Directions (1-5): Read the following passage carefully and answer the questions given below it.

When you work as an equity analyst at an investment bank, your task is clear. It is to comb all the statements made by corporate executives, to scour the industry trends and arrive at an accurate forecast of the company’s profits. Achieve this and your clients will be happy and your bonus cheque will have many digits. But is all this effort worthwhile? Not as much as it used to be, according to Feng Gu and Baruch Lev, writing in a recent issue of Financial Analysts Journal. The authors imagined that investors could perfectly forecast the next quarter’s earnings for all companies. They then assumed that investors bought all the stocks that they expected to meet or beat the consensus of analysts’ forecasts; and that investors could short (ie, bet on a declining price) the stocks of those that were predicted not to reach their estimates. They made their investment two months before the end of a quarterly reporting period and got out of their positions one month after the quarter ended (by which time the earnings have been reported). In the late 1980s and 1990s, this would have been a highly successful strategy, achieving excess returns (over those achieved by stocks of similar size) of 4% or more every quarter. But these abnormal returns have dropped: in recent years they have been only 2% a quarter. A similar effect appeared when examining the returns that would have been achieved by perfectly predicting those companies that achieved annual earnings growth. Although an excess return of 2% a quarter would still be highly attractive, it would require a perfect forecasting record. That suggests the number-crunching performed by fallible analysts and investors produces much lower returns.

The intriguing question is why those returns have been falling. The authors argue that the decline is because of the rising importance of intangible investments in recent decades (in areas such as software or trademark development). Such investment may be a big driver of value growth. Accountants have struggled to adapt. If a company buys an intangible asset, such as a patent, from another business, it is classed as an asset on the balance-sheet. But if they develop an intangible within the business, that is classed as an expense, and thus deducted from profits. As the authors note: “A company pursuing an innovation strategy based on acquisitions will appear more profitable and asset-rich than a similar enterprise developing its innovations internally.” As a result, the authors argue, reported earnings are no longer such a good measure of a company’s profits, and thus may not be a useful guide to future share performance. To test this proposition, they divided companies into five quintiles based on their intangible investment. Sure enough, the more companies spent on intangibles, the lower the excess return available to those who correctly forecast the earnings. The paper’s message echoes the themes of a new book by Jonathan Haskel and Stian Westlake, which explores the impact of the growing importance of intangible assets in modern economies. The book finds a link between the poor productivity record of many leading economies since the crisis of 2008, and the sluggish rate of investment in intangible assets since then. The problem is that intangibles have spillovers. A company may undertake expensive research and development, but the gains may be realised by other businesses. Only a few companies (the likes of Google) can achieve the scale needed to take reliable advantage of their intangible investments. Unlike machines and equipment, intangibles may have limited resale value. So the risks of failure may put businesses off intangible investment. This is both good news and bad news for investors. On the one hand, it may explain why profits have remained high relative to GDP. In theory, high returns should have attracted a lot more investment and the resulting competition should have driven down profits. But the difficulty in exploiting intangibles may have prevented that. On the other hand, the reluctance of many businesses to invest in intangibles may restrict their scope for growth in future. Investors looking for growth stocks will face a restricted choice and such companies will be so apparent to everyone that they will command a very high valuation. Not so much the “nifty fifty” stocks that were fashionable in the early 1970s, as the nifty five or six.

1. According to the author, what is true regarding the task of equity analyst?

  1. Their task is to forecast company’s profits.
  2. They forecasted profit by analyzing and combining all statements made by corporate executives.
  3. Equity analyst are paid huge amount of money in executing their task properly.
Ans: 5
All of the above is true regarding the task of equity analyst.

2. What is true regarding the passage?

  1. Strategy for higher return is not successful now a days.
  2. There is decline in the return as it was before in 1980s and 1990s.
  3. Due to lack of equity analysts strategy is not that much feasible.
Ans: 2
2 is only correct, 1 and 3 are wrong according to the passage.

3. What is the reason described in the passage for falling returns?

  1. Due to wrong forecasting done by equity analyst.
  2. Due to rising importance of intangible investments.
  3. Because accounts have difficulty in adopting intangible assets.
Ans: 3
2 and 3 are the main reason for falling return.

4. What is the problems with intangible assets described in the passage?

  1. If any company develop or innovate intangible assets than it is qualified as an expense and hence did not appear on profit.
  2. If any company acquire intangible assets than it will appear more profitable.
  3. Actual growth earned by developing intangible assets is very low.
Ans: 4
Problem with intangible assets are described in the passage.

