Risk Analysis

Group 2
Apurv Kumar
Manish Kumar
Preyas Patel
Raghav Taneja
Siva Rami Reddy Gabbi
RISK ANALYSIS
 Credit Risk
 Capital structure influences credit risk
 A firm with a conservative capital structure is

a low credit risk because it has

◦ small amount of debt
◦ low fixed cost commitments
◦ a low default probability

◦ http://www.scribd.com/doc/30460064/CApital-
Structure-by-Faraz-Shahid
RISK ANALYSIS (CONT.)
 Business risk
 Fluctuations in earnings and cash flow, due to

◦ Changes in the economy

◦ Industry-specific conditions
◦ A high degree of leverage—leveraged firms have
greater exposure to business risk than
conservatively structured entities
RISK ANALYSIS (CONT.)
 Bankruptcy risk
◦ Extreme case of credit risk, whereby a firm may be
unable to continue as a going concern
◦ Financial distress, or the difficulty in meeting
maturing obligations, is the first sign of bankruptcy
risk
◦ A company in financial distress might file for
bankruptcy protection
RISK ANALYSIS (CONT.)
 Beta measures of systematic risk
◦ Is the extent to which a stock moves with the
overall market
◦ In a range from –1.0 to +1.0
◦ With an interpretation that he higher the beta, the
greater a stock’s variability
 Sources:
 Primarily Financial Statements
 Stock market values : technical and

fundamental analysis
Thank You!