In the same way finance builds or breaks the business. It is very necessary in every transaction and operations. Even to start or move or contact with other people money or finance is needed in every nook and corner of the business. That is the importance of finance in business.

And now importance of discipline. Discipline in narrow way looks to be the force drawing backwards but actually it is the one, which holds it firm, sustaining and survivable. It is just like a thread holding the kite down. When we see we feel that the thread is making it to be at down but actually it is the one which makes and makes it flying up in the sky with all the great swings. If the thread of the kite is strong then it can tackle all the swings and twists that would happen in the sky that is in the same way Financial Discipline holds the business in various turns and twists in its business run. Without the Financial Discipline business can’t run smoothly.

For ex:- we have made a decision or a rule to spend 1 crore in a business. But if we exceed it to 1.25 crores then it multiplies to a deficit of in crores with in few years which we will not be able to fill up. That is the reason Financial Discipline is very necessary. When we make a decision or rule to spend some money our stipulated expenditure shouldn’t exceed that decided money.

But another point need to be mentioned here is flexibility in Financial Discipline. Financial Discipline doesn’t mean being very rigid in its rules. A little of flexibility in nature is ever welcome because situations environment are not ever controllable and in our hands it so a little of deviations from the rules already fixed for the new situation or circumstances arrived is not harmful.

With the advent of concept of Financial Discipline the new role or position has become very vital in the modern business. That is CFO-chief financial officer. He has to deal with all the financial matters of the company. With regards to what is the need of finance in the business, where it needs more and more capital, how to generate that finances and use that finance in an effective way. In the area of management reporting, what CFO doesn’t want a firm handle on revenue, P&L, and balance sheet impacts and key performance metrics in real-time, not just at quarter end! But few finance groups has it. Then there’s Microsoft, one of the pioneers, which is well on its way to transforming reporting from a static, scheduled event to one of rapid information access. This lively session unveils the key building block, the Finance Dashboard, and demonstrates how it enhances the visibility and responsiveness of the finance organization.

Under increased scrutiny from investors, employees, and business partners, CFOs are now reassessing critical management processes to control costs, increase value, and improve performance. This session provides clear insights into how best practices can be used to effectively manage risk while also preparing the ground for growth. Learn the benefits of aligning management processes with shareowner interests, combining low cost with effective control, recognizing early warnings of potential problems and opportunities, and effectively measuring ROI on technology investments.

In today’s tight market conditions, when the CFO must allocate resources only to the most promising opportunities for growth, it can make sense to invest in technology that digitizes processes so that front-line decision-makers know the profitability of their customers, products, channels, and facilities in real-time. This session will demonstrate how to take action to improve the underlying drivers of profitability and increase earnings even in a quarter when revenue is flat.

For a business there are a lot many areas where Financial Discipline need to be kept under practice as a part and parcel of the business. They are:
1. Investment management
2. Working capital management
3. Budgetary control
4. Cost control
5. Auditing
6. Corporate tax planning
7. Financial ratioes

First let us start with Investment management. There is a saying with regards to investment management. That is “In investing your money, the amount of interest you want should depend on whether you want to eat well or sleep well.”

The investment objectives are like:
1. Safety- the safety of the principal amount is most important concern. It rules out investments in phony companies and their “khazana” schemes.
2. Liquidity- the second objective is to have liquidity at short notice. If you cannot sell the investment or there is no facility for loan or premature withdrawal, it is not liquid.
A bank deposit is an extremely liquid investment. You can
terminate a fixed deposit even prematurely. You can raise a loan on fixed deposit. But, on the other hand, land and buildings are not liquid investment.
3. Regular returns- the third objective is to generate regular returns by way of interest or dividends. If any special tax advantages are available, it is all the more welcome.
4. Capital appreciation- the fourth objective is to ensure that there is adequate capital appreciation, particularly during the times of inflation. Otherwise, the purchasing power of your money is not protected. The real value of your money should not be allowed to go down.
5. Ability to take risk- the investment program should take into account the risk preferences of the investor concerned. The ability and willingness to take risks in turn decide the risk preference.

Over and above all these factors personal and tax factors need to be kept in mind to have a better investment management.

Second and most important is working capital management. First let us study about the factors influencing the working capital needs. They are:

1. The nature of business: some businesses are relatively more working capital-oriented whereas some are not. Examples: units which use expensive raw materials like special steel, high-value chemicals, petro-products, etc. Some businesses have fluctuating needs for working capital due to seasonality of their operations, e.g. agro-based industries like sugar, cotton-gaining, expeller units, solvent extraction units, etc. Thus the nature of business is a major determinant of the quantum of working capital needed.

2. Manufacturing process, technology and facilities: Working capital needs are also influenced by the manufacturing process, technology and the plant facilities available. If the manufacturing process involves a long production cycle- sometimes extending tyo 12 to 18 months or even more- the working capital needed will be quite high. Examples: ship-building industries, construction industry, heavy engineering and machine tools units.

3. Competitive forces: the forces of competion among the suppliers of goods and services, suppliers of stores and spares, packing materials, etc.-will offer favourable terms to you if there is competition among them.

4. Infrastructure: the abysmal economic and physical infrastructure in India also effects the working capital needs adversely by prolonging the operating cycles.
Transport: Poor facilities at ports; Inefficient air cargo service; Thefts and other malpractice, particularly in the railways and the Bombay docks.
Communications: Inefficient postal services; Hot lines are down most of the time; Difficulty in making telephone calls to factories located away from metros.

The very most important aspect of working capital is cash management. Cash is held in business for three major reasons: To meet current needs such as payments of suppliers bills, dividend payment, tax payment, payment of wages, etc. To gain short-term profits by making investments in short-term securities if there is a temporary cash surplus. To seize any opportunities which may unexpectedly come up. Once in a while, for example, the raw material process may suddenly go down, owing to changes in government policies or supply-demand position, etc.

Cash is something with which every manager wants to play safe.

The normal attitude of managers is to act in a very cautious manner when planning their cash needs. In this process they tend to ask for more cash than may require under normal circumstances. All contingencies, such as a strike or major national transport bottlenecks and a severe demand recession, do not generally take place all at the same time. The cash forecasts submitted by the branch managers should be carefully reviewed with a view to eliminating any unnecessary reserves meant for meeting contingencies which may, typically, not happen under ordinary circumstances.

In addition, it is necessary to install and monitor a system of cash forecasting. Past experience is an invaluable guide in understanding certain patterns of cash receipts and cash payments. Wherever possible income and expenditure should be matched, so those peaks in payments do not precede but follow peaks in receipts. The time lag for collection and banking of cheques may be minimized by requesting customers to directly deposit the cheques in various branches of the company’s bankers, if the company’s operations are spread widely. Management should continuously explore opportunities for short-term investments of surplus money since temporary surplus is unavoidable in any business. The call money market can perhaps provide such opportunities.

The suggestions regarding the better working capital management are as follows:
1. Adequate provisions for working capital in the original project cost: without necessary working capital, your entire investment in plant and machinery may come to naught. Do not allow the unit to suffer for want of working capital. Do not over provide or under provide. Provide adequate quantum of working capital to keep the plant running at optimal levels.

