A lower debt ratio signifies that the firm depends less on borrowing as compared to equity for financing its assets. Usually, the lower the debt ratio, the lesser is the risk. However, the acceptable levels are different across industries. (AAII, 2010) mentioned that the interest coverage ratio assesses the firm’s ability to pay interest on its outstanding debt. A high number signifies a healthy firm; whereas a ratio below 1 means that the firm is unable to pay its interest obligations due to insufficient earnings.
The other classification, reinvestment risk means “the returns on funds to be reinvested will fall below the cost of funds” (Cornett, Lange & Saunders 2013). As discussed above about expansion to the investment banking business, Wellfleet can orchestrate syndicated loans and leveraged loans through its investment banking businesses, so that several banks together have the ability to take larger loans for profits with more currency than that of only one financial institution. But interests of the loans are possible to be lower than the funds reborrowed by Wellfleet, in which condition would lose money and this operation would be failed. Proposal Assumptions: • Counterparty: Gatwick Gold Corporation (GGC) – a large gold producer • The counterparty is rated 5B by Wellfleet’s internal rating model and credit committee. This translates to (Probability of Default) PD = 0.39% • Product Type: syndication.
For example, capital intensive industries such as logistics tend to have a slightly higher long term debt/equity ratio while electronics manufacturing companies have a relatively lower ratio The company had a debt equity ratio of 2.44 in FY 2011. The company kept its profits in retained earnings to increase its equity and thus its gearing level went down. They also made a repayment of about 5.5 million long term loan bank and this reduced the debt equity ratio to 1.82 in FY 2012. In FY 2013, accounts payables, accrued expenses and other liabilities went up by 20 million. At the same time SR 5.6m loan was also repaid.
This scenario is more risky in terms of loan repayment. Customer is more likely to take time to pay back the loans. 4.4.1 Scenario 1: Bank customers jumping to a new employer who pays more than the present job The customers have different options given by banks in case they wish to pay back the amount before the tenure period. From the survey, the banks do allow the customers to pay back and allow
• Trade credit the company can contact its actual suppliers and take a credit and pay for them later based on their previous invoices. This will be suitable for them because they already have a pass with those suppliers and therefore have a good relationship (trust) so it will be easier. • Overdraft the money of the overdraft will help to buy other essential assets that the company may not have existing suppliers trading with them. Long-term bank loans and equity are not suitable because too costly, dilution of control for ordinary shareholders may occur they will want to and it is too risky for additional assets. f) Other day-to-day expenses.
For example, individual investor may not be able to afford a direct investment into a large asset such as Suntec City or shopping malls in China. By investing in a REIT, you get to invest in these large assets in bite-size chunks. Liquidity: Compared to investing directly in real estate properties, REIT investment offers the advantage of liquidity – the ease of converting assets into cash. REITs are listed on the stock exchange and you can trade a REIT throughout the trading day, and it is easier to buy and sell a REIT than to buy and sell properties. Tax Benefits: Individual investors enjoy a tax-exempt distribution which comes in the form of dividends in the REITs
Limitations of Reverse Mortgage Loans: Apart from having several advantages, borrowers consider reverse mortgage loans as a last resort of income. This happens because certain limitations are associated with the product. Some of the limitations include: • Reverse mortgage loan involves high rate of interests and it results in huge accumulated interest. It can act as a source of survival but cannot be the first choice of any borrower. Also, variation in rates of interest and loan amount can lead to serious troubles.
The minimum principal deposit required for an FD and RD also varies for different banks. There are different Recurring Deposit schemes available to people. Some are specific for students, senior citizens, etc. and the interest rate also varies depending on the RD scheme. For the same time period and principal, the interest accrued on an FD is slightly higher than that on an RD.
Main disadvantages Credit scoring models can just to much automate existing practice of bank loans. Models may degrade over time if the population to which the model is applied changes in relation to the original population by which the model is designed. Credit scoring models in retail Loans in retail can be divided into: ⦁ Loans that are repaid in instalments - periodical payments include principal and interest. ⦁ Credit card and other revolving loans - ⦁ Loans that are not repaid in instalments - a limited number of consumers loan requests payment of interest and principal at
Shariah scholars can be counted as 60 worldwide and earn high fees. They also sit on the boards of several different companies most often competitors which lead to a massive conflict of interest. 6) Limited supply and inadequate financing The Islamic financial institutions need a secondary market for Islamic financial instruments.Their financial ratios are pretty high. However, the inability to invest the money affects their benefits and their competitiveness.The creation of a secondary market in Pakistan is a good step on the right path. It helps Islamic institutions seek liquidity in case of