The Presence of Managerial Options Enhances the Worth of an Investment
The Presence of Managerial Options Enhances the Worth of an Investment
Introduction• The presence of managerial or real option enhances the worth of an investment project. The worth of a project can be viewed as its NPV calculated in the traditional way, together with the value of any option. • Project Worth = NPV + Options value• The Types Of Managerial options available include, – Option to Expand (or Contract) – Option to Abandon – Option to Postpone
• Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. The sources of financing are generically, capital self generated by the firm as well as debt and equity financing sourced from outside investors.• Management should keep in view that: – They must identify the optimal mix of financing, – Debt financing may results in a liability that must be serviced – Equity financing is less risky with respect to cash flow – Management must attempt to match the long term financing mix to the assets being financed as closely as possible, in term of both Time & Cash.
• The Dividend Decision – Whether to issue dividends, and what amount, is calculated mainly on the basis of the company’s inappropriate profit & its earning prospects for the coming year. The amount is also calculated based on the expected free cash flow. – Various may be taken into consideration: where share holder must pay tax on dividends, firm may elect to retain earnings or to perform a stock buyback, in both cases increasing the value of shares outstanding. Alternatively some companies will pay “dividends” from stock rather than in cash.• Working Capital Management – Decision relating to working capital & short term financing are reffered to as Working Capital Management. These involve managing the relationship between a firm’s short term assets & short term liabilities. – The goal of working capital management is therefore to ensure that the firm is able to operate, and that it has sufficient cash flow to service long term debts, and to satisfy both maturing short term debt and up coming operational expenses.
• Management of Working Capital – Management can use combination of policies & tech. for the management of working capital. These policies aim at managing the current assets & short term financing, such the cash flow and returns are acceptable. • Cash Management – Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holdings • Inventory Management – Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw material and minimize recording cost. • Debtors Management – Identify the appropriate credit policy which will attract customers • Short term Financing – Identify the appropriate source of financing, given the cash conversion cycle.
• Financial Risk Management – Risk Management is a process of measuring risk and then developing & implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed using traded financial instruments. Financial risk management will also pay an important role in cash management.• Debt Financing – Debt financing takes in the form of loans that must be repaid over time usually with interest. Businesses can barrow money over the short term or long term. The main sources of debt financing are banks and Govt. agencies. Debt financing offers businesses a tax advantage, because the interest paid on loan is generally deductable.• Equity Financing – Equity financing takes the form of money obtained from investors in exchange for an ownership share in the business. Such funds may come from friends & family members of the business owner, wealthy “angel” investors, or venture capital firms. The main advantage of equity financing is that the business is not obligated to repay the money instead, the investor s hope to reclaim their investment out of future profits.
Meezan Islamic Bank• In 1980 a constitutional amendment by Gen. Zia ul haq regime introduced a new hierarchy of Islamic courts. This hierarchy consisted of federal Shariat court and a supreme court shariat appellate bench.• That Court declare that interest is RIBA egardless of weather given transaction took place b/w rich, poor, muslims, non- muslims or any Combination of such parties.• They introduced Musharika, Modaraba, and Morabaha.• The court also endorsed certain other non-interest based modes of financing such as Ijara, Salam and Istisna.
• Our Vision – Establish Islamic Banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair & just society for man kind.• Our Mission – To be a premier Islamic bank, offering a one stop shop for innovative value aded products and services to our customers within the bounds of shariah while optimizing the stakeholders value through an org. culture based on leaning, fairness, respect, for individual enterprise & performance.• Our Service Mission – To develop a committed service culture which ensures the consisted delivery of our products and services within the highest quality services parameters, promoting Islamic values and Ensuring recognition and a quality banking experience to our customers.
SWOT Analysis• Strengths • Opportunities – Strong Financial Position – Rapidly Growing Economy – Highly Qualified Employees – Conducive Environment • Threats – Islamic Banking Division – Uncertainty of Economy• Weakness – Political Situation – Waiver of Charges – New Banking Laws – Inexperienced workforce
• Islamic Modes of financing – Musharakah • The literal meaning of Musharakah is sharing. The root of the word musharakah in arabic is Shirkah, which means being a partner. Under Islamic jurisprudence Musharakah means a joint enterprise formed for conducting some business in which all partners share the profit according to a specific ratio while the loss is shared according to the ratio of the contribution. – Shirkat-ul-milk (Joint Ownership) • It means joint ownership of two or more persons in a particular property. This kind of “Shirkah” may came into existance in two different ways: – Optional (Ikhtiari) » At the option of parties e.g if two or more persons purchase equipment, it will be owned jointly by both of them and the relationship b.w them with regard to the property is called Shirkat-ulmilk Ikhtiari. – Compulsory » This comes into operation automaticaly without any effort/action taken by the parties e.g. after the death of a person, all his heirs inherit his property, which comes into their joint ownership as a natural consequence of the death of that person.
– Shirkat-ul-dain • A property in shirkar-ul-milk is jointly owned but not divided yet is called Musha. In Shirtak-ul-milk undivided shares or other assets can be used in the following manner: – Mushtarik Intifa – Taqseem – Muhaya– Shirkat-ul-aqd (Partnership By Contract) • This is the 2nd type of Shirkah, which means “a partnership effected by a mutual contract’.– Shirkat-ul-amwal (Partnership In Capital) • Where all the partners invest some capital into a commercial enterprise.– Shirkat-ul-Aamal (Partnership in Services) • Where all partners jointly undertake to render some services for their customers and the fee charged from them is distributed among them according to an agreed ratio.