Question

Discuss the risks an investor should consider when assessing a company

Answer 1

Risk is defined as the chance that an outcome or investment's actual gain will differ from an expected outcome or return.Risk includes the possibility of losing some or all of investment value.

Following are some important risks an investor should consider when assessing a company

i)Credit or default risk:It is the risk that a borrower(Company) will be unable to pay the contractual interest or pricncipal on its debt obligations.Thus the investor should assess the credit risk of company before investing in it.

ii)Business Risk:It refers to the basic viability of a business.That is whether a company will be able to make sufficient sales and generate sufficient revenue to cover its expense and earn a profit.

iii)Political Risk:It refers to risk that an investment's return could suffer because of political instability or changes in a country.One should assess the company from the angle of political risk to know whether his investment is exposed tu such risk.