Question

Evaluate its main sources of potential financial risk in a manufacturing company using suitable techniques. For each risk area you are required to recommend and justify appropriate action to reduce the exposure. Note Minimum word count 700 words

Answer 1

Main sources of potential financial risk in a company can be summarised as follows-

1. Change in the prices of the raw materials of the company which can lead to to change in the overall cost and which can be subsequently leading to the change in the overall profits.

2. If the inflation rate economy has shooted upwards, it means that the economy is facing an inflationary situation and the company will be facing increase in its overall cost of production and it will lead to reduction of profit

3. There are interest rate risk, also because monetary policy can be frequently can in order to suit the economy and interest rate can be e most fluctuating tool used by the central government and interest rate is is increased that means that the cost of production of the business will go up and it will lead to reduction in profit

4. when there is a change in the rules and regulation on the part of the Government and corporate tax associated with the company is going to take change it means that company will be left with lesser profit because they will have to pay more of their taxes to the government.

5. there could be other problems like employee turnover which would impact the company financially because there are training cost involved with those employed who will leave the organisation and it would affect into company losing of the substantial training advantage which will lead into the reduction in the overall profit of the company

6. Where could we change in in rules and regulations related to accounting procedure which would be negative for the company as there would be changes leading to to reduction in its overall profits and hence it is not beneficial.