Business Valuation 102.4 – Methods of valuing a firm Contingent Methods of Valuation

The Black and Scholes option pricing theory (OPT) offers a clue as to how the equity in a firm may be valued.  If we recognise the fact, that an equity investor in a geared firm with limited liability has a call option on the underlying assets of the firm then we have, potentially, a method for … Continue reading Business Valuation 102.4 – Methods of valuing a firm Contingent Methods of Valuation

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Shari’a Compliance Decision Tree

Practical Islamic Finance

I often feel there is a prevailing notion that Sharia compliance is akin to neurosurgery or rocket science in its complexity. I disagree. I think it’s pretty easy to understand and comply with Sharia. To prove this, I constructed a decision tree that hits on the main points of prohibition for Islamic business activity. I don’t claim that this decision tree covers %100 of cases, but i do claim that it is more accurate than any of the Sharia boards (costing their companies millions of dollars) that have authorized things like Murabaha, Ijarah Muntahiya Bittamleek and Musharakah Mutanaqisa.

I encourage readers to let me know if they can think of a product for which the decision tree below comes out with the wrong result. Let’s make this a pseudo-open source project where readers are in charge of improving the algorithm.

Shari'a Compliance Decision Tree Shari’a Compliance Decision Tree

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Vlog Episode # 3: How to tell if something is Islamic or just “Islamic”

Practical Islamic Finance

A touchstone is a piece of fine-grained dark schist or jasper formerly used for testing alloys of gold by observing the color of the mark that they made on it.

The two main touchstones of Islamic compliance in Islam are the Quran and the tradition and sayings of the prophet Muhammad – peace be upon him (known as Al-Sunnah in Arabic).

Scholars in the Quran and Sunnah can readily refer to these touchstones when making a judgement on the level of Islamic compliance for a particular product or investment.

It would be useful if there were a set of mental touchstones the average consumer could readily use to know if they are truly dealing with an “Islamic” investment or just one that advertises itself as such.

In this article, I propose 3 simple touchstones in the form of questions that anyone can answer about any financial product without knowing anything…

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Business Valuation 102.3 – methods of valuing a firm FLOW VALUATION METHODS

FLOW VALUATION METHODS The Two Financial Flows That Matter Paramount to understanding the basics of valuation is recognising the financial flows within the firm.  Any business is affected by two financial flows: The first and in my opinion the most important is its cash flow, which is the cash generation and expenditure of the firm … Continue reading Business Valuation 102.3 – methods of valuing a firm FLOW VALUATION METHODS

Business Valuation 102.2 – methods of valuing a firm- Relative Valuation

RELATIVE VALUATION MODELS When a firm has grown to a size that the ‘rule of thumb’ approaches are no longer appropriate  then some form of market based pricing methodology must be used.  The principle here is to find some common variable within companies which appear to be consistently priced by the capital market.  As expected, … Continue reading Business Valuation 102.2 – methods of valuing a firm- Relative Valuation