2. Negotiating skills: working capital management involves a lot of negotiating skills in order to get the best terms from your bankers, your suppliers and your customers. Negotiating skills can be developed in a systematic manner to enable you to negotiate the best possible price and the most favorable credit terms.

3. Relationships: working capital management has perhaps more to do with relationships than with money. If you have good relationships with all the concerned parties, you can manage your working capital better.
With suppliers:- your creditability with your suppliers is of utmost importance. You have to honour your commitments on time. personal rapport also goes a long way in developing good business relationships.

With buyers:- you must maintain good personal contacts with your buyers. This will help you in getting your money promptly.

Think of filling cases for collection of debts. Instead, persuade, cajole, and coax. Avoid litigation at all costs. Given the Indian legal process you will only make your lawyer rich and your debtor defiant.

4. Monitoring: Working capital management is an area, which requires continuous monitoring. If you shackle your efforts, things can immediately go wrong. Inventories can accumulate, debtors mount up, bank account become irregular and you may run out of cash. You cannot afford to lose your grip. Constant monitoring is the key word. Keep at it. Day in and day out.

Role in the working of the business thus a great care needs to be taken in case of working capital management. So CFO should be very careful in managing the working capital of the org as it has got a direct effect on the administration and working of the day to day in organization.

The important aspect of the Financial Discipline is Budgetary control. Budgetary control is an effective tool with which we can maintain the Financial Discipline in the organization. Budget is financial decision with regards to the expenditure and incomes in the particular year. An organization is supposed to work with the figures that are fixed in the budgets for that particular year. There are some managers who seem to think, “ the budget is an annual game to be carefully played with the accountants, and to be completely forgotten once the figures have been agreed upon”. There are several organizations where “ the budget is conceived as advice strictly for the use by boss in holding people’s feet to the fire”. The purpose of effective budgetary control is not fully served in either of these situations.

Budgetary control is a powerful system, which should be tactfully used to infuse dynamism, not suffocation, into an organization. It can be successfully developed, installed, and implemented only if all the concerned mangers actively participate in the preparation of meaningful budgets.

Need for budgeting:- budgeting is an alternative to groping in the dark, managers who dislike budgets, are those who to loll after they leap. The companies, which do not have budgetary control, may survive by accident, like ships without compass, It is true that companies were making profits before the arrival of all the chartered financial analysts, chartered accountants, M.B.A’s, industrial engineers, and others. But the fact is that times are changing fast; and risks and uncertainties are increasing day by day. Gone are the days when a company in Pune could produce scooters and sell them to the customers on the waiting list. Nowadays, no company, however big or small, can afford to walk blindfolded, if it is genuinely interested in survival and growth.

Budgetary control compels the management to translate its intentions into quantitaive and monetary objectives. In the absence of a sound system of budgeting, the Managing Director may hope to increase the profit after tax by 10% in 1991, whereas it may, in fact, come down by 5% as a result of certain built-in constraints, which could have been easily revealed by a good system of budgetary control. The best way to realize the full potential and sort out the problems is to fit them into a budge. Inherent strengths come out, as hidden problems surface. A sound budget is a bridge to fill the gap between ambition and achievement of the management.

Finally, the budget is today’s commitment for tomorrow’s action. Since every organization exists today to fulfil tomorrow’s commitment, it is necessary to commit its resources- men, material, money, machines, and methods- today, and not at a future date. If there is no budge, there is no systematic commitment of these resources to produce the desired result to fulfil tomorrow’s obligations of the company. It becomes difficult, futile, and too late to assign responsibility for unsatisfactory future performance, if there is no agreed budget today.
Features of budgetary control system: Future oriented: Budgets are prepared for a defined future period. A good budget has to be developed with the help of past, present and future trends in sales, costs and profits. However, it should be remembered that a budget should not become a mere mathematical or statistical exercise. It should essentially be management exercise, wherein business experience must have precedence over financial algebra. Integration with the corporate plan: budgets should be backed by well-defined corporate policies. Budgetary control should become an integral part of the overall corporate plan of company, a budget which is integrated with a corporate plan for five years and then carve out the operational budget from the first year of the corporate plan, this practice should be continued, year after year. Key-factor analysis: a key factor in business is that one important aspect ;which constrains the activity of the company as a whole. The key factor in many businesses tends to be the level of demand and sales.

A budget should evolve around the key factors in a particular business, every business has a set of key factors, which limit the level of activities. These key factors should be correctly identified and diagnosed. Budgets will be meaningful only when the key factors are considered in depth. If sales level is the key factor, first of all the sales budget should be prepared; and then only the other budgets. If, on the other hand, plant capacity is the key factor, the production budget should be prepared first.

Another important aspect of Financial Discipline is Cost control. If we want to increase our profits there are two ways, one is to increase sales and other is reducing the expenses or costs. That is what we are going to study now i.e., effective cost control systems.

Many companies hire the best available consultants to install a scientific system of cost control. In government many committees are appointed to suggest ways and means of cost control. However, we find that in actual practice these cost control programs often fail hopelessly – not because the system of cost control is badly designed. Although the reasons for the failure of such cost control programs may be many, we are identifying the more important ones so that necessary remedial actions can be taken.

Failure to integrate the technical system with the social system: Management tend to perceive cost control schemes merely as technical systems. After all, the success of this technical system depends largely upon the help and co – operation coming from the social system in the organization, namely the people. Effective human participation is essential to implement any cost control program successfully, if the willing cooperation of the people, on whom the cost control system is “imposed”, is not forthcoming, even the best cost control system designed and installed by the best consultant is bound to fail.

Failure to motivate people to reduce costs: real and substantial savings from reduction in costs can come not when people are threatened with punishments, but when they are motivated by incentives, promotions, and increments. Highly motivated people can go on their own, searching for avenues to reduce costs,. Those who are not motivated always offer a hundred and one excuses as to why costs are already at and irreducible level. The best way to tackle such, as situation is not to issue threats, but to motivate them for higher productivity. Threats can yield only temporary results.

Failure to specify cost control objectives clearly and look at the organization as whole: without specific objectives, performance cannot be measure; without clear goals there is nothing to strive for. The objectives and goals should be realistic and flexible to change when conditions change.

Employees should be permitted to participate in setting up the objectives. Display of performance measurement motivates the employees towards greater cost control. You should look at the total organization in any meaningful effort at cost control. Otherwise, there is danger of costs being pushed from one department to another. For example, cost control on purchases may lead to buying inferior quality material that will lead to more manufacturing time and higher wastage in processing.

Failure to overcome employees’ resistance: people always resist change; but they may not resist it if the change is for the better changes work best when employees have a part in planning them. When it is not possible to share the decision making, resistance can be reduced by convincing the employees about the likely benefits arising out of the changes. Full information about the proposed changes can reduce fear and resistance.

