Showing posts with label Informative. Show all posts
Showing posts with label Informative. Show all posts

Tuesday, May 27, 2008

Writing Technical Articles!!

Writing Technical Articles

The notes below apply to technical papers in computer science and electrical engineering, with emphasis on papers in systems and networks.

Read Strunk and White, Elements of Style. Again.

Give the paper to somebody else to read. If you can, find two people: one person familiar with the technical matter, another only generally familiar with the area.

Papers can be divided roughly into two categories, namely original research papers and survey papers. There are papers that combine the two elements, but most publication venues either only accept one or the other type or require the author to identify whether the paper should be evaluated as a research contribution or a survey paper. (Most research papers contain a "related work" section that can be considered a survey, but it is usually brief compared to the rest of the paper and only addresses a much narrower slice of the field.)

Research Papers


A good research paper has a clear statement of the problem the paper is addressing, the proposed solution(s), and results achieved. It describes clearly what has been done before on the problem, and what is new.

The goal of a paper is to describe novel technical results. There are four types of technical results:

  1. An algorithm;
  2. A system construct: such as hardware design, software system, protocol, etc.;
    One goal of the paper is to ensure that the next person who designs a system like yours doesn't make the same mistakes and takes advantage of some of your best solutions. So make sure that the hard problems (and their solutions) are discussed and the non-obvious mistakes (and how to avoid them) are discussed. (Craig Partridge)
  3. A performance evaluation: obtained through analyses, simulation or measurements;
  4. A theory: consisting of a collection of theorems.
A paper should focus on
  • describing the results in sufficient details to establish their validity;
  • identifying the novel aspects of the results, i.e., what new knowledge is reported and what makes it non-obvious;
  • identifying the significance of the results: what improvements and impact do they suggest.

Paper Structure

  • Typical outline of a paper is:
    • Abstract, typically not more than 100-150 words;
    • Introduction (brief!): introduce problem, outline solution; the statement of the problem should include a clear statement why the problem is important (or interesting).
    • Related Work (or before summary). Hint: In the case of a conference, make sure to cite the work of the PC co-chairs and as many other PC members as are remotely plausible, as well as from anything relevant from the previous two proceedings. In the case of a journal or magazine, cite anything relevant from last 2-3 years or so volumes.
    • Outline of the rest of the paper: "The remainder of the paper is organized as follows. In Section 2, we introduce ..Section 3 describes ... Finally, we describe future work in Section 5." [Note that Section is capitalized. Also, vary your expression between "section" being the subject of the sentence, as in "Section 2 discusses ..." and "In Section, we discuss ...".]
    • Body of paper
      • problem
      • approach, architecture
      • results

      The body should contain sufficient motivation, with at least one example scenario, preferably two, with illustrating figures, followed by a crisp generic problem statement model, i.e., functionality, particularly emphasizing "new" functionality. The paper may or may not include formalisms. General evaluations of your algorithm or architecture, e.g., material proving that the algorithm is O(log N), go here, not in the evaluation section.

      Architecture of proposed system(s) to achieve this model should be more generic than your own peculiar implementation. Always include at least one figure.

      Realization: contains actual implementation details when implementing architecture isn't totally straightforward. Mention briefly implementation language, platform, location, dependencies on other packages and minimum resource usage if pertinent.

      Evaluation: How does it really work in practice? Provide real or simulated performance metrics, end-user studies, mention external technology adoptors, if any, etc.

    • Related work, if not done at the beginning
    • Summary and Future Work
      • often repeats the main result
    • Acknowledgements
    • Bibliography
    • Appendix (to be cut first if forced to):
      • detailed protocol descriptions
      • proofs with more than two lines
      • other low-level but important details

It is recommended that you write the approach and results sections first, which go together. Then problem section, if it is separate from the introduction. Then the conclusions, then the intro. Write the intro last since it glosses the conclusions in one of the last paragraphs. Finally, write the abstract. Last, give your paper a title.

Title

  • Avoid all but the most readily understood abbreviations.
  • Avoid common phrases like "novel", "performance evaluation" and "architecture", since almost every paper does a performance evaluation of some architecture and it better be novel. Unless somebody wants to see 10,000 Google results, nobody searches for these types of words.

    Use adjectives that describe the distinctive features of your work, e.g., reliable, scalable, high-performance, robust, low-complexity, or low-cost. (There are obviously exceptions, e.g., when the performance evaluation is the core of the paper. Even in that case, something more specific is preferable, as in "Delay measurements of X" or "The quality of service for FedEx deliveries".)

  • If you need inspiration for a paper title, you can consult the Automatic Systems Research Topic or Paper Title Generator.

Authors

The IEEE policies (Section 6.4.1) used to state the following about authorship:
The IEEE affirms that authorship credit must be reserved for individuals who have met each of the following conditions: 1) made a significant intellectual contribution to the theoretical development, system or experimental design, prototype development, and/or the analysis and interpretation of data associated with the work contained in the manuscript, 2) contributed to drafting the article or reviewing and/or revising it for intellectual content, and 3) approved the final version of the manuscript, including references.

This has now moved to the IEEE PSPB Operations Manual, Section 8.2.1.

Abstract

  • The abstract must not contain references, as it may be used without the main article. It is acceptable, although not common, to identify work by author, abbreviation or RFC number. (For example, "Our algorithm is based upon the work by Smith and Wesson.")
  • Avoid use of "in this paper" in the abstract. What other paper would you be talking about here?
  • Avoid general motivation in the abstract. You do not have to justify the importance of the Internet or explain what QoS is.
  • Highlight not just the problem, but also the principal results. Many people read abstracts and then decide whether to bother with the rest of the paper.
  • Since the abstract will be used by search engines, be sure that terms that identify your work are found there. In particular, the name of any protocol or system developed and the general area ("quality of service", "protocol verification", "service creation environment") should be contained in the abstract.
  • Avoid equations and math. Exceptions: Your paper proposes E = m c 2.

