Business risk is often categorized into systematic risk and unsystematic risk. Essay. The first step that brands typically take is to identify all sources of risk in their business plan. By considering new ideas and new ways of doing things, and trying to innovate, we can improve on our products/services, increase sales, reduce costs and make our processes more effective and efficient. TRUE or FALSE. (b) Indicate whether each of the statements below is true or false and explain your position: (1) The risk that material misstatement will not be prevented or detected on a timely basis by internal controls can be reduced to zero by having effective controls in place. When a company experiences a high degree of business risk, it may impair its ability to provide investors and stakeholders with adequate returns. Unsystematic risk, however, refers to the risks related to the specific business in which a company is engaged. True False. Some are obvious, such as bad weather and poor roads. The sources of business risk are varied but can range from changes in consumer taste and demand, the state of the overall economy, and government rules and regulations. Operating leverage and free cash flow are metrics that investors use to assess a company's operational efficiency and management of financial resources. Business risk usually occurs in one of four ways: strategic risk, compliance risk, operational risk, and reputational risk. But do we have a good way to measure it in schools? A comprehensive database of more than 35 risk management quizzes online, test your knowledge with risk management quiz questions. 0. 1- Keep your vehicle in top condition– Make sure your brakes are working properly, your tires […] The debt-to-equity (D/E) ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity. True or false: By establishing and enforcing a compliance and ethics program, a company can completely prevent fraud and shield itself from the repercussions of … Finally, most companies adopt a risk management strategy. With a low debt ratio, when revenues drop the company may not be able to service its debt (and this may lead to bankruptcy). These aren't just external risks—they may also come from within the business itself. Taking action to cut back the risks as soon as they present themselves is key. The plan should have tested ideas and procedures in place in the event that risk presents itself. True False 4. true or false: the market risk component of the total portfolio risk can be reduced by randomly adding stocks to the portfolio True or False 2) The market risk component of the total portfolio risk can be reduced by randomly adding stocks to the portfolio. If, for example, Walmart strategically positions itself as a low-cost provider and Target decides to undercut Walmart's prices, this becomes a strategic risk for Walmart. Study Mode . True or False Quiz 1 'True or False' Quiz Questions I. Ridley Scott directed the famous 1973 Hovis advertisement, called "Bike Round"? Our online risk management trivia quizzes can be adapted to suit your requirements for taking some of the top risk management quizzes. True or False 2 See answers dariusjamesdj1324 dariusjamesdj1324 Answer: true . For example, the CEO of a company may make certain decisions that affect its profits, or the CEO may not accurately anticipate certain events in the future, causing the business to incur losses or fail. User: High levels of muscular fitness can also lead to reduced risk for chronic diseases. Business risk relates to whether a company can make enough in … The beginning of an effective risk management strategy is a good loss-prevention program. But before then, let’s check on what risk assessment process entails. Once the management of a company has come up with a plan to deal with the risk, it's important that they take the extra step of documenting everything in case the same situation arises again. True False 18. In this situation, a brand risks becoming non-compliant with state-specific distribution laws. Financial management Web True/False Quizzes that accompany Fundamentals of Financial Management, 13th ed., Pearson Education Limited (2009) by James Van Horne & John Wachowicz, Jr. True/False Quiz ... You can reduce systematic risk by adding more common stocks to your portfolio. The following statements relate to various functions within a business. In order for a business to survive in today’s world, it is important that we regularly review what we are doing and how we are doing it. However, sometimes the cause of risk is external to a company. A Both statements are true. 6. (1) The risk that material misstatement will not be prevented or detected on a timely basis by internal controls can be reduced to 0 by having effective controls in place. This system prohibits wineries from selling their products directly to retail stores in some states. The reputation of HSBC faltered in the aftermath of the fine it was levied for poor anti-money laundering practices. Answer: b) False. Business risk relates to whether a company can make enough in sales and revenue to cover its expenses and turn a profit. Companies with greater amounts of equity financing are in a better position to handle their debt burden. Product recalls can reduce risk. These expenses include salaries, production costs, facility rent, and office and administrative expenses. This can be done either before the business begins operations or after it experiences a setback. Business risk cannot be entirely avoided because it is