Business Risk and Analysis (Essay Sample)
"Business Risk and Analysis / Investment Valuation" Please respond to the following:
Determine whether a steel company or a retail food chain would have a greater business risk. Provide support for your rationale.
Discuss why you would not expect all industries to have a similar relationship trend to the economy. Provide an example of two industries that have a different relationship to the economy and explain the difference.
Business Risk and Analysis / Investment Valuation
Business risk is the likelihood that an entity will experience lower profits than anticipated or may also report a loss and not a profit, and the risk can be a result of internal factors or external factors (Investopedia, n.d.). Focusing on the operating income as well as standard deviation industry helps to indicate the business risk (Mayo, 2011). The steel industry has a higher business risk since fluctuations in demand and supply vary considerably, and since consumers typically buy in large quantities a fall in demand causes a faster price adjustment compared to the food industry. As such, the steel industry has cyclical companies where the sales and earnings are influenced by the overall business activities. The retail food industry has lower sales variability and has steady operating incomes compared to the steel industry. The retail food industry deals with basic necessities and the companies can withstand the economic downturn (Mayo, 2011).
Alternative industries have different relationships with the economy since different factors directly influence industries. The oil industry ...
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