Published online by Cambridge University Press: 22 September 2009
Introduction
Qui ne risque rien n'a rien (Nothing ventured, nothing gained)
Companies are in the business of earning returns for shareholders as a result of taking risks, and we expect there to be a relationship between the two. Why put capital at significant risk for a return that is no higher than the return on government bonds? Or expect higher than average returns from low-risk activities? It is impossible to separate measuring the performance of a company from the risks that the management takes to achieve it.
Investors can reasonably expect greater rewards for specific risks, such as investing in start-ups or in parts of the world subject to civil war, than investing in more established and stable companies, in safe industries or in settled environments. Nonetheless, risk rarely figures when company performance is described. Financial measures are almost invariably given (“Our profits rose by 15 per cent”, “The company earned 23 per cent on invested capital”) without any risk context, even when comparisons are made or in any accompanying commentary. While average return is acceptable for an average risk, however, it is not for a highly risky venture. Without defining the context of risk, judgements about performance will be incomplete.
In most aspects of company operations, risk assessment plays a different, but equally important, role. It is an integral part of informed decision taking in achieving performance.
To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.
Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.
Find out more about the Kindle Personal Document Service.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.