Risk and Its Measurements - Business Finance - ثاني ثانوي

6 Risks and Its Measurements 8 ? What types of risks do firms usually face? Many firms we surveillance cameras to ensure they are aware of any potential risk to their business. ارة العلم ल

دارة اله 2023-144 LEARNING OBJECTIVES Once you have completed this chapter, you should be able to 1 Explain the basic principles of risk. 2 Calculate the return on an investment. 3 Identify sources of risk. 4 Describe methods for measuring risk. 5 Recommend risk management actions. 223

224 Business Finance UTS R isk is the uncertainty of an event or outcome. Sometimes the word "uncertainty" is used as a substitute for "risk"! When you are uncertain, you have doubt about a possible outcome. If you face a risk, there is a chance of a positive outcome and a chance of a negative result. Individuals face risks that can affect health, income, and property. Since the future is uncertain, you will be required to take calculated risks. The reward for taking those risks is the anticipated return. While business managers and investors may make risk decisions on a qualitative basis, quantitative measures of risk are available. Even if you never compute these statistical measures, you need to know them, since you will encounter them when analyzing financial assets. This chapter provides an elementary introduction to risk and the measurement of risk, starting with an overview of risk factors faced by businesses, followed by different uses for the word "return" and varied methods to measure risk. These include the dispersion around the return or central tendency, called a "standard deviation" and an index of the volatility of an asset's return relative to a base, such as the return on the market, referred to as a "beta" coefficient. While the chapter does illustrate how standard deviations and beta coefficients are calculated, you may never have to calculate them. (If you do, a spreadsheet program such as Excel does the mechanics virtually instantaneously.) What you need to know is how to use and interpret these measures of risk. This chapter will also address the importance of diversifying investment portfolios, which involves Investing in more than one asset or security to reduce risk. The concluding sections of the chapter discuss risk management strategies and the use of business insurance as a method of risk transfer.