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Minggu, 02 Januari 2011

Business Risk

Source :
http://www.investorwords.com/631/business_risk.html
http://www.investopedia.com/terms/b/businessrisk.asp
http://www.wisegeek.com/what-is-a-business-risk.htm

  • Risk associated with the unique circumstances of a particular company, as they migh affect the price of that company's securities.
  • The risk that a company will not have adequate cash flow to meet its operating expenses. A company's risk is composed of financial risk, which is linked to debt, and risk, which is often linked to economic climate. If a company is entirely financed by equity, it would pose almost no financial risk, but, it would be susceptible to business risk or changes in the overall economic climate.
  • A business risk is a circumstance or factor that may have a negative impact on the operation or profitability of a given company. Sometimes referred to as company risk, a business risk can be the result of internal conditions, as well as some external factors that may be evident in the wider business community.

When it comes to outside factors that can create an element of business risk, one of the most predominant risks is that of a change in demand for the goods and services produced by the company. If the change is a positive one, and the demand for the offerings of the company increase, the amount of risk is decreased a great deal. However, if consumer demand for the offerings decreases, either due to loss of business to competitors or a change in general economic conditions, the amount of risk involved to investors will increase significantly. When a company’s risk factor is considered to be increased due to outside factors that are beyond the control of the company to correct, chances of attracting new investors is severely limited.

Internal factors may also result in the development of significant business risk for the investor. Often, these are factors that can be identified and corrected. If flagging sales can be attributed to an ineffectual marketing effort or a sales force that is not performing up to expectations, making changes in the marketing approach or restructuring the sales effort will often result in minimizing the perception of business risk on the part of potential investors. The same is true if a company’s manufacturing facilities are not operating at optimum efficiency. Revamping the operational structure of the plants and facilities will decrease the element of business risk and result in higher profits at the same level of production and sales, which will in turn make the company more attractive to potential investors.

In general, any investor will consider the relationship of a company’s securities and the business risk associated with the company before choosing to invest in the future of the corporation. While there is an element of business risk associated with any corporate operation, proper management will result in creating a balance between assets and securities that will keep the degree of business risk attractive to individuals and entities that consider investing funds into the operation.




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