Introduction

  • Avoid stock and cliche phrases such as "recent advances in XYZ" or anything alluding to the growth of the Internet.
  • Be sure that the introduction lets the reader know what this paper is about, not just how important your general area of research is. Readers won't stick with you for three pages to find out what you are talking about.
  • The introduction must motivate your work by pinpointing the problem you are addressing and then give an overview of your approach and/or contributions (and perhaps even a general description of your results). In this way, the intro sets up my expectations for the rest of your paper -- it provides the context, and a preview.
  • Repeating the abstract in the introduction is a waste of space.
  • Example bad introduction:

    Here at the institute for computer research, me and my colleagues have created the SUPERGP system and have applied it to several toy problems. We had previously fumbled with earlier versions of SUPERGPSYSTEM for a while. This system allows the programmer to easily try lots of parameters, and problems, but incorporates a special constraint system for parameter settings and LISP S-expression parenthesis counting.

    The search space of GP is large and many things we are thinking about putting into the supergpsystem will make this space much more colorful.

  • A pretty good introduction, drawn from Eric Siegel's class:

    Many new domains for genetic programming require evolved programs to be executed for longer amounts of time. For example, it is beneficial to give evolved programs direct access to low-level data arrays, as in some approaches to signal processing \cite{teller5}, and protein segment classification \cite{handley,koza6}. This type of system automatically performs more problem-specific engineering than a system that accesses highly preprocessed data. However, evolved programs may require more time to execute, since they are solving a harder task.

    Previous or obvious approach:
    (Note that you can also have a related work section that gives more details about previous work.)) One way to control the execution time of evolved programs is to impose an absolute time limit. However, this is too constraining if some test cases require more processing time than others. To use computation time efficiently, evolved programs must take extra time when it is necessary to perform well, but also spend less time whenever possible.
    Approach/solution/contribution:
    The first sentence of a paragraph like this should say what the contribution is. Also gloss the results.

    In this chapter, we introduce a method that gives evolved programs the incentive to strategically allocate computation time among fitness cases. Specifically, with an aggregate computation time ceiling imposed over a series of fitness cases, evolved programs dynamically choose when to stop processing each fitness case. We present experiments that show that programs evolved using this form of fitness take less time per test case on average, with minimal damage to domain performance. We also discuss the implications of such a time constraint, as well as its differences from other approaches to {\it multiobjective problems}. The dynamic use of resources other than computation time, e.g., memory or fuel, may also result from placing an aggregate limit over a series of fitness cases.

    Overview:
    The following section surveys related work in both optimizing the execution time of evolved programs and evolution over Turing-complete representations. Next we introduce the game Tetris as a test problem. This is followed by a description of the aggregate computation time ceiling, and its application to Tetris in particular. We then present experimental results, discuss other current efforts with Tetris, and end with conclusions and future work.

Body of Paper

Hints and common mistakes

Bibliography

  • Avoid use of et al. in a bibliography unless list is very long (five or more authors). The author subsumed into et al. may be your advisor or the reviewer... Note punctuation of et al..
  • If writing about networks or multimedia, use the network bibliography. All entries not found there should be sent to me. A listing of frequently-used references for networks is available.
  • Internet drafts must be marked ``work in progress''. Make sure that they have been replaced by newer versions or RFCs. Any Internet Draft reference older than six months should automatically be suspicious since Internet Drafts expire after that time period.
  • Book citations include publication years, but no ISBN number.
  • It is now acceptable to include URLs to material, but it is probably bad form to include a URL pointing to the author's web page for papers published in IEEE and ACM publications, given the copyright situation. Use it for software and other non-library material. Avoid long URLs; it may be sufficient to point to the general page and let the reader find the material. General URLs are also less likely to change.
  • Leave a space between first names and last name, i.e., "J. P. Doe", not "J.P.Doe".
  • References such as
    John Doe, "Some paper on something", technical report.
    are useless. Cite the source, date and other identifying information.
  • For conference papers, you MUST name the conference location, month and the full conference name, not just some abbreviation. Page numbers are nice, but optional. All of this information is readily available via the IEEE or ACM digital libraries.
  • Check if Internet drafts have been published as RFCs or if there's a newer version.
  • Having a citation
    Jane Doe, "Some random paper", to be published, 2003.
    is useless, as the paper has presumably been published by now. Google or the ACM or IEEE digital libraries will help you find it.

Acknowledgements

  • Acknowledge your funding sources. Some sources have specific wording requirements and may prefer that the grant number is listed. The NSF requires text like "This work was supported by the National Science Foundation under grant EIA NN-NNNNN."
  • Generally, anonymous reviewers don't get acknowledged, unless they really provided an exceptional level of feedback or insight. Rather than "We thank X for helping us with Y", you might vary this as "X helped with Y.".

Reporting Numerical Results and Simulations

In all but extended abstracts, numerical results and simulations should be reported in enough detail that the reader can duplicate the results. This should include all parameters used, indications of the number of samples that contributed to the analysis and any initial conditions, if relevant.

When presenting simulation results, provide insight into the statistical confidence. If at all possible, provide confidence intervals. If there's a "strange" behavior in the graph (e.g., a dip, peak or change in slope), this behavior either needs to be explained or reasons must be given why this is simply due to statistical aberration. In the latter case, gathering more samples is probably advised.

Figures should be chosen wisely. You can never lay out the whole parameter space, so provide insight into which parameters are significant over what range and which ones are less important. It's not very entertaining to present lots of flat or linear lines.

The description of the graph should not just repeat the graphically obvious such as "the delay rises with the load", but explain, for example, how this increase relates to the load increase. Is it linear? Does it follow some well-known other system behaviors such as standard queueing systems?