Cost control is not just an advanced financial technique, it is a delicate human relations exercise, the success of cost control lies not in calculating detailed variances and preparing upto date reports alone. It lies in developing standards for which the people in the organization will have acceptable to all concerned, the remaining part of the exercise, namely the variance analysis is purely mechanical, the managerial part comes once again at the time of fallow – up action. How many times have you pulled up people for mediocre and poor performance? How many times have you sincerely appreciated it when your subordinate has done a good job? Have you at least cared to pat him on the back? The real key to success is here – not in your techniques alone.

Failure to set priorities for cost control: priorities are not properly recognized. First things should come first. If we are making great efforts to save the cost of pencils when there is soaring too – breakage cost, we are, in fact, fooling ourselves. A Company must make an ABC analysis for implementing cost control programs. Always remember the Pareto’s principle also known as 80/20 rule): 80 percent of the activities contribute to 20 percent of the results. It is the balance of 20 percent of the activities, which contribute to 80 percent of the results. The principle applies well in cost control plans also.

Failure to have a continuous program: efforts to control costs must be continuous. A planned and continuous attack on costs achieves better results than an annual crash program to control costs, annual crash plans can o9nly create an adverse impact on emplyeee morale and yield extremely temporary results.

In the words of Peter Drucker, the annual cost reduction drive is as predictable in most businesses as a head cold in spring . It is about as enjoyable, but six months later costs are back where they were and the business braces itself for the next cost reduction drive.

Failure to focus on quality improvement: several companies have realized that the primary source of cost reduction lies in quality improvement. If your costs will drop dramatically through improved customer satisfaction and reduced after – sales service problems. Absolutely zero defects. 100 percent satisfaction.

The success of Japanese companies in consumer electronics, passenger cars, domestic appliances, office equipment, photo cameras, etc., lies in quality improvement. They produce the best quality, obviously at the lowest cost; the customer is just looking for the “Made in Japan” label. He wouldn’t question the price.

The moral of the Japanese success is focus on quality, better quality and best quality. Your costs will drop and profits will rise.

Another important aspect Financial Discipline is corporate tax planning. It is quite essential activity to be taken up by the corporate society people.

Paying tax is not a natural instinct like eating or sleeping. Unlike the land tax, which has been there since time immemorial, income tax is relatively quite young, less than a hundred years old. Hence if mankind is still not very used to paying income tax, its unfamiliarity is, perhaps, more to be blamed.

Since its inception, the income tax act has been amended thousands of times and rendered one of the most incomprehensible legislation man has to deal with. Totally confusing tax legislation administered by corrupt system provides the ideal breeding ground for tax evaders and tax evaders.

Tax planning is often confused with tax evasion and tax avoidance. At the outset let us be clear about three different methods of saving on taxes:
Tax evasion is illegal. Tax is saved by suppressing the income and by increasing the expenditure and reporting lower profits.
Tax avoidance is a method whereby loopholes in the tax laws are exploited to the advantage of the assesses.
Under section 88 HHC, 100% tax exemption is available of income from exports.
Tax planning is a perfectly legal method, both in spirit and letter. The financial activities of the assesses are so organized that the maximum possible tax incentives and benefits are availed of.
The first method, namely tax evasion, is unquestionably deplorable and deserves to be condemned.

But there is a considerable controversy about the second method; namely, tax avoidance. Even judicial opinion is sharply divided on this issue. However, it is being realized, by and large, that exploiting legal loopholes is not an act of good citizenship.
The third method is quite legitimate and deserves to be studied. There are two basic assumptions of legitimate and honourable tax planning:
All the relevant facts are made known clearly to the tax authorities; no material information is deliberately concealed with an intention to defraud; and
?There are no false transactions or make – believe devices in order to circumvent the legal provisions.

Form of organization: the rate of tax payable depends upon the form of business organization – whether it is a widely – held company or a closely- held company. A widely – held company pays tax at a lower rate. To become a widely – held company, the shares of the company should be offered to the public and listed on a stock exchange.

Capital structure: interest payable on debt is tax deductible expenditure, whereas dividend on equity is not. Hence, the proportion of debt and equity in a given capital structure has an impact on the average cost of capital. A higher debt component results in lower average cost of capital for profit – making and tax – paying company.

New business: when a new business is set up(whether by a new company or by an existing company), several tax – related benefits are available – like additional depreciation on new equipment, investment allowance, partial tax exemption of profits from new business under certain circumstances etc.

Takeover of sick units: when a healthy and profit making unit takes over a sick unit with accumulated losses, the losses of the sick unit can be ser – off against the profits of the profit – making unit. Thus, the profits of the healthy unit get tax – sheltered.
Research and development: the R&D expenditure incurred for in – house facilities, or outside the company are permitted as deduction. There is a prescribed procedure to get in-house R&D centre approved for this purpose.

Investment of surplus funds: incorporate dividends are 100 percent exempt from tax(under certain conditions). If surplus funds are invested in 9 percent tax free bonds issued by public sector undertakings, the effective yield (taking tax exemption into account) goes up tp 15 percent. Many cash – rich companies are using the of UTI as a tax- planning device.

The other important aspect to Financial Discipline is Auditing. Auditing is a process of checking the accounting records for acccuracy of the records. This is compulsory for limited companies whether it is private limited company or public limited company.

These audits which are compulsory for public companies under the Companies Act consist of the annual audit of the accounting records as an assurance to the shareholders that they have been properly prepared and reflect the correct position. In a sense these audits assist the overall controlling by providing a check the accuracy of the records. Thus this control is provided in the form of an independent auditor examining the company’s financial statements, particularly the Profit and loss account and Balance sheet. A good auditor can in the course of his audit work develop useful suggestions on business matters generally as well as with regard to improving the effectiveness of policies, procedures and controls, particularly in the light of his experiences with so many other companies.

Internal auditing is another control tool available to management for Financial Discipline. In the narrow sense, internal auditing refers to the checks provided by the organization’s own people, or a staff of internal auditors, on the accounting policies, procedures and controls adopted by the organization. It is different from the normal outside auditing performed by external auditors who perform post audits. Although the expression is often limited to the auditing of accounts, it is better considered from a managerial angle as a tool for checking and controlling and operations generally. The internal auditors should not only confine themselves to appraising whether the accounts are accurately kept to reflect the facts, but should also appraise policies and procedures of management with regard to the quality of management, the use of managerial authority as well as whether controls are adequate and effective.

The main objective of the internal auditing function is to assist management’s day – to – day follow – up and control made so necessary through decentralization or delegation of authority and responsibility. However, it cannot be substitute for a discharge of managerial responsibilities, as supervisors at all levels cannot abdicate their own responsibilities of follow – up and control. In this sense, internal audit should be viewed as an organized approach for supplementing the day – to – day supervision by line supervisors.

Profit and loss account analysis is quite popular for measuring the overall performance as it indicates the gross income, the deductions and the final net income. As figures of the previous year can also be indicated, the trend in the different items could highlight the deviations. Theses could then be studied for evolving the remedial measures, where necessary. In the same way, comparitive balance sheets can be used for controlling overall performance.

