John, a personal assistant to the bank manager, ponders over growth estimate projections for the bank. His boss has just told him of a major project that he has for the bank: the building of a head quarter’s building. On calculating the growth estimate projections and he realizes the ambitious project that his boss wishes to institute may not be feasible. The bank manager, on the other hand, has looked at this progress and convinced himself that the bank will be able to accommodate his new project in the near future. This is because the bank has been doing very well and has been making significant profits for a long period; therefore, it currently has a good collection of surplus. However, John still doubts that the bank has projections that would suit the financial commitment that will come with such a commitment.
The time value of money
Firstly, John is doing his boss a disservice in hesitating to tell him the truth concerning the projections that he has for the bank. What must first be considered is the time and value of the money that the bank is making. The bank has been making steady profits since the bank manager took control. It has maintained a 10% growth rate for the last ten years. In addition to this, its stock prices in the money markets have doubled in the last six months. These are remarkable statistics for the any bank, and its incredible record of accomplishment is the bank manager is confident about the building project being a success. The bank manager has managed this bank well and brought into profitability. Without a doubt, his action plan, largely, will determine whether the bank will be able to achieve the enormous goal that has been set for it. However, there is need for accurate financial counsel concerning this matter. Financial analysts need to be invited to look over the bank, its projection and its action plan to determine whether the plan will be feasible. Secondly, the shareholders and stakeholders of the bank need to be informed
Diversification and risk:
There are great risks that come with over-ambitious business projects. They have the potential of totally crippling businesses or financial institutions. In this case, the likely option the bank will have incase it fails to meet the required financial target will be to use the funds of clients or to borrow funds from other financial institutions. In the worst-case scenario, the bank may end up not recovering from such a situation.