LaTeX Considerations

  • There's no need to enclose numbers in $$ (math mode).
  • Use \cite{a,b,c}, not \cite{a} \cite{b} \cite{c}.
  • Use the \usepackage{times} option for LaTeX2e - it comes out much nicer on printers with different resolutions. Plus, compared to cmr, it probably squeezes an extra 10% of text out of your conference allotment.
  • Multi-letter subscripts are set in roman, not italics. For example,
    x_{\mathrm max}
  • For uniformity, use the LaTeX2e graphics set, not the earlier psfigure set:
    \usepackage{graphics}
    ...
    \begin{figure}
    \resizebox{!}{0.5\textheight}{\includegraphics{foo.eps}}
    \caption{Some figure}
    \label{fig:figure}
    \end{figure}

Things to Avoid

Too much motivational material
Three reasons are enough -- and they should be described very briefly.
Describing the obvious parts of the result
"Obvious" is defined as any result that a graduate of our program would suggest as a solution if you pose the problem that the result solves.
Describing unnecessary details
A detail is unnecessary, if its omission will not harm the reader's ability to understand the important novel aspects of the result.
Spelling errors
With the availability of spell checkers, there is no reason to have spelling errors in a manuscript. If you as the author didn't take the time to spell-check your paper, why should the editor or reviewer take the time to read it or trust that your diligence in technical matters is any higher than your diligence in presentation? Note, however, that spell checkers don't catch all common errors, in particular word duplication ("the the"). If in doubt, consult a dictionary such as the (on line) Merriam Webster.
Text in Arial:
Arial and other sans-serif fonts are fine for slides and posters, but are harder to read in continuous text. Use Times Roman or similar serif fonts. Unusual fonts are less likely to be available at the recipient and may cause printing or display problems.

Guidelines for Experimental Papers

"Guidelines for Experimental Papers" set forth for researchers submitting articles to the journal, Machine Learning.
  1. Papers that introduce a new learning "setting" or type of application should justify the relevance and importance of this setting, for example, based on its utility in applications, its appropriateness as a model of human or animal learning, or its importance in addressing fundamental questions in machine learning.
  2. Papers describing a new algorithm should be clear, precise, and written in a way that allows the reader to compare the algorithm to other algorithms. For example, most learning algorithms can be viewed as optimizing (at least approximately) some measure of performance. A good way to describe a new algorithm is to make this performance measure explicit. Another useful way of describing an algorithm is to define the space of hypotheses that it searches when optimizing the performance measure.
  3. Papers introducing a new algorithm should conduct experiments comparing it to state-of-the-art algorithms for the same or similar problems. Where possible, performance should also be compared against an absolute standard of ideal performance. Performance should also be compared against a naive standard (e.g., random guessing, guessing the most common class, etc.) as well. Unusual performance criteria should be carefully defined and justified.
  4. All experiments must include measures of uncertainty of the conclusions. These typically take the form of confidence intervals, statistical tests, or estimates of standard error. Proper experimental methodology should be employed. For example, if "test sets" are used to measure generalization performance, no information from the test set should be available to the learning process.
  5. Descriptions of the software and data sufficient to replicate the experiments must be included in the paper. Once the paper has appeared in Machine Learning, authors are strongly urged to make the data used in experiments available to other scientists wishing to replicate the experiments. An excellent way to achieve this is to deposit the data sets at the Irvine Repository of Machine Learning Databases. Another good option is to add your data sets to the DELVE benchmark collection at the University of Toronto. For proprietary data sets, authors are encouraged to develop synthetic data sets having the same statistical properties. These synthetic data sets can then be made freely available.
  6. Conclusions drawn from a series of experimental runs should be clearly stated. Graphical display of experimental data can be very effective. Supporting tables of exact numerical results from experiments should be provided in an appendix.
  7. Limitations of the algorithm should be described in detail. Interesting cases where an algorithm fails are important in clarifying the range of applicability of an algorithm.

Other Hints and Notes

From Bill Stewart (Slashdot, May 7, 2006), edited

  • Write like a newspaper reporter, not a grad student.
  • Your objective is clear communication to the reader, not beauty or eruditeness or narration of your discoveries and reasoning process. Don't waste their time, or at least don't waste it up front.
  • Hit the important conclusions in the first few sentences so your reader will read them. If you'd like to wrap up with them at the end of your memo, that's fine too, in case anybody's still reading by then, but conclusions come first.
  • If you're trying to express something complex, simplify your writing so it doesn't get in the way. For something simple, 10th grade language structures will do, but if it's really hairy stuff, back down to 8th grade or so.
  • Think about what your audience knows and doesn't know, and what they want and don't want. Express things in terms of what they know and want, not what you know.

From MarkusQ, Slashdot, May 7, 2006

  • Top down design Starting with an outline and working out the details is the normal way of tackling an engineering problem.
  • Checking your facts Engineers should be used to checking anything that is even remotely doubtful before committing to it. So should writers.
  • Failure mode analysis For each sentence ask yourself, could it be misread? How? What is the best way to fix it?
  • Dependency analysis Are the ideas presented in an order that assures that each point can be understood on the basis of the readers assumed knowledge and the information provided by preceding points?
  • Optimization Are there any unnecessary parts? Does the structure require the reader to remember to many details at once, before linking them?
  • Structured testing If you read what you have written assuming only the knowledge that the reader can be expected to have, does each part work the way you intended? If you read it aloud, does it sound the way you intended?

