Question

Using RB Patel Group Limited

Question 2: Advise the Chief Investment Officer if the company is subject to any unsystematic risk. Give a suitable title for this question. You can research on the unsystematic risk which is subject to the company you have chosen. Try to go through the 2019 annual report from SPX website.

Answer 1

Analysis:-

RB Patel Group Ltd.’s Unsystematic Risk :

Unsystematic risk is the variability in returns caused by unique factors relating to that firm. It arises from the way a particular firm conducts its activities. According to Beal et al (2008), unsystematic risk consists of financial risk and business risk.

In terms of financial risk, RB Patel Group Ltd. is prone to a credit risk and liquidity risk. Credit risk arises when counterparty defaults on its contractual obligations. This can eventually impact the cash flow of RB Patel Group Ltd. and result in financial loss. However, it has set-up policies to evaluate the creditworthiness of its customers and control credit exposure.

Liquidity risk arises when RB Patel Group Ltd. encounters difficulty in meeting obligations for its financial liabilities. However, the firm maintains adequate bank balance to cater for its activities. Majority of its current liabilities are expected to be settled within a year. Thus, RB Patel Group Ltd.’s liability risk is insignificant in nature.

Other examples of unsystematic risk for RB Patel Group Ltd. are operational risk and regulatory risk. Operation risk is the risk of loss arising from systems failure, human error, and fraud to external event. RB Patel Group Ltd. cannot eliminate all operational risk. However, it is able to manage such risks through relevant management policies. Regulatory risk arises from regulatory agencies established to govern the business sector in Fiji. For example : The retail and wholesale prices of products regulated by the Commerce Commission of Fiji.

I would, therefore, after analyzing the 2018 and 2019 Annual Report, advise the Chief Investment Officer that RB Patel Group Ltd. is subject to the unsystematic risk mentioned above.