Five financial corporate risks

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"You never go broke by making a profit"

1. Business
2. Market
3. Credit
4. Liquidity
5. Counterparty

Business

Buy low, sell high

• Business risks exist if you can’t do that
• You can do this for a little while
• But eventually, this will kill a business
• You need a sustainable model

Market

Threaten a company because financial markets move

• Interest rates
• Foreign exchange rates
• Currencies
• Commodity prices

Credit

"It’s not what you have, it’s how much you can borrow that matters"

• Downgrade risk (downgrade in company’s credit score)

Liquidity

The potential risk that a company will go bankrupt because it lacks the cash to pay bills

• Can’t pay financial obligations
• Need to be able to buy low to sell high
• Need to buy equipment
• Need to meet debt obligations
• You need cash on hand to maintain day-to-day, big investments cause risks here

Counterparty

If another party is involved in a business deal, risk to them is risk to you

• If you buy from a vendor
• Sign a long-term contract
• Hedge with a contract
• 3rd party counterparty risk management is a counterparty risk
• Choose your business partners wisely