The Conference Review Process

It is hard to generalize the review process for conferences, but most reputable conferences operate according to these basic rules:

  1. The paper is submitted to the technical program chair(s). Many current conferences require electronic submission, in either PostScript or PDF formats, occasionally in Word.
  2. The technical program chair assigns the paper to one or more technical program committee members, hopefully experts in their field. The identity of this TPC member is kept secret.
  3. The TPC member usually provides a review, but may also be asked to find between one and three reviewers who are not members of the TPC. They may be colleagues of the reviewer at the same institution, his or her graduate students or somebody listed in the references. The graduate student reviews can be quite helpful, since these reviewers often provide more detailed criticism rather than blanket dismissal. Any good conference will strive to provide at least three reviews, however, since conferences operate under tight deadlines and not all reviewers deliver as promised, it is not uncommon that you receive only two reviews.
  4. In some conferences, there is an on-line discussion of papers among the reviewers for a particular paper. Usually, a lead TPC member drives the discussion and then recommends the paper for acceptance, rejection or discussion at the TPC meeting.
  5. The technical program chair then collects the reviews and sorts the papers according to their average review scores.
  6. The TPC (or, rather, the subset that can make the meeting), then meets in person or by phone conference. Usually, the bottom third and the top third are rejected and accepted, respectively, without (much) further discussion. The papers discussed are those in the middle of the range, or where a TPC member feels strongly that the paper ended up in the wrong bin, or where the review scores differ significantly. Papers that only received two reviews are also often discussed, maybe with a quick review by one of the TPC members as additional background. The rigor of the TPC meeting depends on the size and reputation of the conference. In some workshops and conferences, the TPC chairs may well make the final decision themselves, without involving the whole TPC.

Other References

Talks

Thursday, April 10, 2008

Reliance HR to recruit 5 lakh staff in 4 years!!

Reliance HR Services (RHRS), a human resources company formed by the Reliance Anil Dhirubhai Ambani Group (ADAG), will recruit half a million people for the group in the next four years.

These recruits will be deputed to Reliance Communications , Reliance Webstores, Reliance Capital , Reliance Consumer Finance, Reliance Money, Reliance Life Insurance and Reliance Energy .

About 90 per cent of these employees will be on sales functions, while the rest will be on the back-end and customer service functions.

Amitava Ghosh, CEO, RHRS, said, "Currently, about 20,000 employees are on RHRS payroll, serving various ADAG companies."

RHRS has also formulated a plan for the five forthcoming financial years to become a global HR outsourcing and consultancy organisation.

"By 2013, RHRS will evolve into an end-to-end HR outsourcing provider and an HR consultant," Ghosh said. By 2009, RHRS plans to offer HR outsourcing services.

"We can offer HR outsourcing services to companies that operate in sectors such as retail, IT BPO, among others," Ghosh said.

RHRS also plans to offer consultancy services, including compensation surveys and feedback reports.

To recruit a sizeable number of people, RHRS is planning a series of job fairs in the country. Guwahati has been selected as a pilot location.

The company will recruit freshers, who will be paid Rs 7,000 to Rs 12,000 a month, depending on the cost of living of the city.

Wednesday, April 09, 2008

8 things to make an impressive CV!!

This article is an attempt to help the readers design an impressive and user-friendly CV. If you ensure that you include this information in your CV, the chances of it meeting the interviewer's expectations are increased.

~ Begin with name and contact details
Make this information available at the beginning of your CV. This should include your postal address, phone number (preferably mobile number) and e-mail address (only one). If a company wants to call you for an interview or needs to communicate with you for any further information, they will look out for this information. If it is buried somewhere inside the CV it will not only put them off but also reduce their chances of contacting you.

~ Write an appealing career summary
This is your chance to bring forward relevant strengths and skills to the recruiter. Everything in your CV should support your Career Summary. If there's anything that doesn't support your Career Summary, you should reconsider listing it.

You should write your Career Summary around your skills, attitude, knowledge and experience. There are two schools of thought on writing the career statement.

Some people think that it should be a short 30-40 word paragraph while others give it liberty to be covered in 4-5 bulleted points. Whatever you decide on, ensure that everything relevant that you want to sell to the prospective employer is covered here. At the same time, it should not become nauseating.

~ Focus on your work experience, responsibilities and achievements
If you are an experienced candidate, your work experience is your main asset. Include the details of the relevant jobs you have done in the past. You should present your work experience in a chronologically descending order ie the last company first.

This should include the name of the company, your designation and tenure followed by your job responsibilities and achievements. It is always better to present this information in bulleted format rather than a clumsy paragraph. Mention some figures when you talk about your achievements.

For example:
Worked as Business Development Manager for XYZ Company from June 2000 to January 2004.

Job responsibilities:

  • Setting up 7 franchisees across 4 countries
  • Maximising the business from existing customers to the tune of $ 200,000

~ Your next asset is your educational qualification
Educational qualifications play an important role in the recruitment of freshers. If you are a fresh candidate, focus your CV on your qualifications and achievements during your student life.

~ Write about your out-of-work achievements, interests and hobbies
These reflect your personality and skills. Present the relevant achievements in the order of priority ie the most important achievement first. Similarly, present your interests as well. Write about the achievements that display a facet of your personality. For example, if you have been the president of your college, do mention it. It shows your leadership skills.

~ Write short sentences with more impactful words
Lengthy CVs put the recruiter off. Keep the sentences short and use words that demonstrate your hold of the situation like managed, arranged, supervised etc.

~ Formal font faces
A font like Verdana-10 should be good for the content while the Name at the top can be written in Verdana-12, with a bold font face.

~ Use the same tense through out the CV.
Changing the tense in every second line leaves the reader confused and annoyed.

Now, put together both the articles ie 12 things your CV should not have and 8 things to make an impressive CV. Draft and re-draft your CV keeping the points mentioned, till you are satisfied that you have presented the facts in the most impressive and convincing way.

The author is a contributor to www.CareerRide.com, a website that addresses technical and personal aspects of an IT interview. CareerRide provides sample CV and question-answers for personal and technical interviews.

17 tax-free incomes for you

The following are 17 important items of income, which are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.

1. Agricultural income

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.

However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.

Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:

Illustration

For FY 2008-09 (assessment year 2009-10), a male individual has a total income from trading in textiles amounting to Rs 1,52,000; besides, he has earned Rs 40,000 as income from agriculture.

