Category Archives: Finance & Treasury

Blog Category

The-What-Why-and-How-of-Business-Forecasting-02

The What, Why and How of Business Forecasting

 

By John Alexander Adam

The use of business forecasting models is now regarded as a basic necessity in business management and planning. Setting up the plan for the months and years ahead always involves prediction of trends in demand based on factors such as seasonality, competition and wider economic factors. Management use these forecasts, which are essentially informed guesses, in their budget planning and things like HR strategy, capital investment and marketing spend are all shaped based on business forecasting.

There are two main categories of business forecasting methodology. Judgement forecasting, most commonly termed ‘qualitative forecasting’, is based on human judgement while ‘quantitative forecasting’ is data driven. Both have their common applications, strengths and weaknesses.

Qualitative ‘Judgement’ Forecasting

Qualitative Forecasting is essentially based upon ‘informed consensus’, either that of consumers themselves and harvested via market research, or ‘experts’. Qualitative business forecasting is most commonly used for shorter term decision making and in situations where there the scope of the forecast is more limited. It is generally accepted that its reliance on opinion over data means that judgement forecasting is not a reliable over the longer term.

Qualitative forecasting is generally most relied upon when calculating likely demand before a product or service is launched. Market research and focus groups are examples of qualitative ‘judgement’ forecasting based on a consensus of consumer opinion. The compilation of the opinion of a cross-section of relevant experts is referred to as the ‘Delphi’ method of qualitative business forecasting.

Quantitative Forecasting

Quantitative business forecasting methodology is founded on the principle that human opinion is both fickle and unreliable, at least over the longer term and when the scope of the forecast is not very limited. There are three main methodologies that quantitative forecasting relies upon:

  • The Indicator Approach

This approach looks at the various ‘indicators’ or influences that can impact upon demand. It isolates particularly important indicators which cause changes in demand even when all other influences retain their status quo. The influences are termed ‘lead indicators’ and tend to be big macro-economic factors such as unemployment rates and GDP, though different kinds of products and services will use different lead indicators depending upon their historical influence on demand. Historical data will show how changes to these indicators impact demand and will base sales forecasting on forecasted fluctuations in these lead indicators. The indicator approach will almost certainly not be used in isolation for business forecasting and is usually combined with the other main quantitative methodologies.

  • The Econometric Approach

Econometric methodology is essentially a more complex version of the indicator approach and incorporates all of the indicators that are considered to have been shown to impact upon demand. This methodology uses complex statistical models to forecast not only how changes to different indicators in isolation are likely to impact demand but how they work together. Indicator 1 may be shown to have historically impacted demand for a company’s category of product by x percent when it has changed by y percent. The same might be said of indicator 2. However, when indicators 1 and 2 have changed by these same percentages together, the impact on demand may have been different. Add in another several indicators and the model becomes a sophisticated algorithm based on frequency, probability and statistical inference involving large groupings of statistical data interacting with each other to produce different forecasted outcomes.

  • The Time Series Approach

The Time Series Methodology is more of an ‘editor’ to the other methodologies covered than an independent methodology in its own right. It takes the historical data used in the other methodologies and attaches greater weighting to more current data and can discount older data or less influential data as ‘outliers’ than can corrupt the forecast.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and accounting qualification programs at locations across the Middle East.

 

Pass-Your-CFA-Exam-With-Confidence-02

Pass Your Level I CFA® Exam With Confidence

 

By Morgan International Staff Writers

Nobody ever sets out to fail their certification exams, but the inevitable reality is that some do. It’s only once the results are out that the soul-searching begins to pinpoint what exactly went wrong.

Another possible cause could be questions left unanswered because you were not familiar with the subject matter. The deeper issue here, though, would be your approach to revision before the exams and possible lack of question practice. In other words: poor preparation. Generally there are three main areas where students should direct their searching. Top of that list could be that not all the questions were answered, based on lack of sufficient time. If only the examiners had given you half an hour or an hour more, you might say, then you would have been able to answer them all. What this really points to, though, is a weakness in your time management and exam technique.

Perhaps you felt that you answered all questions correctly and came away feeling you passed, only later to find out you didn’t. Here, the issue is most likely a failure to address the specific requirements of each question in a succinct and clear manner. Again, preparation is the key word.