A better technique than comparing absolute figures for gauging the efficiency of the company’s operations over a period of years with regard to its own performance or on an inter – firm comparison basis, would be to convert the accounting information into the form of ratios or percentages. Ratio analysis is a method of presenting and analyzing in arithmetical terms the relationship between figures as the ratio gives the numerical relationship between two numbers. Often it is more useful to convert the ratio into a –percentage by expressing the relationship in hundreds. Ratios “discreminately calculated and wisely interpreted can be useful tools of analysis”.

Next, your books have many of the answers that you need to succeed, and most schools are able to present a great deal of the research as part of the program, when referring to the corporate finance essay. This is because the corporate finance is difficult to develop research for, as most organizations do not want to share information from their work environment, regarding incoming finances. This type of information should be carefully handled when answer your instructor’s requests for information, most students will ask before the assignments is started, in this way, you know that are demonstrating best practices in the papers you send into your school. You will be successful at writing the best corporate finance essay by using your instructor’s syllabus and rubric to evaluate the needs of your essay.

If your instructor has provided you with a syllabus and a rubric that gives you information regarding this assignment, it is essential to read this information carefully before beginning your assignment. Most assignments are done incorrectly because the student has not read the materials for the course or the requirements of the assignment. This is the easiest problem to solve and should be a first step in all assignments for all courses throughout your education.

The second most common error that students make with developing International finance essays is forgetting the significant role that laws play in influencing the interactions between countries – it is not just each countries domestic laws and policies that play an important role – but also neighbor countries and international policies. Establish the parameters of your assignment and review the information found online and in your school’s database while writing your essay. It is very important to understand the needs of your assignment in order to prevent gathering too much information that you will not need.

If you are unable to determine an idea from the corporate website of the organization, you can often check your school’s database for financial information on the organization; from there you may also find opportunities for improvement. You could develop possible suggestions on how to use the finances more successfully, or ways to increase industry leadership through proper project funding. It is possible that you will not gain enough information from either of these sources to develop a solid idea. Visit the rest of the database and see if you can find articles that advice other suggestions or reporters who have criticized the organization. How might you have handled the situation mentioned differently?

Finally, your best ideas are often ideas that you personally are interested in; however, the must still represent the learning in your course. If your course is regarding global financial situations, it is not good to focus on an organization that is not globally active unless you will be demonstrating how they can become a global entity.

Many educators will have finance students develop finance essay writing ideas that revolve around the ethical needs of finance department in organizations. This is developed to increase the awareness of your learning to that of social and economic demands around you. As many students are aware, a number of finance issues have arisen in the past 50 years, and extensively in the past two decades, that address the need for responsible teams in the finance departments. These needs include the ability to keep excellent records and make sound judgments that fit into the current ethical environment and keep honesty as the strong point within an organization. These issues make excellent sources for essays when the instructor has not assigned a specific topic for the finance essay.

In addition, finance essays often describe circumstances that will be encountered or describe what types of formulas and paperwork must be developed for different situations. You can develop a great finance essay by considering how the different topics in class could be applied to your current work environment, or possibly even to your daily life – such as finance regarding saving money or purchasing a house. Each different idea will demonstrate the work you have done in class as well as application of it to other areas of life. All these tips and guidelines will help you to write a good Finance essay in your school, college and university.

Another important aspect when writing your Finance paper is to clearly define what purpose each item you select as research will serve in your paper. When you refer back to a source, explain what it has to do with your Finance thesis topic and your topic statement. Is there something about this particular study that makes it more applicable than other studies? Is there something this particular author has said that is more relevant that works by other authors? Embrace these questions because they will strengthen your research and allow you to keep all of your information consistent with your topic development.

Finally, your Finance thesis paper is a piece of work that demonstrates your critical thinking methods, your ability to think “outside the box,” and even your ability to apply knowledge you have gained within the classroom. Consider items from your textbooks, your readings, and even your instructor’s lectures as items that may be relevant to your work. A little work each day, and you will be on your way to thesis success.

Background
The history of Merck & Co., Inc. can be tracked back to 1668 in Darmstadt, Germany, when Frederic Jacob Merck opened a chemical company. In 1891, distant relative George Merck decided to relocate to the United States and set up Merck & Co., Inc. in New York. His original U.S. enterprise focused on chemicals sales; in the early 1930s, Merck & Co., Inc. began its pharmaceutical studies (History of Merck, 2003). The merger with Sharp & Dome to form Merck Sharp & Dohme (MSD) in 1953 established a solid foundation for a fully incorporated, multinational manufacturer and distributor of pharmaceutical products. For the duration of the past six decades, Merck & Co., Inc. has assembled a global research company that ranks among the best worldwide in terms of the talent of its scientists and advancements in medical research. Today, Merck & Co., Inc. has about 70,000 employees in 120 countries and 31 factories worldwide. Merck’s products are sold currently in more than 200 countries (History of Merck, 2003).

Merck has been on the forefront in drug production and research. Currently the company has six drugs that bring in 60 percent of its pharmaceutical revenue. These are as follows: Vioxx, a medication for osteoarthritis and acute pain; Zocor, a cholesterol-modifying medication; Cozaar and Hyzaar, high blood pressure medications; Fosamax, a treatment for postmenopausal osteoporosis; and Singulair, an asthma control medication. For the past five years, Merck has been on a steady rise with sales (see Figure 1) as well as research and development allocation of funds. Within this time, Merck has developed many new drugs that have advanced their net income and earning potential. Despite many forces working against Merck, the drug maker’s performance has remained amazingly firm. The patents on some of its most profitable products have terminated, transferring sales of those drugs into free fall because of generic competition. At the same time, some of Merck’s blockbusters, including the $5.6 billion cholesterol drug Zocor and the $2.3 billion osteoporosis treatment Fosamax, have continued to grow helping Merck attain high sales for 2002.

Year Amount ($millions)
2002 $51,790
2001 47,716
2000 40,363
1999 32,714
1998 26,898
Figure 1: Merck & Co., Total Revenue, 1998-2002 (Investor Information, 2003)
One particular business item has brought Merck a plethora of recent media attention. In 1993, Merck & Co., Inc. acquired Medco Containment Services, Inc., the leading pharmacy benefits management company in the United States, and renamed the limited liability company Merck-Medco Health Care (Multex Investor, 2003). As a subsidiary of Merck, Medco Health grew to become the nation’s leading pharmacy benefits management (PBM) company, providing integrated prescription health care to 62 million Americans. “Together, Merck and Medco Health have enjoyed 10 years of growth and success. Medco Health increased revenues from $2.2 billion in 1992 to $33 billion in 2002, and last year, filled or processed approximately 548 million prescriptions” (Merck, 2003). Recently however, Merck successfully completed the spin-off of 100% of the outstanding shares of the renamed Medco Health Solutions, Inc. common stock to Merck stockholders. For the sake of simplicity, however, all financial information regarding Merck in this paper includes Medco data as well.

