Notes to the Consolidated Financial Statements
(Thousands of US dollars)
30
Dar Al-Maal Al-Islami Trust
Annual Report 2013
The Group’s debt-to-equity ratios for the given years were as follows:
2013
2012
Restated
Total debt
1,585,323 1,570,381
Less: cash and cash equivalents
(985,984)
(875,849)
Net debt
599,339
694,532
Total equity
433,067
486,051
Debt-to-equity ratio
138% 143%
4. Financial instruments
A. Strategy in using financial
A.
instruments
By its nature, the Group’s activities
are principally related to the use of
financial instruments. The Group
accepts investments from customers
at varying rates of return and for
various periods and seeks to earn
above average profits by investing
these funds in high quality assets.
The Group seeks to increase these
margins by consolidating short-
term funds and investing for longer
periods at higher return potential
whilst maintaining sufficient liquidity
to meet all claims that might fall
due.
The Group also seeks to raise its
profit margins by obtaining above
average margins, net of provisions,
through transactions with its
commercial and retail customers.
Such exposures involve not just
on-balance sheet Islamic financings
but the Group also enters into
Islamically acceptable guarantees
and other commitments such as
letters of credit and performance
and other bonds.
The Group also trades in financial
instruments where it takes positions
in traded and over the counter
instruments including derivatives to
take advantage of short-term market
movements in the equity and bond
markets and in currency and profit
rates. The individual subsidiary’s
boards place trading limits on the
level of exposure that can be taken
in relation to both overnight and
intra-day market positions. Foreign
exchange and profit rate exposures
associated with these derivatives
are normally offset by entering into
counterbalancing positions, thereby
controlling the variability in the net
cash amounts required to liquidate
market positions.
The Group utilises the following
derivative instruments for both
hedging and non-hedging purposes.
(i) Currency forwards represent
commitments to purchase foreign
and domestic currency, including
undelivered spot transactions;
(ii) equity futures are contractual
obligations to receive or sell shares
on a future date at a specified
price established in an organised
financial market; and (iii) equity
options are contractual agreements
under which the seller (writer)
grants the purchaser (holder) the
right, but not the obligation, either
to buy (a call option) or sell (a put
option) at or by a set date or during
a set period, a specific amount of
shares at a predetermined price. In
consideration for the assumption
of the risk, the seller receives a
premium from the purchaser.
Options may be either exchange-
traded or negotiated between the
Group and a customer (over the
counter).