With a view to specifically help students overcome all of these issues, Morgan International developed a set of study tools prepared by subject matter experts designed to give students the most thorough preparation, all with the goal of passing. For the Chartered Financial Analyst (CFA) exam, Morgan's tools and resources gives you a combination of practice questions, mock exams and case study questions. Remember, these have been written by subject matter experts and therefore prime you in the best way possible.

With this valuable information to hand, your preparation should be honed to perfection and you should be well on your way to sitting your exam with confidence you did everything you could to pass.

Pass your Level I CFA® exam with confidence! Click here to view Morgan’s full range of CFA® Program packages.

 

What-is-a-Recession-and-How-Long-Does-It-Take-to-Get-Out-of-One-02

What is a Recession and How Long Does It Take to Get Out of One?

 

By John Alexander Adam

Anyone over the age of 20 will have experience of a recession, with the ‘Great Recession’ of 2008-13 still fresh in the memory. While the answer to the second part of our question may seem to be already apparent, with it taking 5 years for the global economy to officially come out of recession 3 years ago, the amount of time required to come out of a ‘recession’ can vary from anything to a few months to several years.

What is a Recession?

The obvious place to start is an explanation of what exactly a recession is. While there are different schools of economics theory, all those that we accept as having merit in explaining our modern capitalist economy have as a basic principle the cyclical nature of economies. As such, recessions are an integral part of the business cycle and essentially unavoidable. The official technical definition of a recession is two consecutive quarters during which economic growth is negative. The economic growth of a country is measured by its Gross Domestic Product (GDP), which is the combined value of things like manufacturing, employment, real income and the balance of trade in and out of the country.

A global recession such as the recent ‘Great Recession’, is a rarer event when recession impacts countries across the world simultaneously. In the lead up to a recession business activity slumps and this leads to a downward spiral in economic activity which can be difficult to reverse. Recessions can often be triggered by a significant shock to the world’s financial markets, such as the US subprime mortgage crises which triggered the Great Recession. Large banks in the US, and around the world, had exposed themselves to risky mortgage-based derivatives which lost value quickly when financial markets realised how risky they actually were. The significant negative impact this had on so many international financial institutions meant that lending around the world collapsed, and with capital so hard to access spending nosedived, plunging the global economy into one of its worst ever recessions.

Recovery from a Recession

While the technical definition of a recession is two consecutive quarters of negative GDP growth, it is a little more complex than that. A recession has leading and lagging indicators. Some results of a recession take longer to become apparent as companies take some time to fully appreciate the changed environment and react. The stock market is one example of a leading indicator as stock prices are largely based on future expectations. So when markets get nervous that trouble is afoot, falling stock prices quickly reflect that. Employment is a lagging indicator as companies generally reduce salaries and staff numbers at the point where they feel they have no choice but to do so.

Conversely, when an economy moves into the recovery phase and starts to come out of a recession, stock markets will reflect growing optimism quickly but companies won’t start to hire more staff until their turnovers and finances have recovered to a healthy level.

Momentum is key to both economic decline and growth. Economic contraction takes place as economies cannot, at least based on all historical evidence, remain on an indefinite trajectory of growth. At some point the growth slows and when it drops to a slow enough pace it begins to move backwards into negative growth. This is, according to most economists, a natural pattern of the economy finding equilibrium. Recovery happens when the pace of the decline is also reduced to the point where it can be pulled out of reverse and into growth again.

When an economy contracts, governments and central banks have a number of tools at their disposal to reduce the velocity of contraction and eventually drive it back to growth. The two most commonly utilized tools are interest rates and Quantitative Easing. When central banks reduce interest rates they reduce the cost of borrowing. This encourages companies and banks to increase borrowing and invest, which increases the overall flow of money and spending in the economy, the basis of economic growth.

Quantitative Easing also reduces the cost of money and increases its flow but through a different technique. Central banks print money and use this to buy bonds and other financial assets from financial institutions and banks. This provides them with a greater flow of cheap cash with which they can then lend to companies and individuals in greater volumes and more cheaply, stimulating spending and growth further down the economy.

How long the recession from recovery takes largely depends on the scale and success of such intervention and how long it needs to take hold. There is a school of thought that such artificial stimulation by central banks is gradually reducing the value of money and building up problems for the future.

If you would like to improve your understanding of economics, business and finance, why not take a professional qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and other business-related qualifications at locations across the Middle East.