Financial Ratio Analysis of Merck & Co.
Financial ratios are an integral part of assessing a company’s overall business health. According to Block and Hirt (2002), “Financial ratios are used to weigh and evaluate the operating performance of the firm.” They list several important ratio calculations in four categories: profitability, asset utilization, liquidity and debt utilization. Several of these primary ratios in each category can be used as a partial assessment of Merck’s operational stability over the past 3 years. All data used to calculate these ratios was collected from the annual 10-K form provided by Merck (2003) to the Securities and Exchange Commission (SEC).

Profitability Ratios
Simply stated, profitability ratios are a measurement of a firm’s efficiency in making money from sales, assets and invested capital. A company that cannot adequately use its financial resources to make a profit for its owners (stockholders) cannot remain competitive in the market. Three profitability ratios mentioned in Block and Hirt are profit margin, return on assets (investment), and return on equity. All three ratios express the net income of a firm as a percentage of some asset measurement.

A firm’s profit margin equates net income to sales. The equation for profit margin is defined as follows: Profit Margin = Net Income / Sales (or Revenue). This ratio indicates what percentage of total revenue is actually retained after subtracting out operating costs and income taxes. The closer the profit margin is to 100%, the more efficient a firm is at using its capital to generate revenue. In Figure 2, the profit margin for the 2002 was 13.8%, down from almost 17% in 2000.

Return on assets (investment) (ROA) is used to gain information on how well a firm makes money off its investments.

The equation for ROA is stated as follows:
ROA = Net income / Total assets. Similar to the profit margin ratio, a higher percentage indicates an increased ability to use assets to generate further profits. For Merck, their ROA for 2002 was 15%, down two percentage points from 2000 (Fig. 2).

The last profitability ratio introduced is Return on equity (ROE). Stated mathematically as ROE = Net income / Stockholder equity, this ratio measures the effectiveness of the firm to make money compared to that of the owners’ (i.e. the stockholders) own return. As with the previous two measures, the higher the ROE, the more efficiently the company can take stockholder earnings and generate even more profit for them. Unfortunately for Merck, their ROE has dropped 15% in the last two years, to 39.3% in 2002 from 46% in 2000 (Fig. 2).

2002 2001 2000
net income $7,150 $7,282 $6,822
total revenue $51,790 $47,716 $40,363
total assets $47,561 $44,007 $39,910
stockholder equity $18,201 $16,050 $14,832
profit margin 13.8% 15.3% 16.9%
ROA 15.0% 16.5% 17.1%
ROE 39.3% 45.4% 46.0%
Figure 2. Input data and profitability ratios for Merck & Co., 2000-2002 (all dollar figures in millions).

Asset Utilization
A related category to profitability ratios is asset utilization ratios; they are both used to measure the efficiency of a firm to utilize resources towards making money. Where profitability ratios measure efficiency as a return on resources, asset utilization ratios measure the swiftness in which a firm can utilize assets. Three asset utilization measures are receivable turnover, inventory turnover, and total asset turnover.

Receivables turnover is simply a measure of how quickly a company can covert money owed from sales into actual cash. Although accounts receivable are considered short-term assets, it is still a promise from customers to pay, and not actually money in the bank.

The equation for receivables turnover is as follows:
Receivables turnover = Sales (credit) / Accounts receivable. (Although it is conceivable that pharmacies and other drug dispensaries might pay cash up front for pharmaceuticals, it is highly unlikely that this would occur, and as such, the assumption made is that total revenue is entirely on credit.) The higher the number generated, the faster a company is at collecting money owed. For Merck in 2002, the receivables turn rate was 9.5 times, up from 8.0 two years earlier (see Figure 3); this indicates that Merck is improving on its ability to collect receivables owed.

The next asset ratio, inventory turnover, measures how swiftly a firm can dispense of its inventory. A firm that can effectively turn its inventory at a rapid pace (relative to the industry) will earn revenues faster than others will. As with receivables turnover, the higher the number, the faster the firm is exhausting inventory. The equation for inventory turnover is as follows: Inventory turnover = Sales / Inventory. For Merck, the inventory ratio for 2002 was 15.2 times, a 13% increase from 2000 (Figure 3).

Finally, total asset turnover is an indicator of how swiftly a company can use its assets to generate profits; it is the closest in relation to profitability ratios (total revenue versus net income). As with the previous two ratios, the higher the asset turnover, the better a company is at producing money with its assets. The equation for total asset turnover is as follows: Total asset turnover = Sales / Total assets. For Merck, the 2002 total asset turnover rate was 1.1 times, and fairly stable across the time measured (Figure 3).

2002 2001 2000
Total revenue $51,790 $ 47,716 $40,363
Accounts receivable $ 5,423 $ 5,215 $ 5,018
Inventory $ 3,412 $ 3,579 $ 3,022
Total assets $47,561 $ 44,007 $39,910
Receivables turnover 9.5 9.1 8.0
Inventory turnover 15.2 13.3 13.4
Total asset turnover 1.1 1.1 1.0
Figure 3. Input data and asset utilization ratios for Merck & Co., 2000-2002 (all dollar figures in millions).

Liquidity Ratios
Although a firm may generate revenues and collect accounts due from its customers, it must also be able to meet its own financial obligations. The ability of a firm to satisfy its own short-term obligations is the focus of liquidity ratios. These ratios reflect the amount of financial capital a company can (in theory) produce “on the spot” to satisfy its own creditors. The two most popular liquidity ratios are current ratio and quick ratio, and these are popular ratios with financial analysts.
The current ratio is a measure of a firm’s current (i.e. short-term) assets as compared to its current liabilities.

The equation for a firm’s current ratio is as follows:
Current ratio = Current assets / Current liabilities. The higher the current ratio, the better placed a company is to meet its financial obligations. Although not definitive mathematically, many bankers, creditors and analysts believe that a current ratio of at least 2 (i.e. two times assets to liabilities) is necessary for a firm to be considered a good credit risk. The current ratio for Merck for 2002 was 1.2, down slightly from 2000 (see Figure 4). Merck thus has liabilities roughly equal to its assets.

To determine better the ability of a company to come up with money quickly, some analysts prefer to use the quick ratio. This ratio disregards inventory (which for some industry may take months to move) as well as prepaid expenses (which cannot be recovered in many cases). The only current assets considered for the quick ratio are cash, marketable securities, and accounts receivables. The equation for the quick ratio is as follows: Quick ratio =Quick assets / Current liabilities. For Merck, the 2002 quick ratio was 0.9, down from 1.1 in 2000 (Figure 4). (Inventory was the only non-quick current asset listed in its balance sheet.)

2002 2001 2000
Current assets $14,834 $12,962 $13,353
Inventory $3,412 $3,579 $3,022
Current liabilities $12,375 $11,544 $9,710
Current ratio 1.2 1.1 1.4
Quick ratio 0.9 0.8 1.1
(where Quick ratio=(current assets-inventory)/current liabilities)
Figure 4. Input data and liquidity ratios for Merck & Co., 2000-2002 (all dollar figures in millions).