unpredictable. Portfolio risk will decline if more stocks that are negatively correlated with other stocks are added to the portfolio B. tiamiller224 tiamiller224 10/12/2020 Health College Regular exercise can reduce your risk of heart disease and cancer. Some of the factors that may affect a company's financial risk are interest rate changes and the overall percentage of its debt financing. The sources of business risk are varied but can … TRUE: It’s important to keep raw meat, poultry and seafood in separate containers and away from cooked foods. Investopedia uses cookies to provide you with a great user experience. Business risk is influenced by a number of different factors including: A company with a higher amount of business risk may decide to adopt a capital structure with a lower debt ratio to ensure that it can meet its financial obligations at all times. If no notification is made of an injury sustained compensation can be obtained for that injury. Business risk refers to the basic viability of a business—the question of whether a company will be able to make sufficient sales and generate sufficient revenues to cover its operational expenses and turn a profit. D Statement 2 is true and statement 1 is false. Ideally, a risk management strategy will help the company be better prepared to deal with risks as they present themselves. To start and support your own business, you’ll have to put your career, personal finances and even your mental health at stake. With business risk, the concern is that the company will be unable to function as a profitable enterprise. a) True b) False. An alternate way of viewing the difference is to look at financial risk as the risk that a company may default on its debt payments and business risk as the risk that the company will be unable to function as a profitable enterprise. However, there are five less obvious ways that you can do to reduce your risk on the road. Financial Risk vs. Business Risk: An Overview. 0. True False 2. Welcome to our 'True or False' Quizzes Page. By using Investopedia, you accept our. True Or False? Unsystematic risk is unique to a specific company or industry and can be reduced through diversification. True or False 3) When returns … False. True False 16. While financial risk is concerned with the costs of financing, business risk is concerned with all the other expenses a business must cover to remain operational and functioning. Any time a company's reputation is ruined, either by an event that was the result of a previous business risk or by a different occurrence, it runs the risk of losing customers and its brand loyalty suffering. 5.A person does not assume a risk that is different from or greater than the risk normally carried by an activity. Systematic risk refers to the general level of risk associated with any business enterprise, the basic risk resulting from fluctuating economic, political, and market conditions. To reduce injury, a risk control process accompanied by hazard-management procedures needs to be established. Risk-taking is almost synonymous with entrepreneurship. To calculate risk, analysts use four simple ratios: contribution margin, operation leverage effect, financial leverage effect, and total leverage effect. For more complex calculations, analysts can incorporate statistical methods. B) II only. A. Notes: (1) Risk analysis provides a basis for risk evaluation and decisions about risk control. A) I only. Weegy: High levels of muscular fitness can also lead to reduced risk for chronic diseases. One of the primary financial risk ratios that analysts and investors consider to determine a company's financial soundness is the debt/equity ratio, which measures the relative percentage of debt and equity financing. A hazard is any situation that has the potential to cause injury, illness, or death. True or False Risk Assessment involves looking at all aspects of your business … TRUE. All business risk can be insured-False reasons-R isks from the environment, such as natural disasters like earthquake cyclone etc cannot be insured-Loss of a company’s reputation or community standing might result from product failures, lawsuits or negative publicity all the various other reputational risks cannot be insured. A company can reduce its level of unsystematic risk through good management decisions regarding costs, expenses, investments, and marketing. No business can avoid risk although the degree of risk may vary Risk can be reduced but cannot be eliminated. Answer: a) True. A) I only. Based on your understanding of portfolio risk, which of the following statements is true? How Enterprise Risk Management (ERM) Works, What You Need to Know About Financial Distress, Financial Risk: The Art of Assessing if a Company Is a Good Buy. regards. Enterprise risk profiling entails observing and analyzing existing business processes. Sometimes it is a company's top leadership or management that creates situations where a business may be exposed to a greater degree of risk. Chronic stress is a risk factor for heart disease Chronic stress can lead to high blood pressure, or hypertension, which is a major risk factor for a heart attack. 6. True False 19. When a company does not operate according to its business model, its strategy becomes less effective over time and it may struggle to reach its defined goals. A payoff matrix shows the profit that would be earned under certainty, risk, and uncertainty so the decision maker can choose which is best. 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