 

Financial-Information-Analysis-and-Their-Role-in-Strategic-Decision-Making-02

Financial Information Analysis and Their Role in Strategic Decision Making

 

By John Alexander Adam

The upper management of any business are tasked with the responsibility to take the decisions which will enable to company to achieve the best financial results possible in the context of the external environment. They have to make judgement calls on how to achieve the best balance between the company’s costs, running and capital investment, and the income and profit that it can achieve as the result of these costs. It’s a careful and often complex balancing act and involves taking into account factors they can be sure of as well as anticipating potential changes to internal and external influences that they can’t be sure of.

Every business has three primary financial statements: the Balance Sheet, the Cash-flow Statement and the Income Statement. The information within these statements is entirely quantitative and neutral. While different kinds of business operate according to different principles, the management of those businesses draw objective information from its financial statements. Based upon the general principles that apply to the particular business, such as operating cash-flow requirements, management can come to the conclusion as to whether the business is in need of a cash flow injection and needs to borrow, or is in a position to be able to make investments.

The Balance Sheet

A balance sheet lists all of a company’s assets and liabilities side by side and will include liquid assets such as cash in the bank account, money owed to the company and fixed assets owned such as property, machinery and company cars. It will also list liabilities such as salary expenses, bank loans, outstanding sums owed to suppliers and so on.

The information contained with a balance sheet can give a good business manager valuable insights into how the company’s performance could be optimised. For example, company policy may be that clients are given six weeks to settle their invoices. If the company’s annual sales amount to a total of $100, 000 million, reducing the grace period for invoices to be settled within to 30 days would shift $4 million from accounts receivable into cash in the bank account. That $4 million could be put to work as operating capital that could help the company grow without any change to overall income generated from sales.

Cash Flow Statement

A company can look like it is generally profitable based on its balance sheet and other standard accountancy methods. However, a company that theoretically makes more money that its overall costs but doesn’t have cash in the bank to cover operating costs will not last long. It’s no use having $1 million in revenue due to come in after 3 months if you have $200,000 in the bank now and operating expenses of $400,000 over the next 3 months. Managers need the information available in the cash-flow statement to be able to make decisions such as the need to reduce operating overheads, inventory, debt, reassess credit facilities available to clients and so on.

The Income Statement

A company’s income statement shows what its forecast profitability is over a particular period into the future. In some ways it is more detailed than the cash-flow statement in that it takes into consideration subtleties such as value amortization of fixed assets and depreciation. However, it does not provide detail on specific dates when income will be received and expenses due, grouping income and expenditure together over quarters or a full financial year. The information contained in the income statement is used by management in macro decision making such as managing overall levels of operating costs and adjusting profit margins as required.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and accounting qualification programs at locations across the Middle East.

 

CFA-charterholder-Salaries-in-the-UAE-02

CFA® charterholder Salaries in the UAE

 

By John Alexander Adam

An in-demand professional qualification such as the CFA® charter can open a wide range of doors when it comes to professional opportunities and increased earning power, especially in a region such as the UAE and wider Middle East. The developing economies of the region and growing financial centres are hungry for qualified finance professionals. While gaining the CFA® qualification at all three levels will take around 4 years, it is path that aspiring finance professionals understand is worth their while. So when all that hard work has finally paid off and you have earned you CFA® charterholder status, what are the main career paths open to you and what kind of salary level can you expect in the UAE?

CFA® charter Career Paths

CFA® charterholders are most commonly associated as working as investment analysts and portfolio managers, and in the UAE these two roles do indeed employ the join largest percentage of CFAs in the region at 13% each according to research published by the eFinancialCareers website. However, it is interesting to note that 13% of CFAs are also employed as Chief Level Executives, further vindication of the worth of attaining CFA® qualification. A full list of CFA® charterholder occupations in the UAE is given as follows:

  • Chief Level Executive: 13%
  • Investment Banking Analyst: 13%
  • Portfolio Manager: 13%
  • Research Analyst: 12%
  • Relationship Manager: 8%
  • Manager of Managers: 6%
  • Financial Advisor: 5%
  • Corporate Financial Analyst: 5%
  • Risk Manager: 5%
  • Trader: 3%
  • Consultant: 3%
  • Private Banker: 3%
  • Accountant/Auditor: 3%
  • Strategist: 2%
  • Other: 4%
  • Unemployed: 2%

CFA® charterholders Salary Levels

While salary levels for professionals holding the CFA® charter of course varies greatly depending on occupation, seniority level and company, it is safe to say that even at the lower end of the scale CFA® charterhlders are well-remunerated. Generally, salary levels in the UAE are higher than in other geographical regions, as well as being further boosted by the favourable tax environment. Positions requiring specialized professional qualifications such as the CFA® charter are particularly well rewarded in the UAE.

