Here are the answers to the Malik Pharma Ltd case study questions based on Chapter 8: Risk
Management:
1. What risks are the Malik brothers taking?
Operational risk: Upgrading outdated equipment and integrating new machinery.
Financial risk: Assuming liabilities (loan + overdraft ≈ Rs 41.7m), increasing capital
investment.
Market risk: Uncertainty about product demand and competitive positioning.
Governance risk: Board dominated by family/friends with limited independence.
Regulatory risk: Complying with public company requirements.
Reputational risk: New management’s performance will be under scrutiny.
Liquidity risk: Limited cash reserves (Rs 800k) and heavy reliance on bank facilities.
2. Which of these risks are inevitable and must be taken?
Operational risk: Upgrading machinery is essential for competitiveness.
Financial risk: Accepting liabilities is unavoidable due to the acquisition model.
Market risk: No business can avoid demand fluctuations.
Regulatory risk: Public company conversion requires adherence to SECP rules.
3. How can they cover, eliminate or minimize the impact of inevitable risks?
Operational risk: Implement a strong project management and quality control system.
Financial risk: Maintain strict cost controls and build a reserve fund.
Market risk: Conduct thorough market research and diversify product lines.
Regulatory risk: Hire a compliance officer and engage corporate legal counsel early.
4. Which of the risks faced by Malik Pharma Ltd are avoidable?
Governance risk: Dominance of insiders and friends on the board.
Reputational risk (to some extent): Miscommunication with stakeholders.
Liquidity risk (to a degree): Can be mitigated with better financial planning.
5. For each avoidable risk, please state if it should be taken or left out.
Governance risk: Left out – weak governance can lead to poor accountability.
Reputational risk: Partially taken – can be managed through strategic communication.
Liquidity risk: Partially taken – requires better planning rather than complete avoidance.
6. For each avoidable risk that you recommend to be assumed, state the means of handling
it.
Reputational risk: Create a transparent stakeholder communication plan and a crisis
management strategy.
Liquidity risk: Implement rolling cash flow forecasts, establish a line of credit, and
delay non-essential capital expenditures.
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