The income tax payable by him will be computed as under:

  • On the first Rs 150,000 of the taxable non-agricultural income: Nil
  • On the next Rs 40,000 of agricultural income (falling under 10% slab): Nil
  • On the next Rs 2,000 of taxable non-agricultural income @ 10 per cent: Rs 200
  • Income tax on aggregated income of Rs 152,000 + Rs 40,000 = Rs 192,000: Rs 200

2. Receipts from Hindu Undivided Family (HUF)

Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Share from a partnership firm

Under the provisions of Section 10(2A), in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm is completely exempt from income tax since AY 1993-94.

For this purpose, the share of a partner in the total income of a firm separately assessed as such would be an amount which bears to the total income of the firm the same share as the amount of the share in the profits of the firm in accordance with the partnership deed bears to such profits.

4. Allowance for foreign service

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7). This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

5. Gratuities

Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 3,50,000;. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

6. Commutation of pension

The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC [Get Quote] pension fund is exempt from income tax under Section 10(10A) of IT Act.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

7. Leave salary of central government employees

Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs. 3,00,000.

8. Voluntary retirement or separation payment

Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax. The maximum amount of money received at such VR which is so exempt is Rs. 500,000.

9. Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance Policy (LIP), including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20 per cent of the actual capital sum assured, is fully exempt from tax.

However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

10. Payment received from provident funds

Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

11. Certain types of interest payment

There are certain types of interest payments which are fully exempt from income tax u/s 10 (15). These are described below:

(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7 Capital Investment Bonds);
(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9 per cent or 8.5 per cent or 8 per cent or 7 per cent Relief Bonds); (iid) Interest on NRI bonds;
(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India [Get Quote] or with any scheduled bank;
(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(v) Interest on Gold Deposit Bonds;
(vi) Interest on certain deposits are: Bhopal Gas victims;
(vii) Interest on bonds of local authorities as notified,
(viii) Interest on 6.5 per cent Savings Bonds [Exempt] issued by the RBI, and
(ix) Stipulated new tax free bonds to be notified from time to time.

12. Scholarship and awards, etc

Any kind of scholarship granted to meet the cost of education is exempt from tax under Section 10(16). Similarly, certain awards and rewards, etc. are completely exempt from tax under Section 10(17A), for example, Lakhotia Puraskar of Rs 100,000 awarded to the best Rajasthani author, every year under Notification No. 199/28/95-IT (A-I) dated 22-4-1996.

Any daily allowance received by a Member of Parliament or by an MLA or any member of any Committee of Parliament or State legislature is also exempt from tax under Section 10(17).

13. Gallantry awards, etc. -- Section 10(18)

The Finance Act, 1999 has, with effect from AY 2000-2001, provided for complete exemption for the pension and family pension of Gallantry Award Winners like Paramvir Chakra, Mahavir Chakra, and Vir Chakra and also other Gallantry Award winners notified by the Central Government.

14. Dividends on shares and units -- Section 10(34) & (35)

With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.

15. Long-term capital gains of transfer of securities -- Section 10(38)

With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax (STT).

Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains. This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.

16. Amount received by way of gift, etc -- Section 10(39)

As per the Finance (No. 2) Act, 2004, gift, etc. received after 1-9-2004 by an individual or an HUF whether in cash or by way of credit, etc. is being subjected to tax if the same is not received from a stipulated relative. Section 10(39) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of tax payment.

Similarly, amount received on the occasion of marriage from non-relatives, etc. would also be exempted. It may be noted that the gift from relatives, as specified in the section can be received without any upper limit.

17. Tax exemption regarding reverse mortgage scheme -- sections 2(47) and 47(x)

Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax. These amendments by the Finance Bill, 2008 apply from FY 2007-08 onwards.


[Excerpt from How to Save Income Tax through Tax Planning (AY 2009-10) by R N Lakhotia and Subhash Lakhotia, two of India's top taxation experts.


How to save income tax through planning!!

Taxpayers can lower the incidence of income tax by means of legal transfer of their sources of income among family members, so that each unit of the family enjoys the basic personal income tax exemption limit, which the Finance Bill 2008 has revised for financial year 2008-09 to Rs 150,000 for male individuals and HUFs; Rs 180,000 for resident women tax payers and Rs 225,000 for resident senior citizens.

The first step in tax saving through family tax planning is to adopt the concept of divide and rule. The simple rule is that each family member must have his or her independent source of income so as to legally become an independent tax payer under the provisions of the income tax law.

In case the entire income of a family belongs to just one member, the tax liability is much higher than when the same income is spread among different members of the family.

Now, under the income tax law it is not possible to arbitrarily divide one's income amongst different members of the family - and then pay lower tax in the names of different family members. However, this goal can be achieved by intelligent use of the facility of gifts and settlements.

Thus, for example, even if a taxpayer's parents are not paying income tax today but if they receive some gift from friends or relatives or from anyone else in the world, the income so generated would belong to them.

In this manner, independent income tax files can be started for different family members by developing independent funds for each person through gifts thereby resulting in separate independent sources of income which would then be taxed separately to income tax.

Once the income is spread among more people, chances are some of them would attract lower rates of tax. Also, each one would then be entitled to independently claim exemptions, deductions, rebates, etc.

Generally, any gift you receive from various members of your family and specified relatives is not considered your income but a capital receipt. Thus, no income tax is payable on gifts received from relatives - and also gifts received from parties other than relatives upto a sum of Rs. 50,000 and at the time of marriage up to any amount.

Care should, however, be taken to ensure that any gift which is received should be a genuine one. The person making the gift, called the donor, should have proof of his or her having the source for making the gift.

The other important point to keep in mind in the case of gifts is that the provisions of Section 64 of Income Tax Act prohibit any direct or indirect transfer of funds between an assessee and his/her spouse.

Thus, a husband should not make any gift to his wife; likewise, the wife should not make a gift to her husband. If the gift is made between spouses, it would attract the provision of Section 64 and lead to clubbing of the incomes of the spouses.

