Explain nature of business risk.
Explain nature of business risk.
The nature of business risk is explained below :
(a) It arises due to uncertainties: A business is started and operated on the basis of forecasts and assumptions about the likely future events which may or may not hold good. Therefore, the uncertainty of the expected or unexpected event may cause risk of loss to the business.
(b) Risk is an essential part of every business : Every business is expected to one or the other kind of risk. Risks cannot be eliminated though they can be minimized by making suitable provision in advance.
(c) Profit is the reward of the risk: An entrepreneur undertakes risks of investing his capital under the expectation of higher profits. Profit is thus the reward for risk-taking.
(d) Degree of risk depends mainly upon the nature and size of business: The nature of the business, type of goods and services produced and the size volume of production of the business determines the amount of risk. Larger the sale of a business, higher will be the possibility of risk.
The nature of business risk is explained below :
(a) It arises due to uncertainties: A business is started and operated on the basis of forecasts and assumptions about the likely future events which may or may not hold good. Therefore, the uncertainty of the expected or unexpected event may cause risk of loss to the business.
(b) Risk is an essential part of every business : Every business is expected to one or the other kind of risk. Risks cannot be eliminated though they can be minimized by making suitable provision in advance.
(c) Profit is the reward of the risk: An entrepreneur undertakes risks of investing his capital under the expectation of higher profits. Profit is thus the reward for risk-taking.
(d) Degree of risk depends mainly upon the nature and size of business: The nature of the business, type of goods and services produced and the size volume of production of the business determines the amount of risk. Larger the sale of a business, higher will be the possibility of risk.
