business risk is a term that illustrates the difference between the expectations of return on investment and the actual investigation. In the capital budget, and are several investment alternatives checked before making an investment decision, and only then managing director of the company along with CFOs are preparing to invest in is a sound and viable project. Until then, the project may not become viable and may not work for our expectations due to fluctuations in the economic environment.
So, the question arises million dollars, both for investment and if invested, it brought me a profit? You see, you can not have the cake and eat it too. Risk factor prevails in all kinds of environment, we try to respond in the business arena because it involves huge investments. But remember, the money will multiply if you manipulate with caution.
businesses to commit large sums of money each year for capital expenditure. It is therefore essential that careful financial evaluation of each project, which involves a major investment and are from before accepting or implementing the project. These decisions are generally capital budget under consideration of the highest levels of management.
risk factors that should be considered before investing:
- time value of money
- pay back period of
- the rate of return on investment (ROI)
- uncertainty in the market
- cost of debt
- cost of equity
- the cost of retained earnings
factors to be monitored after the investment:
- to maximize the profit after tax
- maximize the return on the stock
- maintain share prices
- number of earnings
- ensure management control
- financial restructuring
cost of capital for the opportunity cost of money refers to any hard, it was back to the company it the funds invested in other places. Businessmen think like Ratan Tata, Ambani and back like also mastered the art of capturing the market through innovative thinking that is proven good for the fans.
while making decisions with regard to investment, finance, and chief financial officer seeks to achieve the right balance between risk and return. If a company borrows heavily to finance its operations, then the surplus from operations should be sufficient for "debt service" in the form of interest and principal payments. The surplus th e greatly reduced to their owners, where there will be a heavy debt service. If things do not work out as planned, the situation becomes even worse, as the company will not be in a position to fulfill their obligations and so prone to "risk of insolvency."
Given all these factors, we do not have to come to the conclusion that the financial management, such as the backbone of the business and management of working capital will be the blood flow injected into the body. Risks arise only if we mismanage, otherwise all the work goes as planned and I feel that luck does not favor anyone is poor in planning and is not willing to work hard.
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