To achieve the best results of gift, and to avoid clubbing of income, you may receive gift from any relative other than your spouse, and, in the case of a daughter-in-law from her father-in-law.

A trust for minor children eliminates clubbing of income

The gifts made to a minor child would similarly result in clubbing of income. Hence, from the point of view of tax planning a trust could be created for the welfare of the minor child with a specific condition that no part of income should be spent on the minor child during the period of minority.

If this simple technique is adopted then there will be no clubbing of income of the minor child with the income of the parents. The clubbing provisions do not apply when you make gifts to your major children.

Your major children are your great tax savers

All your major children can help you save your income tax. You can freely gift money to your major children without attracting the payment of gift tax. This amendment makes it a good idea to make liberal gifts to your major children so that the income, if any, arising from these investments in years to come can be taxed in the hands of your major children.

For example, if you have fixed deposits let us say of Rs 20 lakh (Rs 2 million) and you have a major son as well as a major daughter then it makes sense to gift away Rs 500,000 to each of them.

After receiving the gift amount the children also make investment in bank fixed deposit and each of them receives yearly interest of say, Rs. 45,000. On this amount the son as well as the daughter will not pay income tax because the amount is below the exemption limits of Rs 150,000 and Rs. 180,000, respectively.

Thus your major children can now be great source of tax saving and you can enjoy the benefit of lower income tax incidence in the family as a whole. If, however, due to some reasons you do not feel inclined to make huge gifts to your major children, then you may give interest-free loans to your major children so as to legally reduce your taxable income. It is lawful to grant interest-free loans to your major children from your own funds.

Your parents and in-laws can save you taxes

Might sound incredible to most readers but the fact is that your own parents as well as your own in-laws can become legal tools of tax planning for you and your family. If you want to achieve this dictum then all you are requested to do is just to give away a portion of your funds either as a gift or a loan to your parents as well as your in-laws so that in years to follow your income tax burden become light as the income on funds transferred by you to them which would bring in income would be taxed in their hands.

With the increase in the limit of exempted income for individuals, women tax payers and senior citizens, it is now a great time for having income tax files for all.

Separate income tax file for a daughter-in-law

Under Section 64 (1) (a) of the IT Act, if the father-in-law or mother-in-law makes any gift to his or her daughter-in-law, i.e., their son's wife, on or after 1 June 1973, the income arising to the daughter-in-law in respect of the gifts so made would be liable to be included in the total income of the father-in-law or the mother-in-law making the gift.

However, where such a daughter-in-law receives a gift not from her father-in-law or mother-in-law or her husband but from her father or mother or uncle or aunt or uncle-in-law, etc. then the income arising to such daughter-in-law in respect of such a gift would be liable to be assessed as the income of the daughter-in-law separately.

Such income would not be included in the total income of the father-in-law or the mother-in-law or the husband of such a lady.

Besides, if the daughter-in-law makes an investment of such gifted amount, the income arising to her out of such investment would also be liable to be assessed separately.

Similarly, if she were to join a partnership firm as a partner with the help of such gifted money, the interest arising to her would be assessable to tax in her separate assessment.

Such interest or salary as a working partner would not be liable to be included in the income of her husband or father-in-law or mother-in-law or any other relative. If she is a partner of any firm carrying on any business, her husband could also be a partner in the same firm.

Now, from assessment year 1993-94 her share income from the firm would not be clubbed with the income of the husband. This is illustrated in the following example.

Example

Mr. A has a major son named Mr. B, who gets married on 18.1.2008. Mrs. B receives a sum of Rs 4,00,000 as gifts from her father, mother and other relatives, on the occasion of her marriage.

Mrs. B joins a partnership firm along with C, D and E who are outsiders. Her interest from the said firm in respect of the accounting year ended on 31.3.2008 relevant to the assessment year 2008-2009 is Rs 44,000.

The income of Mr. A from his separate business is Rs 43,000 while the income of Mr. B from his own separate business is, Rs 72,000.

In this case Mrs. B would be liable to be assessed separately on interest from the partnership firm amounting to Rs 44,000 and tax payable would be nil.

This sum of Rs 44,000 arising to Mrs. B would not be liable to be included along with the sum of Rs 43,000 being the income of her father-in-law Mr. A or with Rs 72,000 the income of her husband, Mr. B.

Tax planning for a nuclear family

The concept of joint family is cracking down. Nuclear family concept is on a rise. Under the present scenario for a nuclear family there is imperative need of tax planning so as to cut down taxes.

The simple methodology of tax planning for a nuclear family is to have separate income tax file for self, spouse and all children as well as the Hindu Undivided Family.

For major children the tax planning is easy and simple, namely to resort to the concept of gifts and loans. As far as the minor child is concerned the best answer could be achieved by having a separate income tax file of the minor child through his 100 per cent specific beneficiary trust as mentioned in the preceding paragraph.

The Hindu Undivided Family file can also be opened. In case the nuclear family adopts tax planning by having income tax files for different family members and thereafter takes liberal advantage of the provisions relating to tax deduction, then it would be possible to achieve best tax planning for a nuclear family.

Tax planning by DINKs

Working couples who have no children are known as DINKs (Double Income No Kids). Substantial tax planning is needed for them even in the initial years of their married life. The best tax planning which DINKs should adopt is that each one of them should take full advantage of income tax exemptions and deductions.

The present exemption limit for the financial year 2008-09 is Rs 150,000 for every individual male tax payer. In addition, for a woman tax payer the exemption limit would be Rs 180,000. Thus, for the financial year 2008-09, DINKS would be able to enjoy a combined exemption limit of Rs. 330,000.

Never in the past the tax exemption slabs were so very attractive. They should also make investments in a residential house by taking a loan and thus save income tax up to the maximum extent (each of them). They should also plan a separate income tax file of HUF.

Excerpt from How to Save Income Tax through Tax Planning (AY 2009-10) by R. N. Lakhotia and Subhash Lakhotia, two of India's top taxation experts.

