Business Risks and Causes of Failure — Flashcards

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Business risk is the chance of loss in business activities due to events that create adverse situations contrary to expectations. It is linked to future uncertainty and may reduce profit or cause loss…

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Risk is the chance of loss and the possibility of some unfavourable occurrence. In business, this means an enterprise may face loss because future events do not always move as expected.

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A peril creates the risk, while a hazard increases the degree of risk. Fire is a peril because it creates a chance of loss, while stored petrol is a hazard because it increases the possibility of loss…

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Business risk is universal because every business activity involves uncertainty. Risks can arise in production, marketing, finance, storage, transport, and even from external events like fire, theft, …

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Strategic risk arises from wrong strategic decisions. It happens when a business chooses faulty strategies that do not fit the internal and external environment. It can threaten the survival of the en…

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Raymonds suffered loss by diversifying into cement manufacturing. Tatas faced strategic risk by acquiring Corus Steel and by launching the NANO car.

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Financial risk refers to deterioration in the financial position of an enterprise. It may happen when sales fall, cash flow becomes weak, funds are not raised on time, or debt becomes too heavy.

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Financial risk can arise from low sales volume, inability to repay debts, shortage of working capital, too high debt-equity ratio, mismanagement of funds, or diversion of funds into unproductive activ…