonably clear picture of the company. This is the
reason why you generally see balance sheets of two consecutive years being
presented simultaneously. It provides us with a picture of the financial
position of the company over the years.‖
Of value is the chapter titled, ‗What to see in a balance sheet?‘ First,
evaluate the capital structure of the enterprise. Capital structure, as the
book defines, is the way a business entity finances its assets, i.e. the
proportions of equity, long-term debt or short-term liabilities; it answers the
question, ‗What are the funding sources (and their relative blend) for the
things a business entity owns?‘ and gives us an idea of the financial
flexibility and liquidity of the organisation. It also provides a basis for
computing rates of return, on total assets, operating assets, and
shareholders‘ funds involved in the business.
For example, ―If a company is increasing its long-term liabilities
considerably without increasing its shareholders funds, then it can indicate
that the company is taking more risks… Moreover, increase in debt implies
higher interest costs for the company, which can lead to unprofitable
operations.‖
Another tip for balance sheet analysis is about how a consistent increase in
trade receivables (debtors) amount and their relative proportions in the
balance sheet is not a good sign. ―It can possibly indicate that the company
might have a few major customers who are not paying or are dictating terms
to the company… It might signal that the company is making its credit
policy more lenient in order to sustain in a competitive market by allowing
debtors more time to pay back the money they owe to the firm.‖
Ready instructions to students of financial statements.