Debt Ratios
Similar to profitability and asset utilization ratios, debt ratios are related to liquidity ratios. Analysts might speculate that a highly indebted company will most likely have greater difficulty meeting its own financial obligations (although this may not always be the case). An investor will be hesitant to issue further debt to a company that already carries a large debt load. Miegs et al. (2001) state that a large debt load can actually be favorable for a firm, if that firm is using its debt as leverage, i.e. reinvesting debt at a higher rate of return that the interest rate on the credit. For these reasons, debt ratios are popular especially with bankers and other long-term investors as well as financial analysts. The main debt ratio is known often as the debt ratio, or as debt to total assets. The equation for the debt ratio is as follows:
Debt ratio = Total liabilities / Total assets. The higher the debt ratio, the more debt a firm carries; as stated previously, this may not necessarily be a bad thing. The debt ratio for Merck in 2002 was 61.7%, down slightly from 2000 (see Figure 5).

2002 2001 2000
Total liabilities $29,361 $27,957 $25,078
Total assets $47,561 $44,007 $39,910
Debt to total assets 61.7% 63.5% 62.8%
Figure 5. Input data and debt ratio for Merck & Co., 2000-2002 (all dollar figures in millions).
Comparison with two other major drug companies of comparable size.

In order to determine how Merck & Co. compared with the pharmaceutical industry we chose to compare some financial ratios of Merck & Co. to those of Pfizer and Johnson and Johnson (J & J). All three companies are on the Dow Jones Industrial Average top 30 list, and have comparable operating revenues (see Figure 6). For the profitability ratios we chose to compare based on the profit margin, return on equity and return on assets. For liquidity ratios we chose to compare based on the current ratio. Finally, for the debt utilization ratios we chose to compare the debt to total assets ratios. Herman Saftlas, for Standard & Poor’s Corporation (2003) compiled all data used for these comparisons. We do not intend to present these ratios as an “invest/do not invest”, but only to compare aspects of Merck & Co.’s financial performance to the performance of a few of its peers.

Company (Ticker Symbol) 2002 2001 2000 1999 1998
Merck (MRK) 51,790 47,715 40,363 32,714 26,898
Pfizer (PFE) 32,373 32,084 29,574 16,204 13,544
Johnson & Johnson (JNJ) 36,298 33,004 29,139 27,471 23,657
Figure 6: Operating Revenues for Merck & Co., Pfizer and Johnson & Johnson, 1998-2002 (all figures in millions of $).

Reviewing the profitability ratios for the three companies, it becomes clear how easily the individual numbers can disorient a potential investor. For ROA, ROE and profit margins, all three companies are performing above the industry averages, although to varying degrees (see Figure 7). Comparing Merck to Pfizer and J & J, one trend becomes apparent: for all three ratios, Merck has shown a decline in the past three years, while Pfizer and J & J have shown increases for the same period. The industry as a whole has retained a stable ROA and ROE for the last three years, while showing an increasing profit margin. Thus, it seems that in comparison to two similar companies, as well as to the industry, Merck has not performed adequately in using its assets to make money.

ROA (%) ROE (%) Profit Margin (%)
Ticker Symbol 2002 2001 2000 2002 2001 2000 2002 2001 2000
MRK 15.6 17.4 18.1 41.7 47.2 48.6 13.8 15.3 16.9
PFE 21.5 21.3 13.7 48 45.1 29.8 28.4 24.2 12.6
JNJ 16.7 16.2 15.9 28.1 26.3 27.4 18.2 17.2 16.5
Industry Avg 13.1 13.3 13.1 28.2 28.5 28.5 18.6 16.9 15.9

Figure 7. ROA, ROE and profit margin for Merck, J & J, and Pfizer, 2000-2002.

Merck’s current ratio for 2002, 1.2, has been up and down since 1996, but, overall, it has been on a decline (see Figure 8). This was below the industry average of 3.3. Pfizer has a current ratio of 1.3 and has not had much variation for the past several years, whereas J & J has had an unsteady rise and fall in their current ratio, which is currently at 1.7. The current ratio for the industry has fallen in the last few years; however, the ratio itself does not indicate whether the decline is due to increasing short-term liabilities or decreasing short-term assets for the industry as a whole. Merck has nonetheless retained stability, as has its two peer companies, in its overall short-term assets and liabilities, and should have less issues compared with other companies in covering its financial obligations.

Ticker Symbol 2002 2001 2000
MRK 1.2 1.1 1.4
PFE 1.3 1.4 1.4
JNJ 1.7 2.3 2.2
Industry Average 3.3 3.5 4.5
Figure 8. Current Ratios for Merck, Pfizer and J & J, 2000-2002.

In terms of long-term debt and assets, all three peer companies seem to exhibit different profiles. For Merck, the debt ratio has remained fairly constant, with a slight upward trend; for J & J, an opposite slow downward trend is true. Pfizer on the other hand has either increased its long-term liabilities, or decreased its total assets, twofold; this is more like the industry as a whole. Perhaps the variability in the debt ratio for the three companies as well as the industry signals confusion within the industry as to whether taking on the risk of extra debt will ultimately pay off for the companies as well as the industry in this weakened economy. For Merck, it seems that the company would rather remain conservative compared to the industry in terms of increasing debt; other companies in the industry may feel similarly, however it would seem most are willing to add additional debt to their capital structure.

Ticker Symbol 2002 2001 2000
MRK 16.3 17.6 14.6
PFE 13.4 12.2 6.4
JNJ 8 8.2 9.7
Industry Average 28.6 22.9 18.4
Figure 9. Debt-to-total asset ratios for Merck, Pfizer and J & J, 2000-2002 (in %).

Conclusion
Any person with even cursory finance experience can appreciate the fact that a few simple financial ratios do not define the stability of a company nor its overall attractiveness to potential investors in a comprehensive fashion. In order to evaluate fully the ability of a company to maximize its shareholder wealth, the wise investor will also delve deeply within the company’s financial reports, as well as external analyst evaluations and historical company performance, to name just a few sources of information. However, financial ratios for a given company, especially when compared with peer companies within the industry as well as the industry itself, can provide a quick snapshot of the company, and any glaring issues that might hinder the effectiveness of a company to attract revenue. Although Merck is a stable company within the major pharmaceutical industry, a quick scan of a few financial ratios provide evidence that it is perhaps lagging behind its peers in terms of profitability, and is hesitant to take on additional financial risk compared to the industry. Further research into these areas would be wise for any future investor.

Weisbord proposes his Six-Box model as a diagnostic framework for organizations. He expresses that a blip in any one box cannot be managed independently of its relationship to other boxes. However, six potential starting places give you alternatives when choosing an improvement strategy (Weisbord 1978).

Let us analyze the purpose of the organization. What business is ACS State and Local Solutions in? The organization is in the business of helping people to achieve self-sufficiency, and to process childcare checks on a timely manner to ensure a better quality life for children. Both contracts are with Miami Dade County, the first is twelve million dollars with one hundred forty five employees and the latter is a sixty five million dollars and a staff of forty-five.

That is the “what they have to do”; however when ACS State and Local Solutions what is “what they want to do”: the staff shares the desire to become the best provider offering social services for Miami Dade County.