The Robert Half Middle East Salary Guide for 2014 puts the salary scale for financial analysts in the region at between $62, 500 and $97, 500. For Senior Financial Analysts the range is $ 72,750 to $ 109,750. These salaries also showed growth of around 4.5% between 2013 and 2014. The pay scale for Chief Level Executives is noted as being between $167,500 and $550,000.

According to the Morgan McKinley Banking and Financial Services Guide for the UAE 2014, Portfolio Managers in the region can expect to earn between $40,000 and $70,000+. The report also notes the influx of capital into the regions financial institutions and that over 2014 basic salaries in financial services rose by between 6% and 8%.

In terms of career prospects and salary levels, CFA® charterholders are undoubtedly at a strong advantage in the UAE and wider Middle East with the regions financial centers continuing to grow and in need of qualified talent.

If you would like to improve your understanding of economics, business and finance, why not take the CFA® Program! Morgan International offers a number of finance qualifications including the CFA® Program, at locations across the Middle East.

 

A-Brief-Guide-to-Stock-Price-Changes-02

A Brief Guide to Stock Price Changes

 

By John Alexander Adam

The factors that impact the value of a company’s stock can appear a complete mystery to the uninitiated. How can tech companies yet to make a profit, or even break-even, achieve market capitalizations in the billions? And why do investors pay more for stock in some companies making far less money or profit or both than others? Stock market valuations are complex. Companies in different industries and with different kinds of activities are valued in a different way as are companies at different stages of maturity. Even the experts don’t always agree on exactly how or why to value different companies in different ways. But that is also part of the inherent competition of trading and investing in the stock market. To be successful, anyone buying or selling stock must decide on the direction the value of that stock will take before it does so. While hundreds of whole books have been written on the details of the many factors that can influence the direction of stock prices, here’s a few of the main ones described in brief.

Fundamental Valuation

A company’s fundamentals are the most traditional way to value it. Fundamentals include the company’s revenues, profit margins, operating costs, assets and liabilities. They pay no attention to current popular sentiment around the company and look at only the hard, stripped down facts of its current financial strength. If investors believe a company’s fundamentals are strong or weak in comparison to its current stock price this will, over the longer term, influence the trend of its share price up or down.

Technical Analysis

Technical analysis of a company’s worth is almost the opposite of a fundamental valuation. A technical assessment of stock price focuses on patterns in buying and selling behavior. By looking at charts and applying different theoretical principles, investors believe that the past pattern of the stock’s price provides a good indication of its future direction. Technical analysis often becomes a self-fulfilling prophecy with short term traders controlling vast sums of money following technical analysis principles. As a result, when a trend starts to take shape billions of dollars start to be placed on that trend, either through the buying or selling of stock, which drives the market further in that direction. This relies on the principle of interpreting general investor sentiment and tends to mainly impact stock price valuations in the shorter to medium term.

Market Share

If we go back to the example of companies being assigned huge values while making little or no profit, the main reason for such seemingly ludicrous valuations is their market share, or rather, the growth trajectory of their market share. It could be an entirely new market the company is creating for itself, such as in the case of social media giants Facebook and Twitter, or it could be an existing market they are making quick inroads into through an innovative approach. While not yet listed on the stock exchange, currency exchange and transfer service TransferWire is a good example of the latter. Investors will look at a company showing significant growth or loss in market share and be ready to pay a premium to get in on what they expect to be the next big thing, or take a hit by selling out of a company they consider to be on the decline.

Wider Industry Sentiment

The stock price of companies can go up or down due to investor sentiment towards the wider industry they are a part of. Finance and banking stocks for example often show valuation trends up or down without any actual change in the company’s profit, loss or market share because investors because investors believe an external factor such as a change in interest rates will impact the entire sector. Another example could be new technology meaning investors fear what a particular group of companies does could soon become obsolete.

