Eternity Law International — News — Financial risk management

Financial risk management

Published:
July 16, 2020

Any large enterprise will fail if it does not follow the principles of risk management, in other words, it ignores financial risk management.

In this publication we will try to reveal the most important aspects of this area of ​​activity.

Business is primarily a risk, so every entrepreneur tries to make every effort to keep his business out of the danger zone.

This is especially true for large enterprises, because the larger the enterprise, the higher the various risks, including financial ones.

The main goal of risk management is to reduce the likelihood of losing any part of cash resources. With proper financial risk management, any enterprise will be successful, including the shares and investments of large companies.

Activities based on speculative manipulation carry the greatest risk for the enterprise. The main interests are the level of profitability and loss from these operations.

TYPES OF FINANCIAL RISKS

The likelihood of bankruptcy is one of the financial risks that everyone knows about. There are also relationships between financial market participants – buyers and sellers, investors, creditors, etc.

Every year the financial risks became more and more, therefore a special classifier was created.

The object of the operation, the nature of the consequences, the time period, inflation, forecasting – all these are the main features according to which financial threats are divided into three groups.

The first group includes inflation, deflation, currency depreciation and reduced liquidity. They are all related to the purchasing power of money.

The second group relates to investments. It is a dangerous phenomenon that directly depends on investments in innovative products and other projects, as well as direct financial losses and capital reduction.

The third group contains threats to economic activity, that is, risks associated with the production and sale of goods and services.

All three groups have negative consequences, then let’s talk about risk assessment, what it is for and what methods are used.

FINANCIAL RISK ASSESSMENT METHODS

The most accurate assessment method is considered to be “economic-static”. Its foundation is statistics of an economic nature and all the information that is collected for private research.

Since official statistics do not always reflect reality, there is a need to use another method – calculation and analytical. It is not accurate, but it shows the statistical error.

The analog method is used when it is necessary to detect a possible threat to the market. It is based on an analysis of previous transactions that were carried out in a specific market.

The final risk assessment method is the expert one. There are cases when there is neither information nor data for the calculation and statistical method.

The information that was obtained as a result of interviews with experts in a particular field is subjected to analysis and mathematical processing.

FINANCIAL RISK MANAGEMENT PRINCIPLES

The main task of risk management is to find the right information and its correct interpretation. At its core, management includes techniques, methods and activities that make it possible to identify and predict threats to the enterprise.

An important task is not just to predict risks, but to prevent them. For this, the leadership chooses the direction of the strategy and the necessary tactics.

At the moment, the risk – managers are in demand in the labor market and every enterprise needs a professional in their field.

In order to become such a specialist, you can start by creating working tools – primarily a current account.

The accounting department of the company must compile quarterly, annual financial reports and provide declarations to the tax service. Contact us for more information.

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