1. Credit Risk Assessment:

Evaluate the creditworthiness of customers before extending credit. Consider factors such as their credit history, financial stability, and ability to meet payment obligations.

2. Industry and Market Conditions:

Assess the economic conditions and trends in the industry. Economic downturns or fluctuations can impact the ability of customers to make timely payments.

3. Customer Segmentation:

Segment customers based on risk profiles. High-risk customers may require stricter credit terms, while low-risk customers may qualify for more favorable terms.

4. Credit Limits:

Set appropriate credit limits for each customer based on their financial capacity. Monitor and adjust these limits as the customer's business evolves.

5. Payment Terms:

Define clear and consistent payment terms, including the due date for payments. Consider offering discounts for early payments to encourage prompt settlements.

6. Credit Terms Flexibility:

Assess the flexibility of credit terms based on the nature of the business and customer relationships. Some customers may require more flexible terms to accommodate their cash flow cycles.

7. Credit Monitoring and Reporting:

Implement systems for monitoring customer credit regularly. Utilize credit reporting agencies and financial statements to stay informed about changes in customers' financial situations.

8. Collection Policies:

Establish clear procedures for handling late payments and collections. Define the steps to be taken when payments are overdue, including communication and escalation processes.

9. Legal and Regulatory Compliance:

Ensure that the credit policy aligns with legal and regulatory requirements. Stay informed about changes in regulations that may impact credit management practices.

10. Collateral Requirements:

Determine whether collateral is required for certain credit arrangements. This adds a layer of security for the organization in case of default.

11. Credit Insurance:

Consider obtaining credit insurance to mitigate the risk of non-payment due to insolvency or other unforeseen circumstances.

12. Communication and Transparency:

Clearly communicate the credit policy to customers. Transparency about credit terms, interest rates, and any associated fees builds trust and helps avoid misunderstandings.

13. Credit Committee or Approval Process:

Establish a credit committee or approval process for evaluating and approving credit requests. This ensures that credit decisions are made collectively and based on a comprehensive analysis.

14. Technology and Automation:

Implement technology and automation to streamline credit evaluation processes. This can include credit scoring models, automated credit checks, and integrated systems for tracking customer credit history.

15. Training and Education:

Provide training for staff involved in credit management. This ensures that they understand the credit policy, compliance requirements, and effective communication with customers.

2. Regulatory Variations: Varied regulatory frameworks and practices across countries create challenges in achieving harmonized international standards.

3. Lack of Consensus: The absence of consensus among Islamic financial institutions on certain practices complicates the establishment of unified standards.

4. Cultural and Legal Differences: Cultural nuances and legal disparities impact the adoption of standardized Islamic financial practices on a global scale.

5. Market Fragmentation: Fragmentation within the Islamic finance market impedes the creation of cohesive international standards.

1. Liquidity Ratios:

Original State: The current ratio, which measures a company's short-term liquidity, might be lower than desired due to high short-term liabilities.

Window Dressing: The company might engage in window dressing by temporarily paying off some short-term liabilities just before the reporting period, inflating the current ratio and giving the appearance of better liquidity.

2. Debt Ratios:

Original State: The debt-to-equity ratio might be high, indicating significant financial leverage.

Window Dressing: To manipulate this ratio, the company might temporarily repay some debt or renegotiate terms to show a lower debt-to-equity ratio, suggesting lower financial risk.

3. Profitability Ratios:

Original State: The profit margin may be lower due to increased expenses or lower sales.

Window Dressing: In an attempt to boost the profit margin, the company could defer certain expenses, recognize revenue prematurely, or use aggressive accounting methods to temporarily inflate profits.

4. Efficiency Ratios:

Original State: The inventory turnover ratio might be below industry standards.

Window Dressing: To improve this ratio, the company might accelerate sales or delay the purchase of inventory, artificially inflating turnover ratios temporarily.

5. Market Ratios:

Original State: The price-to-earnings (P/E) ratio may be unattractive to investors.

Window Dressing: The company might engage in share buybacks or manipulate earnings to present a more favorable P/E ratio to attract investors.

Impact: While these window dressing techniques may temporarily improve certain ratios, they don't reflect the company's true underlying financial health and performance. Investors and stakeholders relying on these ratios may be misled, as the improvements are often short-term and not sustainable.

The Dividend Growth Model (DGM) limitations:

1. Assumption of Equity Financing: The model assumes that a firm is financed solely by equity, neglecting the impact of debt financing on the company's capital structure.
2. Incompatibility with Low Cost of Capital: The DGM cannot be applied when the cost of capital is less than the growth rate (g) in dividends. This scenario undermines the fundamental assumptions of the model.
3. Exclusion of Non-Dividend Factors: The model does not consider non-dividend factors that contribute to a company's value, such as brand loyalty, customer retention, and ownership of intangible assets. These elements are crucial in determining a company's overall worth.
4. Dependency on Dividends: The DGM is most suitable for companies with regular dividend payments. However, it may not be applicable to firms, especially in growth sectors, that either do not pay dividends or have minimal dividend policies.
5. Sensitivity to Growth Rate: The model is highly sensitive to the assumed growth rate. Small changes in this rate can lead to significant variations in the calculated stock value.
6. Fluctuations in Dividend Payments: The DGM does not account for fluctuations in dividend payments that may occur due to changes in a company's earnings or financial difficulties.
7. Difficulty in Application: The perpetual assumption of a stream of dividends may not be practical for companies in volatile industries or facing unpredictable market conditions, making the model challenging to apply universally.
8. Ignorance of External Factors: The DGM overlooks external factors, such as changes in interest rates, inflation rates, and macroeconomic conditions, that can influence stock prices.
9. Exclusion of Capital Gains: The model focuses exclusively on dividends and ignores potential capital gains from the appreciation of the stock price, providing a limited perspective on total return.