Economic Shocks

Investors are a nervous bunch and any big shocks to the financial system, or geo-political disruption, tends to send them scurrying for the exits. When the financial crisis hit in 2007-08, stock prices crashed across the board. In theory, companies whose main activities are focused on basic goods and services, such as utilities companies, manufacturers of staple food products and so on would not see demand for their products reduced as a result of lending constraints on banks. We might choose not to buy that slightly pricey bottle of wine when things get a little tight but do we eat less bread or sit in a cold house? Nonetheless, history shows that such shocks impact general investor confidence and stock prices fall in unison, regardless of what the companies do.

There are other factors and many more sub-factors that influence stock price changes and predicting them is so complicated as they work together, pushing and pulling prices in different directions simultaneously. However, the five listed here are a good starting point that a majority of influences can be traced back to.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program! Morgan International offers a number of different professional finance, investment and accounting qualification programs at locations across the Middle East.

6 Key Rules for Effective Portfolio Management-02

6 Key Rules for Effective Portfolio Management

 

By John Alexander Adam

Managing, and more crucially growing, money is not easy. If it were we would all be a lot richer than we are. Even professionally trained active fund managers at the top of their profession notoriously often fail to beat the market. That can be attributed in large part to fee structures draining profits, but still highlights the scale of the challenge that faces portfolio managers. However, there are many successful investment portfolio managers, private and professional, that do consistently outperform markets. This is especially true when fund managers crippled by their fund’s fee structure are taken out of the equation.

While even the most adept portfolio manager will make the occasional bad call, the real secret to effective portfolio management is in the consistent avoidance of costly errors. In an article for Forbes Magazine, Peter Andersen, Chief Investment Officer at Congress Wealth Management, posits that cutting mistakes down to the bare minimum is what separates consistently successful portfolio managers from the rest. He argues that most mistakes can also be traced back to violations of several key money management rules. So let’s take a look at some of those key rules for successful portfolio management. Some are those mentioned by Andersen and some are not. While this is by no means a comprehensive list, hopefully they will get you thinking about the important things to keep in mind when it comes to minimizing the mistakes that can be the difference between effective portfolio management and disappointed clients, or even a disappointing performance for your own personal investment portfolio.

  1. Patience

Although it can be worded in different ways, from ‘trust the fundamentals’ to ‘long term investing’ ‘patience’ is, with justification, the most commonly cited piece of advice when it comes to a successful investment strategy.

Especially in the news-hungry modern world which continuously updates us on our holdings, it is important to block out all but the most important information and focus on the underlying, longer term fundamentals that original decisions were based on. Markets have more and less volatile periods and while it is crucial to stay alert for significant changes which could impact your holdings, it is just as crucial to cancel out most of the noise and ignore short term volatility.

  1. The Trend Isn’t Always Your Friend

Groupthink may be harder to spot in investment trends than it is at the golf club or between a group of friends but make no mistake, it permeates financial markets to a frightening extent. As a portfolio manager one of the most fundamental pieces of advice you should heed is to ignore what the markets and media are saying and always think for yourself. If you are a day or short-term trader the trend may well be your friend, but as a portfolio manager it is more like peer pressure to skip school. You might gain short-term kudos but it isn’t going to do anything positive for your long term prospects.

  1. Always Have a Pre-Nup and a Plan B

We have already mentioned that it is important to commit to portfolio holdings, to remember your original reasoning, not to follow the crowd and not to be distracted by short-term volatility. However, that doesn’t mean you should both blindly sail into the storm and then stay with a sinking ship when things don’t pan out in the way you initially expected.

When you choose to invest in any holding, go through all of the potential scenarios, positive and negative, that could significantly impact your initial suppositions. You will then know if conditions have changed in a pre-empted way to mean your commitment is no longer be tenable, know the terms of divorce and be able to react. And of course, you need to have Plans B and C in place so you are not scrabbling around trying to figure out what to do when negative scenarios do come to pass.

  1. Know Your Strengths and Fortify Against Your Weaknesses

If you have expert or in-depth knowledge in a particular industry or sphere, use that. Andersen cites the example of an investment manager with particular knowledge of adolescent epilepsy, new medications and potentially break-through treatments and how that had come in useful when it came to certain stock picks. If you are a portfolio manager with a better track record in value-based picks rather than growth picks, focus on what you are good at and bring in someone with complementary strengths, either in an official capacity or as an advisor.

  1. Embrace Technology

There is a wealth of new technology out there that can help portfolio managers hugely when it comes to screening different equities and other assets. They take a lot of the manual process out of value assessment by different metrics and while they are restricted to data-based filtering can be an invaluable tool to flag options for further attention. Embracing these kind of screening tools, and other technology out there, can help portfolio managers make picks from a much vaster range of options than was previously possible.

