Risk evaluation and calculation for a company. Importance of risk Essay

Risk evaluation and calculation for a company. Importance of risk evaluation while taking investment decisions - Essay Example In order to illustrate the complexities of risks involved, the subject of evaluation shall be a multinational company, principally located in an emerging Asian country, but producing an internationally marketed product. While the foreign firm boasts a fundamentally sound business, the fact that it involves investment in another country requires consideration of the various risks. A UK-based investment fund is considering investing in the Asian emerging market. It is considering SMCorp, a food and beverage company principally located in the Philippines. Its main product is the globally renowned San Miguel Beer which had won numerous prestigious international awards. SMCorp has expanded its operations abroad and established breweries located in China, Malaysia, and South America. The Philippine currency has an exchange rate of about PhP69:Â £1, within the past year varying between PhP73:Â £1 and PhP68:Â £1. SMCorp stock is sufficiently liquid and is a favourite among global funds that decide to invest in the Philippines, because of its excellent company fundamentals and steady rate of return. The company regularly declares a uniform stream of annual dividends and exhibits a strong cashflow pattern. Its stock price has a beta coefficient of 0.8. Its 52-week per-share figures are a high of PhP 61 and a low of PhP 38; it is currently at PhP 41. Being in the co nsumer food and beverage industry, demand for SMCorp’s products are consistent even during economic downturns, and sales are brisk locally and abroad. Risk, as applied to investments, is the probability of earning a return less than the expected return (Brigham, 1996). Investors are usually risk-averse; that is, investors will as much as possible try to avoid chances of earning below expected income, moreso chances of loss. Investors who do not assume more than the prevailing