StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Are Managers Measuring the Financial Risk in the Right Manner - Article Example

Cite this document
Summary
One such challenge is on the model to adopt when making investment decisions and evaluating the risks associated with any investment. Key to the…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.1% of users find it useful
Are Managers Measuring the Financial Risk in the Right Manner
Read Text Preview

Extract of sample "Are Managers Measuring the Financial Risk in the Right Manner"

Download file to see previous pages

Conversely, bankruptcy risk denotes a situation where the price of a security, for example, shares plummet without any optimism that it will improve. As such, the investor faces an imminent loss. The author explores at lengthy how different models treat bankruptcy risk differently. For instance, the CAPM model treats bankruptcy risks as unsystematic risks (Srinivas, 2013). The author subsequently verifies it by calculating its correction with future returns. The correlation is a negative figure, which is a characteristic of unsystematic risks.

The author identifies the weakness of Adjusted Present Model (APV), which integrates bankruptcy in the calculation of the value of a corporate entity. As per this model, bankruptcy risk only arises due an increase in debt. However, in the corporate world companies go bankrupt due to a myriad of reasons, which include poor management, rivalry and loss of market. The article seeks to chart a new way forward in the calculation of risk by managers. However, to understand what the article proposes with regard to calculation of risk, it is vital to understand the weaknesses of the present methods of risk evaluation.

Most methods such as CAPM and APV calculate risks after classification into either systematic or unsystematic risk. In the calculation of the total risk of a firm or a company, unsystematic risk is overlooked. To understand why it is overlooked, it is vital to define systematic and unsystematic risks. Systematic risk denotes the decrease or increase in returns from an investment or a security owing to events or factors, which afflict all firms unfavourably. Unsystematic risk refers to decrease or increase in the earnings from an investment or a security due to reasons particular to a single firm (Damodaran, 2010).

The models only consider factors that afflict all the firms (systematic) as unsystematic risks may be addressed through diversification of the

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Are Managers Measuring the Financial Risk in the Right Manner Article”, n.d.)
Are Managers Measuring the Financial Risk in the Right Manner Article. Retrieved from https://studentshare.org/finance-accounting/1658378-are-managers-measuring-the-financial-risk-in-the-right-manner
(Are Managers Measuring the Financial Risk in the Right Manner Article)
Are Managers Measuring the Financial Risk in the Right Manner Article. https://studentshare.org/finance-accounting/1658378-are-managers-measuring-the-financial-risk-in-the-right-manner.
“Are Managers Measuring the Financial Risk in the Right Manner Article”, n.d. https://studentshare.org/finance-accounting/1658378-are-managers-measuring-the-financial-risk-in-the-right-manner.
  • Cited: 0 times

CHECK THESE SAMPLES OF Are Managers Measuring the Financial Risk in the Right Manner

Organizational Operation Management: Assessing Performance on the Market

To achieve these broad goals managers fix certain specific objectives to administer their employees and supervise their performance level.... If the problems cannot be measured sufficiently or specified accurately, there would be a certain degree of vagueness in the minds of employees as well as managers and the problem would not be satisfactorily addressed.... However, the combined effort of all the managers, as well as other staff working at different levels, help the organization to maintain its level of performance in the long run....
9 Pages (2250 words) Research Paper

PROJECT MANAGEMENT - CASE STUDY

Analysis of risk affecting the success of project is also aimed to produce through this project.... risk relating to the implementation of the newly... Organizational performance of the company is declining due to the operational problems.... Due to lack of proper organizational structure and proper communication… This case study analysis aims to provide a detailed operational plan for the company to control its operational problems and ensure better functioning with improved efficiency....
11 Pages (2750 words) Essay

Safety in High Rise Buildings: The Roles of the Project Manager

Frequent deaths and large scale damage to life and property of innocent residents, is often caused on account of building collapses and fire outbreaks in high rise buildings.... Although the high rise buildings, in present times, are adequately equipped with state of the art… logy to assist the occupants to evacuate the premises, in the event of such calamities as earthquakes, fire outbreaks, or other such potentially threatening occurrences, the statistics available indicate otherwise, rendering the assurances of safety; questionable and doubtful....
9 Pages (2250 words) Essay

Core Competencies of a Program Manager

He is also required to have the capability of setting objectives harmoniously in order to accomplish a mission and setting priorities right.... The program manager has a responsibility of motivating the project managers and ensuring that they remain enthusiastic about their particular projects in order to ensure attainment of the desirable outcome in all.... The project managers usually analyze the needs of their individual projects and present them to the program manager who mobilizes the desired support from the organization....
12 Pages (3000 words) Essay

Phases of a Project Lifecycle

The planning documents help in managing time, quality, change, risk, cost and issues.... The steps involved in the planning phase are; creating a project plan, creation of a resource plan, creating a financial plan, creating a quality plan, creating a risk plan, creating an acceptance and a communications plan, then creating a procurement plan, contracting the suppliers and then finally performing phase review.... In addition to that, it helps the project managers in managing time and costs during the process....
7 Pages (1750 words) Assignment

What makes a good and bad manager

On the other hand, there are diverse areas of manager include, but not limited to the financial manager, marketing manager, project manager, general manager, operations manager and human resource manager.... The criteria for moderating and evaluating a manager are based on diverse roles… And responsibilities vary considering different roles of the managers.... The criteria for identifying a good or bad manager can further facilitate The document presents mainly three (3) types / categories of managers having different roles and responsibilities....
11 Pages (2750 words) Essay

Reflection

Overall, the article addresses an aspect that involves planning and directing the use of the financial resources of a company.... The author observes that most companies, specifically, Chief financial Officers and strategists, believe… For this reason, most companies choose to pursue either competitive advantage, or shareholder value.... This article has a considerable relationship with basic financial management.... The author has tied this role to the Chief financial Officer and other managers responsible....
4 Pages (1000 words) Case Study

The Reporting of Risk in Real Estate Appraisal Property

In the paper “The Reporting of risk in Real Estate Appraisal Property” the author discusses the gross exaggeration of the firm's position by the financial officers that pushed investors in investing wrongly.... n any investment portfolio, the most important aspect to be managed is the risk associated with such an investment.... This means that any analysis of risk should be a risk that should be directly associated with the asset rather than the portfolio as a whole....
11 Pages (2750 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us