  1. Communicate

Finally, with the best of intentions, impeccable approach, knowledge and skill, professional portfolio management requires communication if the manager is to be successful. When a fund underperforms the market investors are twice as disappointed as they are happy when it outperforms. The same is true of a portfolio manager’s clients. There will always be times when a portfolio loses value, it is unavoidable. However, clear communication with clients on the decision making process, correct expectation setting and regular updates will reduce the chances of clients panicking when that does happen. Don’t try to make your skill set seem mysterious and out-of-reach. Educate your clients as much as possible on investment principles and your approach. The better they understand what you are doing the less likely they are to be phased by setbacks and appreciate successes.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and business-related qualification programs at locations across the Middle East.

 

Key-Ethical-Guidelines-for-Best-Practice-in-Financial-Services-02

5 Key Ethical Guidelines for Best Practice in Financial Services

 

By John Alexander Adam

It should be stated from the outset that while financial services as a wider industry get a bad rap, there is nothing intrinsically unethical about it as a sector. An external observer subject to regular headlines denouncing the latest scandal involving bankers, traders and other financial services professionals bending, or outright breaking, the rules in the pursuit of financial gain might, however, be under a different impression. On the one hand, the huge sums of money swirling around financial markets, the competitive element to who makes money and who doesn’t and intrinsic human greed mean that financial services professionals and companies are under more pressure than most to make ethical choices. On the other, financial services are a vital component to a functioning modern economy and are not in any shape or form inherently ‘unethical’. In fact, financial services’ intrinsic role is that of the protector of wealth and the smooth functioning of the global economy.

As such, it is even more important than in other industries that financial services are conducted according to a strong code of ethics and adhere to a moral compass that, in some cases, can go even beyond legal and regulatory frameworks governing how their work is done. So, what does an ethical financial services industry look like? If the culture of financial services professionals and the companies and institutions they work for follow these 5 principles unerringly, we will all live in a better world that would provide greater wealth and opportunity for everyone:

  1. Profit, but Not at Any Cost

A modern, capitalist economy has at its very foundation the principle of profit. Without a surplus, or profit, the economy doesn’t work. As such, financial services professionals are obliged to pursue a profit as the result of their activities. However, a modern economy only works if that profit is earned within a framework of rules and regulations that apply and are adhered to by everyone. Financial services are obliged to pursue profit maximization within the applicable framework and not by seeking an advantage by conducting activities that could be considered outside of that framework. Like sprinters competing in the 100 meters, the conditions should be the same for all competitors and the race conducted in an ‘honorable’ fashion.

  1. The Client’s Interests First

Financial Services is a wide sector and the ‘client’ may take many shapes and forms. At the highest level, in the case of a country’s central bank, the ‘client’ would be at one step removed the ‘Government’, and ultimately the population of the country.  At another level further down the ladder, the ‘client’ would be the investors in a fund or the private investor whose money a CFA® charterholder manages. Whoever the ‘client’ might be, an ethical approach to Financial Services will always put the client’s interests first. A doctor is paid but receives that payment on the understanding that their primary responsibility is to look after the health of their patients, not their own financial wellbeing. A doctor whose work routinely meant that the health of their patients suffered, would not receive their salary for long. In the same way, Financial Services should see their own income as reward for improving the financial health of their clients. There is nothing wrong with a fund or its manager making money, but their profit should not come at the expense of their clients. A truly ethical Financial Services industry would not see a small profit eaten up by fees, leaving the client with far less gain, or even a loss, while the financial services professionals and company supposedly working for that client make a tidy profit.

  1. A Commitment to Excellence

An ethical approach to financial services would see professionals and the organizations that they represent constantly striving to do the best job they possibly can under the circumstances. This means avoiding a mentality of doing ‘enough’, and stopping there. Commitment to both excellent results and technical accuracy in each step of the processes leading to that result is required.

  1. Ethics Prioritized Over Client Instruction

Of course, unethical behavior in Financial Services can also be provoked by clients themselves. Whether it be through strong encouragement to help them minimize tax within the gray areas of international tax law, or any other activity that could be interpreted as giving them an unfair advantage, it is far from uncommon for financial services professionals to be put under pressure by their clients to conduct activities they may not consider ethical. Financial Services run ethically will prioritize ethical conduct even when by doing so they may decline to undertake activities expressly requested by the client, even at the risk of losing that client’s business.