1. Treasury Bills (T-Bills):
   • Issuer: Government
   • Maturity: Short-term
   • Characteristics: Issued at a discount, considered safe.
2. Commercial Paper:
   • Issuer: Large corporations
   • Maturity: Short-term
   • Characteristics: Unsecured promissory notes, higher yield.
3. Repurchase Agreements (Repos):
   • Issuer: Financial institutions
   • Maturity: Very short-term
   • Characteristics: Collateralized short-term borrowing/lending.
4. Certificates of Deposit (CDs):
   • Issuer: Banks
   • Maturity: Short to medium-term
   • Characteristics: Time deposits with fixed rates.
5. Banker's Acceptances:
   • Issuer: Used in international trade
   • Maturity: Short-term
   • Characteristics: Time drafts for trade transactions.
6. Money Market Mutual Funds:
   • Issuer: Managed investment funds
   • Maturity: Varies
   • Characteristics: Pooled funds investing in money market instruments.
7. Short-Term Municipal Securities:
   • Issuer: State and local governments
   • Maturity: Short-term
   • Characteristics: Used to meet temporary cash flow needs.
8. Treasury Inflation-Protected Securities (TIPS):
   • Issuer: U.S. Department of the Treasury
   • Maturity: Varies (5, 10, 30 years)
   • Characteristics: Inflation-indexed securities.
9. Eurodollar Deposits:
   • Issuer: International banks
   • Maturity: Short-term
   • Characteristics: U.S. dollar deposits held outside the U.S.

1. Monitoring Costs:
   • Description: Shareholders must expend resources to oversee managerial actions and ensure alignment with shareholder interests.
   • Example: Costs associated with hiring external auditors, conducting financial analyses, and implementing internal control mechanisms.
2. Bonding Costs:
   • Description: Shareholders may require managers to take specific actions or provide guarantees to demonstrate commitment to shareholder interests.
   • Example: The cost of implementing performance-based compensation systems or obtaining insurance policies to reassure shareholders.
3. Residual Loss:
   • Description: Occurs when managers prioritize their interests over those of shareholders, resulting in a reduction of shareholder wealth.
   • Example: Poor investment decisions, excessive perquisites (perks), or unethical behavior by managers that negatively impact the company's financial performance.
4. Opportunistic Behavior:
   • Description: Managers may act in their own self-interest, taking advantage of information asymmetry to benefit themselves at the expense of shareholders.
   • Example: Insider trading, manipulation of financial statements, or pursuing projects that primarily enhance managerial wealth.
5. Adverse Selection:
   • Description: Occurs when managers with adverse characteristics are more likely to be selected, leading to suboptimal decision-making.
   • Example: Shareholders may face challenges in identifying and appointing managers with the most suitable skills, ethics, and commitment.
6. Moral Hazard:
   • Description: Managers might take risks or make decisions that benefit them personally but expose shareholders to potential losses.
   • Example: Pursuing aggressive business strategies that offer personal rewards but pose significant risks to the company and its shareholders.
7. Shirking:
   • Description: Managers may exert less effort or fail to act diligently in performing their duties.
   • Example: Managers may neglect their responsibilities, leading to decreased company performance and ultimately harming shareholder value.
8. Golden Parachutes:
   • Description: Large compensation packages or severance agreements that protect managers in the event of a change in control, regardless of their performance.
   • Example: Managers receiving substantial financial benefits even if the company performs poorly or is acquired by another firm.

1. Risk Aversion:
   • Description: Investors may exhibit higher risk aversion due to uncertain economic and regulatory environments.
2. Lack of Legal and Regulatory Frameworks:
   • Description: Developing countries may lack clear guidelines and protection for venture capital investments.
3. Limited Exit Opportunities:
   • Description: Smaller capital markets and fewer exit options can hinder successful venture capital investments.
4. Underdeveloped Financial Infrastructure:
   • Description: Inadequate financial systems can impede effective deployment and management of funds.
5. Scarcity of Skilled Entrepreneurs:
   • Description: Developing countries may lack skilled entrepreneurs with the experience needed to scale innovative businesses.
6. Political and Economic Instability:
   • Description: Instability can create an environment of uncertainty, deterring investors.
7. Limited Access to Information:
   • Description: Challenges in accessing reliable data on potential investment opportunities.
8. Currency Risks:
   • Description: Fluctuations and exchange rate risks can impact the valuation of investments.
9. Cultural and Social Factors:
   • Description: Attitudes toward risk, entrepreneurship, and failure can vary significantly.
10. Limited Supportive Infrastructure:
    • Description: Insufficient infrastructure such as research facilities and technology parks.