8 key ratios for picking good stocks..

The following 8 financial ratios offer terrific insights into the financial health of a company -- and the prospects for a rise in its share price.

1. Ploughback and reserves

After deduction of all expenses, including taxes, the net profits of a company are split into two parts -- dividends and ploughback.

Dividend is that portion of a company's profits which is distributed to its shareholders, whereas ploughback is the portion that the company retains and gets added to its reserves.

The figures for ploughback and reserves of any company can be obtained by a cursory glance at its balance sheet and profit and loss account.

Ploughback is important because it not only increases the reserves of a company but also provides the company with funds required for its growth and expansion. All growth companies maintain a high level of ploughback. So if you are looking for a growth company to invest in, you should examine its ploughback figures.

Companies that have no intention of expanding are unlikely to plough back a large portion of their profits.

Reserves constitute the accumulated retained profits of a company. It is important to compare the size of a company's reserves with the size of its equity capital. This will indicate whether the company is in a position to issue bonus shares.

As a rule-of-thumb, a company whose reserves are double that of its equity capital should be in a position to make a liberal bonus issue.

Retained profits also belong to the shareholders. This is why reserves are often referred to as shareholders' funds. Therefore, any addition to the reserves of a company will normally lead to a corresponding an increase in the price of your shares.

The higher the reserves, the greater will be the value of your shareholding. Retained profits (ploughback) may not come to you in the form of cash, but they benefit you by pushing up the price of your shares.

2. Book value per share

You will come across this term very often in investment discussions. Book value per share indicates what each share of a company is worth according to the company's books of accounts.

The company's books of account maintain a record of what the company owns (assets), and what it owes to its creditors (liabilities). If you subtract the total liabilities of a company from its total assets, then what is left belongs to the shareholders, called the shareholders' funds.

If you divide shareholders' funds by the total number of equity shares issued by the company, the figure that you get will be the book value per share.

Book Value per share = Shareholders' funds / Total number of equity shares issued

The figure for shareholders' funds can also be obtained by adding the equity capital and reserves of the company.

Book value is a historical record based on the original prices at which assets of the company were originally purchased. It doesn't reflect the current market value of the company's assets.

Therefore, book value per share has limited usage as a tool for evaluating the market value or price of a company's shares. It can, at best, give you a rough idea of what a company's shares should at least be worth.

The market prices of shares are generally much higher than what their book values indicate. Therefore, if you come across a share whose market price is around its book value, the chances are that it is under-priced. This is one way in which the book value per share ratio can prove useful to you while assessing whether a particular share is over- or under-priced.

3. Earnings per share (EPS)

EPS is a well-known and widely used investment ratio. It is calculated as:

Earnings Per Share (EPS) = Profit After Tax / Total number of equity shares issued

This ratio gives the earnings of a company on a per share basis. In order to get a clear idea of what this ratio signifies, let us assume that you possess 100 shares with a face value of Rs 10 each in XYZ Ltd. Suppose the earnings per share of XYZ Ltd. is Rs 6 per share and the dividend declared by it is 20 per cent, or Rs 2 per share. This means that each share of XYZ Ltd. earns Rs 6 every year, even though you receive only Rs 2 out of it as dividend.

The remaining amount, Rs 4 per share, constitutes the ploughback or retained earnings. If you had bought these shares at par, it would mean a 60 per cent return on your investment, out of which you would receive 20 per cent as dividend and 40 per cent would be the ploughback. This ploughback of 40 per cent would benefit you by pushing up the market price of your shares. Ideally speaking, your shares should appreciate by 40 per cent from Rs 10 to Rs 14 per share.

This illustration serves to drive home a basic investment lesson. You should evaluate your investment returns not on the basis of the dividend you receive, but on the basis of the earnings per share. Earnings per share is the true indicator of the returns on your share investments.

Suppose you had bought shares in XYZ Ltd at double their face value, i.e. at Rs 20 per share. Then an EPS of Rs 6 per share would mean a 30 per cent return on your investment, of which 10 per cent (Rs 2 per share) is dividend, and 20 per cent (Rs 4 per share) the ploughback.

Under ideal conditions, ploughback should push up the price of your shares by 20 per cent, i.e. from Rs 20 to 24 per share. Therefore, irrespective of what price you buy a particular company's shares at its EPS will provide you with an invaluable tool for calculating the returns on your investment.

4. Price earnings ratio (P/E)

The price earnings ratio (P/E) expresses the relationship between the market price of a company's share and its earnings per share:

Price/Earnings Ratio (P/E) = Price of the share / Earnings per share

This ratio indicates the extent to which earnings of a share are covered by its price. If P/E is 5, it means that the price of a share is 5 times its earnings. In other words, the company's EPS remaining constant, it will take you approximately five years through dividends plus capital appreciation to recover the cost of buying the share. The lower the P/E, lesser the time it will take for you to recover your investment.

P/E ratio is a reflection of the market's opinion of the earnings capacity and future business prospects of a company. Companies which enjoy the confidence of investors and have a higher market standing usually command high P/E ratios.

For example, blue chip companies often have P/E ratios that are as high as 20 to 60. However, most other companies in India have P/E ratios ranging between 5 and 20.

On the face of it, it would seem that companies with low P/E ratios would offer the most attractive investment opportunities. This is not always true. Companies with high current earnings but dim future prospects often have low P/E ratios.

Obviously such companies are not good investments, notwithstanding their P/E ratios. As an investor your primary concern is with the future prospects of a company and not so much with its present performance. This is the main reason why companies with low current earnings but bright future prospects usually command high P/E ratios.

To a great extent, the present price of a share, discounts, i.e. anticipates, its future earnings.

All this may seem very perplexing to you because it leaves the basic question unanswered: How does one use the P/E ratio for making sound investment decisions?