  1. Legal is Not Always Ethical

While legal and regulatory frameworks are, in theory, in place to govern ethical practice in Financial Services, there may be many instances where a particular course of action may be considered unethical despite not directly contravening laws or regulations. The legal framework governing Financial Services is not perfect and finding loopholes or other means to circumvent it is common. In fact, many areas of Financial Services specialize in doing just that. However, ethical Financial Services means choosing not to act in a certain way, or perform certain activities, despite the fact that doing so may not technically mean breaking any laws. Choosing not to exploit technicalities that may mean an activity is legal because it is considered unethical is the mark of a truly ethical approach.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and accounting qualification programs at locations across the Middle East.

 

Financial-Simulation-Analysis-Explained-02

Financial Simulation Analysis Explained

 

By John Alexander Adam

Anyone who has ever been responsible for the financial wellbeing of a company will know only too well that there is the original plan and then what actually happens. Economies are dynamic and whatever the nature of a particular business there are external factors which influence, that cannot be controlled. The price of raw materials could go up, or interest rates. The regulatory framework may change or unions could provoke a strike. Good financial planning involves looking at all the potential scenarios in terms of costs and income projections deviating from the course of the original plan expectations.

Companies use financial simulation analysis to build models of how different courses of action and external variables may impact their finances, building models that allow them to react quickly, with a plan already in place. Financial simulation analysis is also often referred to as ‘sensitivity analysis’ and ‘what if analysis’: how robust financial planning based on the expected scenario is to potential changes to external influences.

A Simple Guide to Building a Financial Simulation Analysis

Bigger businesses with more complex structures and interconnecting parts to their operations will build financial simulation analyses that can become quite complex. However, regardless of the complexity of any simulation analysis, it will basically boil down to these key considerations:

  1. Develop and begin with your forecast business plan including forecasted income statement, fixed and variable costs.
  2. Increase and decrease your income based on sales volumes
  3. Increase and decrease your expenses based on potential changes to fixed costs
  4. Increase and decrease your expenses based on potential changes to variable costs
  5. Create a range of different scenarios bases on changes to income, variable and fixed costs

Scenario Analysis vs. Simulation Analysis

Financial Simulation Analysis looks at abstracted changes to revenues and expenses, without attaching probable cause to them. They simple show what the impact would be to the bottom line when different income and expense variables are adjusted. Sometimes prior knowledge means scenarios can be more specific and this is then referred to as a Scenario Analysis. For example, for a retail operation there may be a clear statistical correlation between footfall and sales. In this case, a financial simulation analysis could look at the impact on footfall of planned construction works in the area, such as the renovation of a pedestrian street. This would help the business reach a decision as to whether it remains financially viable, or advisable, to keep the store open for the duration of the construction work.

If you would like to improve your understanding of business and finance, why not take a qualification such as the CFA® Program. Morgan International offers a number of different professional finance, investment and accounting qualification programs at locations across the Middle East.

CFA

Gain and Maintain your CFA© Charter

By Rebecca Langdon

The Chartered Financial Analyst credential is arguably the most respected investment management qualification in the world. At Morgan, we have helped many candidates undertake the CFA© program and become fully accredited. To enter the program you do not need to have a background in finance, but you need 4 years of relevant experience which might be:

  • A Bachelors degree (or equivalent)
  • Work experience
  • Or a combination of education and professional experience

To become a Charterholder you will need to do the following:

  • Agree to follow the CFA Institute Code of Ethics and Standards of Professional Conduct
  • Pass the CFA© program exams for Levels I, II, and III
  • Have four years of qualified work experience in investment decision making
  • Become a regular member of CFA Institute and apply for membership in a CFA member society

At Morgan we are committed to helping candidates pass the CFA © exams, but we can also assist with finding an appropriate job role via our online platform, Morgan Connect. The platform is available to access free of charge for Morgan alumni who have passed their exams, and it allows reputable employers to post jobs and find sought after qualified talent. As a candidate it offers you the opportunity to network with potential employers who are looking for individuals just like you.

 

Follows CFA Institute Prep Provider Guidelines. CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by Morgan International. CFA Institute, CFA© and Chartered Financial Analyst(R) are trademarks owned by CFA Institute.