Goals are not a point of concern for ACS State and Local Solutions; the staff has clarity and understanding of the goals. They are set by the funding agency and neither external nor internal mechanisms can modify the goal.

The company has a functional structure: One Project Manager and under him, the Operations Division and the Finance and Administration Division. The Human Resources Department and the Contract Department report to Finance, not to the Project manager. There is decentralization from the corporate office, this one of the requirements to be a service provider for the funding agency.
Weisbord indicates blips show up in three different areas of the relationship box: people, units doing different tasks and people and their technologies (Weisbord, 1978). The diagnosis shows conflict in the relationship area.

The Project Manager tries to get everyone involved but avoids confrontations at all cost. After applying Weisbord’s Leadership box to ACS State and Local Solutions the radar goes off between the relationship and leadership box. Part of the problem is the main leader, the project manager. His leadership style is more of a visionary than anything else.

He decides which mountain to climb but he gets too involved in the climbing process. His constant asking other for ideas and answers creates a great deal of anxiety for him and his subordinates. The diagnosis detects conflict between the leadership style and the organization style.

The relationship between the Finance Department and the Project manager is a forcing conflict-management. The diagnosis shows an aggressive management style for the Finance Manager; many times she gets clearance from the funding agency directly without informing the Project Manager. Later on when the Project Manager contacts the funding agency to share the memorandum he is planning to develop to address pressure issues; it is through the funding agency he finds out of the doings of his Finance Manager.

This creates a political, cultural and technological conflict. It shows lack of alignment within the three systems (Tichy, 1982). Another blip detected in the Leadership and Relationship boxes. The Project Manager and the Operation Manager tend to have a cohesive relationship. There is agreement between their programmatic and operational agendas. However, issues are pushed aside, and big decisions pile up at the top. Conflict is created at a structural level.

The findings show the two managers (Finance and Operations) need something from each other; there is cooperation and understanding among them. They have conflict when they have to deal with personnel issues.

The fact that Human Resources reports to the Finance Department, takes away objectivity to the process. The Human Resources clerk does not have the authority to make decisions and the Finance Manager has the last word on Human Resources issues.

The conflict comes from structural differences. The Project Manager and the Finance Manager have low-trust, there is frequent misunderstanding, and only one feels that needs from the other. The conflict comes from poor interpersonal skills and absence of coordination.

The Rewards Box evaluates if there are incentives for doing all that needs doing. There is no budget allocation for Staff Development, which hinders the organization at a local level. However the company offers one hundred tuition and books reimbursement, medical insurance, short term disability, life insurance worth the individual’s salary, stress management program, pet insurance and 401k plan.
The pension plan is matched up to four percent. Vision, dental and long-term disability are offered at a minimum cost. ACS State and Local Solutions values its employees’ referrals. After a new employee has been working for ACS State and Local Solutions for six month, the referring employee gets a five hundred dollars bonus. Nine sick days, ten days vacation and eleven holydays. Three weeks vacation after five years of employment. Yearly merit increase is based on the performance appraisals.
The last contract year ACS State and Local Solutions achieved outstanding performance and was awarded a performance bonus of six hundred thousand dollars. The company is planning to take one hundred thousand dollars and use it for cash bonus for employees. The bonus amount will be determined by the employee’s performance appraisal.

ACS State and Local Solutions has many mechanisms in place, but how many of them are really coordinating the technologies for the group reporting to the Central Office?

Policies and procedures is very strong in general for ACS State and Local Solutions as a corporation, however the mechanism is poor at the local level for two reasons: first, the Project Manager calls Austin, Texas to share the situation at hand every time. He also likes to have for sure Finance and Operations Departments in the room every time. That process takes time and it is frustrating. Austin, Texas expects for him to call with decisions already made and it does not happen. After the phone call, he spends time with his team making sure everybody understood what he thinks Austin, Texas wants. There is no a formal meeting for the group on a weekly basis.

They could end up meeting five times in a day informally. The Project Manager walks into his staff office and calls a meeting. The Operation Manager tries not to schedule meetings with her staff in the Central Office. The group does not appreciate it; the environment is not productive or relaxed.
Tichy’s indicates an organization could be seen as a rope made up of three different strands. Each strand represents political, technological, and cultural systems (Tichy, 1982).

The assessment shows the strong and weak areas. It also suggests certain immediate changes and others that could be taking care of by implementing corrective active plans. The following strategies are only a proposal, since it is in ACS State and Local Solutions’ hands to decide which of the following it deems as a fix for them. Unless the organization feels comfortable and open to try new methods, the outcomes would not be positive. Forcing and pretending change do not work.
ACS State and Local Solutions could benefit from a more decisive style of leadership. A weekly meeting with managers to decide on the two main priorities for the week could be beneficial. It would develop in a problem solving meeting as well. Which priorities are achieved could be monitored and a quarterly analysis could be created to track progress.

Human Resources should be a division reporting directly to the Program Manager. The department needs a manager; currently it is made up of a Human Resources Clerk, which reports directly to the Finance and Administration Department. Having a Human Resources Manager would be of great benefit for the organization. This individual could become an effective integrator bringing balance to the different departments. A good monitor tool could be to track phone calls from the centers. How many calls are for payroll, and leave? How many calls are to ask for advise and guidance from Human Resources?

Human Resources needs to offer orientation for new employees at least on a monthly basis, this would help the culture to grow stronger. The organization offers so many benefits and not all the staff is aware of it.

The orientation for new employees could be done at the work site, rather than the main office. This would make the Human Resources Manager more approachable to the staff, as well as more comfortable.

So many calls to Austin, Texas takes valuable time from the Finance and Operation Managers. The phone call should be limited to one or two per week. It will be interesting how the group interacts and cooperates if the Austin, Texas group takes only a minimum amount of work time during the week. Informal devices for meeting strategies should be designed.

Finance and Operations should take get together and design a way to get more accomplished without the Project Manager being involved. It should be a solutions meeting, where top management has no part. Both manager would benefit greatly from trainings as: How to deal with difficult people?, Conflict and Resolution training, managerial strategies for the twenty first century, etc.

Once a month should be time to go discuss planning, budgets, and how to monitor internal and external controls. Create a report that gathers data on those areas and share it with the centers.
Organization should be reminded of the availability of systems but also to keep in mind availability of systems is not a synonymous of solutions. Availability points to solutions as well as it signals challenges, the important part is to keep trying different systems until the organization feels comfortable with them and chooses which really make a positive impact for the organization.
The Basic Change Model should be used for the implementation process, once the organization is ready to begin working on the necessary changes. The Basic model has three phases: unfreeze, change, and refreeze. During the first phase, the organization needs to go through the unfreezing period. It is the phase where ACS State and Solutions begins to prepare for change, accepts the mechanisms that needs to let go off, structures the transition and tries to look at every possible detail, and defines which will be the reward for the change. It is more of a selling time, while the second phase is a participative one.

During the second phase change is implemented, full collaboration makes the process easier for everyone. The third phase is the refreeze stage; at this time the organization goes through a thorough assessment. The reactions to the implemented changes need to be assessed. Probably this period is the one that brings more anxiety to the entire process. Once the process has been completed, the organization goes into a refreeze stage.