The answer lies in utilising the P/E ratio in conjunction with your assessment of the future earnings and growth prospects of a company. You have to judge the extent to which its P/E ratio reflects the company's future prospects.

If it is low compared to the future prospects of a company, then the company's shares are good for investment. Therefore, even if you come across a company with a high P/E ratio of 25 or 30 don't summarily reject it because even this level of P/E ratio may actually be low if the company is poised for meteoric future growth. On the other hand, a low P/E ratio of 4 or 5 may actually be high if your assessment of the company's future indicates sharply declining sales and large losses.

5. Dividend and yield

There are many investors who buy shares with the objective of earning a regular income from their investment. Their primary concern is with the amount that a company gives as dividends -- capital appreciation being only a secondary consideration. For such investors, dividends obviously play a crucial role in their investment calculations.

It is illogical to draw a distinction between capital appreciation and dividends. Money is money -- it doesn't really matter whether it comes from capital appreciation or from dividends.

A wise investor is primarily concerned with the total returns on his investment -- he doesn't really care whether these returns come from capital appreciation or dividends, or through varying combinations of both. In fact, investors in high tax brackets prefer to get most of their returns through long-term capital appreciation because of tax considerations.

Companies that give high dividends not only have a poor growth record but often also poor future growth prospects. If a company distributes the bulk of its earnings in the form of dividends, there will not be enough ploughback for financing future growth.

On the other hand, high growth companies generally have a poor dividend record. This is because such companies use only a relatively small proportion of their earnings to pay dividends. In the long run, however, high growth companies not only offer steep capital appreciation but also end up paying higher dividends.

On the whole, therefore, you are likely to get much higher total returns on your investment if you invest for capital appreciation rather than for dividends. In short, it all boils down to whether you are prepared to sacrifice a part of your immediate dividend income in the expectation of greater capital appreciation and higher dividends in the years to come and the whole issue is basically a trade-off between capital appreciation and income.

Investors are not really interested in dividends but in the relationship that dividends bear to the market price of the company's shares. This relationship is best expressed by the ratio called yield or dividend yield:

Yield = (Dividend per share / market price per share) x 100

Yield indicates the percentage of return that you can expect by way of dividends on your investment made at the prevailing market price. The concept of yield is best clarified by the following illustration.

Let us suppose you have invested Rs 2,000 in buying 100 shares of XYZ Ltd at Rs 20 per share with a face value of Rs 10 each.

If XYZ announces a dividend of 20 per cent (Rs 2 per share), then you stand to get a total dividend of Rs 200. Since you bought these shares at Rs 20 per share, the yield on your investment is 10 per cent (Yield = 2/20 x 100). Thus, while the dividend was 20 per cent; but your yield is actually 10 per cent.

The concept of yield is of far greater practical utility than dividends. It gives you an idea of what you are earning through dividends on the current market price of your shares.

Average yield figures in India usually vary around 2 per cent of the market value of the shares. If you have a share portfolio consisting of shares belonging to a large number of both high-growth and high-dividend companies, then on an average your dividend in-come is likely to be around 2 per cent of the total market value of your portfolio.

6. Return on Capital Employed (ROCE), and

7. Return on Net Worth (RONW)

While analysing a company, the most important thing you would like to know is whether the company is efficiently using the capital (shareholders' funds plus borrowed funds) entrusted to it.

While valuing the efficiency and worth of companies, we need to know the return that a company is able to earn on its capital, namely its equity plus debt. A company that earns a higher return on the capital it employs is more valuable than one which earns a lower return on its capital. The tools for measuring these returns are:

1. Return on Capital Employed (ROCE), and

2. Return on Net Worth (RONW).

Return on Capital Employed and Return on Net Worth (shareholders funds) are valuable financial ratios for evaluating a company's efficiency and the quality of its management. The figures for these ratios are commonly available in business magazines, annual reports and economic newspapers and financial Web sites.

Return on capital employed

Return on capital employed (ROCE) is best defined as operating profit divided by capital employed (net worth plus debt).

The figure for operating profit is arrived at after adding back taxes paid, depreciation, extraordinary one-time expenses, and deducting extraordinary one-time income and other income (income not earned through mainline operations), to the net profit figure.

The operating profit of a company is a better indicator of the profits earned by it than is the net profit.

ROCE thus reflects the overall earnings performance and operational efficiency of a company's business. It is an important basic ratio that permits an investor to make inter-company comparisons.

Return on net worth

Return on net worth (RONW) is defined as net profit divided by net worth. It is a basic ratio that tells a shareholder what he is getting out of his investment in the company.

ROCE is a better measure to get an idea of the overall profitability of the company's operations, while RONW is a better measure for judging the returns that a shareholder gets on his investment.

The use of both these ratios will give you a broad picture of a company's efficiency, financial viability and its ability to earn returns on shareholders' funds and capital employed.

8. PEG ratio

PEG is an important and widely used ratio for forming an estimate of the intrinsic value of a share. It tells you whether the share that you are interested in buying or selling is under-priced, fully priced or over-priced.

For this you need to link the P/E ratio discussed earlier to the future growth rate of the company. This is based on the assumption that the higher the expected growth rate of the company, the higher will be the P/E ratio that the company's share commands in the market.

The reverse is equally true. The P/E ratio cannot be viewed in isolation. It has to be viewed in the context of the company's future growth rate. The PEG is calculated by dividing the P/E by the forecasted growth rate in the EPS (earnings per share) of the company.

As a broad rule of the thumb, a PEG value below 0.5 indicates a very attractive buying opportunity, whereas a selling opportunity emerges when the PEG crosses 1.5, or even 2 for that matter.

The catch here is to accurately calculate the future growth rate of earnings (EPS) of the company. Wide and intensive reading of investment and business news and analysis, combined with experience will certainly help you to make more accurate forecasts of company earnings.

[Excerpt from Profitable Investment in Shares: A Beginner's Guide by S S Grewal and Navjot Grewal.]