5. Which of the following can be the best suitable title of the passage?

Ans: 1
Most suitable title is ‘intangible assets and investment’. It can be concluded by reading the passage thoroughly.

Directions (6-10): Read the following passage carefully and answer the questions given below it.

After staying at home one afternoon for a delivery of discounted toilet disinfectant that never came, Valentin Romanov, a Stockholm IT manager, installed a special lock on his flat’s entrance. When no one is in, deliverymen unlock the door and slip packages inside. Four months on, Mr Romanov has doubled his spending online and says he cannot imagine life without in-home deliveries. These are sweet words for delivery firms and online retailers, Amazon included, that are setting up partnerships with lock manufacturers to overcome a big hurdle for e-commerce. Conventional deliveries fail so often that a parcel is driven to a home an average of 1.5 times in the Nordic region, says Kenneth Verlage, head of business development at PostNord, a logistics giant operating in Denmark, Finland, Norway and Sweden. It is an expensive inefficiency made worse, he says, by the fact that recipients have still often had to wait for a failed delivery. Some couriers leave packages on doorsteps, but this invites theft. Of 1,000 Americans surveyed this year by Shorr, a packaging firm, nearly a third had been victims of “porch piracy”, as this is known. Two-fifths avoid certain online purchases for fear of it. A number of firms now sell wirelessly connected locks which a courier’s delivery staff can open using a passcode or smartphone app after the resident has issued a temporary authorisation, before leaving home or remotely. Deliveries are filmed with an indoor security camera paired with the lock. The short videos are sent to parcel addressees and typically end, comically in Mr Romanov’s view, with a jiggle of the door handle from outside to show that the departing delivery person has locked up.

Amazon began offering in-home deliveries in 37 American cities in November. Shoppers who have had a special lock and camera installed (costing $199) can select in-home delivery at checkout. Like most firms offering the service, Amazon is tightlipped about user numbers. The boss of August Home, a San Francisco maker of in-home delivery locks, says that already hundreds of thousands of delivery drivers, dog-walkers, cleaners and Airbnb guests use its app keylessly to enter others’ homes. Offerings are multiplying. In 2018 August Home will go to Australia and Britain, and PostNord will launch in-home delivery in four Nordic countries. Walmart and Sears have tried it; Sears even tested unattended appliance repairs. Five logistics firms and two Swedish supermarket chains are trying or using locks from Glue, a firm based in Stockholm, for in-home deliveries. Sceptics reckon these efforts will not amount to much. Plenty of consumers will be fearful about theft. Rhino Security Labs, a Seattle computer-security firm, claims it hacked into and shut off the video in one Amazon lock-and-camera system. In-home deliveries are incompatible with burglar alarms. And what if an improperly fenced-off dog or cat slips outside? Or an heirloom on display gets knocked over? These are tricky questions. But e-commerce firms have unlocked harder ones.

6. According to the passage what is the big hurdle for e-commerce?

  1. Delivery of the product due to low availability of deliverymen.
  2. Delivery failure due to non availability of customer as one may be unavailable in home in daytime.
  3. Unauthorized in-home deliveries.
Ans: 2
Delivery failure is the big hurdle for e-commerce.

7. What is true about the conventional delivery system?

  1. A normal parcel is driven to a home an average 1.5 times in the Nordic region.
  2. Rate of delivery failure is higher.
  3. Chance of theft increased if deliverymen left the parcel to the door.
Ans: 5
All of the given is true about the passage.

8. Why two-fifths avoid certain online shopping?

  1. Due to late delivery of product.
  2. Due to increased ratio of failed delivery.
  3. Because of the fear of theft of the packages which is left on the doorsteps.
Ans: 3
only due to fear of theft , two-fifths avoid certain online shopping.

9. What is the solution of the delivery problem described in the passage?

  1. Wirelessly connected locks which provide temporary authorization to deliverymen.
  2. To know the exact information of customer availability.
  3. To install a camera outside the home.
Ans: 1
According to the passage wirelessly connected locks is the solution.

10. What are the problems with in-home delivery system?

  1. Customers are fearful about theft.
  2. Hacking can also be done in remotely operated locks.
  3. To install in-home delivery system is very costly.
Ans: 4
Problem with in-home delivery system is hacking and theft.
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