It is important to make it clear that all the above-proposed changes operate in cyclical stages and going through the whole process once will not result in the perfect outcome. However, the organization as a whole will benefit and will be closer each time to become the best it can be!

The first Islamic banks were created in the 1970s, at the time when the “aggiornamento” of Islamic doctrine on banking matters was taking shape. At the time, Islamic banks were typically commercial banks operating on an interest-free basis. Today, as a consequence of broad changes in the political-economic environment a new generation of Islamic financial institutions, more diverse and innovative, is emerging as the doctrine is undergoing a new aggiornamento.

Perhaps the most important development has been the growing integration of Islamic finance into the global economy. There is now a Dow Jones Islamic Market Index, which tracks 600 companies (from inside and outside the Muslim world) whose products and services don’t violate Islamic law. Foreign institutions such as Citibank have established Islamic banking subsidiaries, and many conventional banks– in the Muslim world but also in the United States and Europe–are now offering “Islamic products” that are sometimes aimed at non-Muslims.

Islamic finance is thus in many ways well suited to the global economy.

This is all the more striking and paradoxical that it is often said that Islam is incompatible with the “new world order” that emerged with the end of the cold war. In addition, how could a medieval economic system be relevant in a world of revolutionary, technology-driven global finance? And how could an interest-free system fit within the broader interest-based financial system?

The globalization of finance has in fact allowed Islamic finance to thrive, especially since there has been in recent years a fusion of sorts between Islamic and conventional banking. Whereas the traditional world of finance, dominated by commercial, interest-based, banking could raise potentially troublesome theological issues, the new world of finance, characterized by the blurring of distinctions between commercial banking and other areas of finance, the downgrading of interest income, and financial innovation, has been rife with opportunities for Islamic financial institutions. Indeed, Islamic finance has driven financial modernization in many parts of the Muslim world.

A related argument is that the aggiornamento of the 1970s–the period when Islamic teachings were updated to create the first Islamic banks–is falling into obsolescence, and that a new aggiornamento, barely noticed in most writings on the subject, is emerging.
The two updates have evolved under sharply different contexts.

The first occurred at a time of Islamic assertiveness in the midst of a fleeting belief in a New International Economic Order (NIEO) that would favor the South at the expense of the North. It was dominated by oil-producing Arab states (primarily Saudi Arabia), with some input from Egypt and Pakistan. Since that period, the world of finance has undergone a dramatic transformation.

The visions of banking or of the world economy that prevailed in the seventies are barely relevant today. One of the characteristics of the new aggiornamento is a “multipolar” Islamic world with emerging nations such as Malaysia playing a key role, and by a world of finance that is marked by technological change, innovation, deregulation and globalization.

Perceptions of Islamic finance in the West cannot be separated from general perceptions of Islam, as a monolithic, unchanging and somewhat fossilized belief system. In reality, Islamic finance reflects the diversity of a 14 century-old, 1.2 billion strong religion spread over every continent. Islamic financial institutions come in all shapes and forms: banks and non-banks, large and small, specialized and diversified, traditional and innovative, national and multinational, successful and unsuccessful, prudent and reckless, strictly regulated and freewheeling, etc. Some are virtually identical to their conventional counterparts, while others are markedly different. Some are solely driven by religious considerations, others use religion as a way of sidestepping regulation, as a shield against government interference, as a tool for political change, or simply as a way of attracting customers. It should finally be noted that there are considerable disagreements among Islamic scholars as to which financial instruments are religiously acceptable.

Islamic finance is a complex and paradoxical phenomenon. A brief overview of a leading Islamic banking group suggests the limits of facile and sweeping generalizations: Dar al Maal al Islami (DMI), the largest transnational Islamic group is headquartered in the Bahamas and operates primarily out of Geneva yet uses the language of the Islamic “umma”; although controlled by Prince Mohammed Al-Faisal al-Saud (the second son of the late King Faisal, after whom the principal subsidiaries of the group are named), the group does not operate a commercial bank in Saudi Arabia, a “fundamentalist” country that has been instrumental in bringing about modern Islamic banking yet is one of the least hospitable countries to Islamic banks; to complicate things further, the DMI group has nonetheless been a significant conduit of Saudi money and influence throughout the Islamic world. In sum, the story of Islamic finance is a vastly complicated one, and cannot be captured without a full understanding of religion and finance, but also of history, politics, economics, business and culture.

Financial Managers
Our University of Phoenix e-text states, “Financial managers stand between the firm’s real assets and the financial markets in which the firm raises cash” (p. 8). They are ultimately responsible for overseeing the flow of cash between investors and the firm. Financial managers view the firm on a more global level. They are faced with managing the firm’s investments and how the funds are raised for these investments.

Financial managers are growing more each day and are expected to grow faster then an average career through 2010. This will be due to the growth of the economy and the need for financial expertise. Financial managers can be found in every type of organization. They hold several titles within an organization to include treasures, controllers, credit managers, cash managers, vice president of finance, and chief financial officers (CFO). Financial managers holding these titles prepare the financial reports required by an organization to conduct its operations and ensure that the firm satisfies tax and regulatory requirements (please find quote).

Financial managers are responsible for planing, organizing, evaluating, and controlling the operation of financial and accounting departments. They hold the head positions in the accounting departments throughout organizations. They also monitor the extension of credit, assess the risk of transactions, raise capital, analyze investments, develop information to assess the present and future financial status of the firm, and communicate with stock holders and other investors (please find quote).

Comparison of Financial Managers and Accountants
Accountants evaluates records drawn up by the bookkeeper and shows the results of this investigation as losses and gains, leakages, economies, or changes in value, so as to reveal the progress or failures of the business and also its future limitations and possibilities. Financial managers maximize the value of the firm. Accountants provide the financial manager reports that state the financial position of the organization. Financial managers use these reports to make better decisions for the organization. Accountants are responsible for the preparation of the budget. Financial managers use the budget reports to plan for the organization, set goals and predict results. Accountants are responsible for preparing performance reports. Financial managers use these reports to conduct performance evaluations, which help compare actual results with budgeted amounts. Financial managers are also responsible for financial policy and corporate planning. Accountants are responsible for tax preparations. Financial managers ensure the organization satisfies tax and regulatory requirements. Financial managers inspect to make sure money is used correctly. They are also responsible for cash management, raising capital, and banking relationships. They obtain and manage the company’s financing.

Contrast of Financial Managers and Accountants
Although these two occupations perform a lot of different roles within an organization, they do have some similarities. Both are changing in response to technology. They both are faced with the increasing responsibility for compliance with all manner of financial reporting requirements. They have both taken on more importance and greater risk. They both are responsible for making important business decisions for their organization and are heavily involved in program activities. Financial managers and accountants are equally responsible for analysis, design, forecasting, evaluation and guidance within their organization. They are responsible for translating raw data into usable information and help develop strategic plans, performance goals and measures. Finally, both financial managers and accountants develop useful analyses and reports comparing planned activities to actual results.