Five financial corporate risks
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"You never go broke by making a profit"
- Business
- Market
- Credit
- Liquidity
- Counterparty
Business
Buy low, sell high
- Business risks exist if you can’t do that
- You can do this for a little while
- But eventually, this will kill a business
- You need a sustainable model
Market
Threaten a company because financial markets move
- Interest rates
- Foreign exchange rates
- Currencies
- Commodity prices
Credit
"It’s not what you have, it’s how much you can borrow that matters"
- Downgrade risk (downgrade in company’s credit score)
Liquidity
The potential risk that a company will go bankrupt because it lacks the cash to pay bills
- Can’t pay financial obligations
- Need to be able to buy low to sell high
- Need to buy equipment
- Need to meet debt obligations
- You need cash on hand to maintain day-to-day, big investments cause risks here
Counterparty
If another party is involved in a business deal, risk to them is risk to you
- If you buy from a vendor
- Sign a long-term contract
- Hedge with a contract
- 3rd party counterparty risk management is a counterparty risk
- Choose your business partners wisely