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Financial Terms | |
Operating risk |
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Definition of Operating riskOperating riskThe inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
Related Terms:operating risk (business risk)risk in firm’s operating income. Annual fund operating expensesFor investment companies, the management fee and "other expenses," Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic ![]() Call riskThe combination of cash flow uncertainty and reinvestment risk introduced by a call provision. cash flow from operating activities, or cash flow from profitThis equals the cash inflow from sales during the period minus the cash Cash Flow Provided by Operating ActivitiesWith some exceptions, the cash effects of transactions Commercial riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Company-specific riskRelated: Unsystematic risk Companyspecific RiskSee asset-specific risk Completion riskThe risk that a project will not be brought into operation successfully. Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet ![]() Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or Credit riskThe risk that an issuer of debt securities or a borrower may default on his obligations, or that the Credit RiskFinancial and moral risk that an obligation will not be paid and a loss will result. Cross-border riskRefers to the volatility of returns on international investments caused by events associated Currency riskRelated: Exchange rate risk Currency risk sharingAn agreement by the parties to a transaction to share the currency risk associated with Default riskAlso referred to as credit risk (as gauged by commercial rating companies), the risk that an degree of operating leveragea factor that indicates how a percentage change in sales, from the existing or current degree of operating leverage (DOL)Percentage change in profits given a 1 percent change in sales. Diversifiable riskRelated: unsystematic risk. Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Equilibrium market price of riskThe slope of the capital market line (CML). Since the CML represents the Event riskThe risk that the ability of an issuer to make interest and principal payments will change because Exchange rate riskAlso called currency risk, the risk of an investment's value changing because of currency Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the Fallout riskA type of mortgage pipeline risk that is generally created when the terms of the loan to be Financial riskThe risk that the cash flow of an issuer will not be adequate to meet its financial obligations. financial riskrisk to shareholders resulting from the use of debt. Firm-specific riskSee:diversifiable risk or unsystematic risk. Flat price riskTaking a position either long or short that does not involve spreading. Force majeure riskThe risk that there will be an interruption of operations for a prolonged period after a Foreign exchange riskThe risk that a long or short position in a foreign currency might have to be closed out Funding riskRelated: interest rate risk Geographic riskrisk that arises when an issuer has policies concentrated within certain geographic areas, Herstatt riskThe risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk. High-Risk Small BusinessFirm viewed as being particularly subject to risk from an investors perspective. Idiosyncratic RiskUnsystematic risk or risk that is uncorrelated to the overall market risk. In other words, Inflation riskAlso called purchasing-power risk, the risk that changes in the real return the investor will Insolvency riskThe risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk. Interest rate riskThe risk that a security's value changes due to a change in interest rates. For example, a Interest Rate RiskPossibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing. judgmental method (of risk adjustment)an informal method of adjusting for risk that allows the decision maker Liquidity riskThe risk that arises from the difficulty of selling an asset. It can be thought of as the difference Market price of riskA measure of the extra return, or risk premium, that investors demand to bear risk. The Market riskrisk that cannot be diversified away. Related: systematic risk Market RiskThe amount of total risk that cannot be eliminated by portfolio market riskEconomywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk. Market RiskThe part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient. market risk premiumrisk premium of market portfolio. Difference between market return and return on risk-free Treasury bills. Mortgage-pipeline riskThe risk associated with taking applications from prospective mortgage borrowers Net operating lossesLosses that a firm can take advantage of to reduce taxes. Net operating marginThe ratio of net operating income to net sales. Nondiversifiable riskrisk that cannot be eliminated by diversification. Nonsystematic riskNonmarket or firm-specific risk factors that can be eliminated by diversification. Also operating activitiesIncludes all the sales and expense activities of a business. operating budgeta budget expressed in both units and dollars Operating cash flowEarnings before depreciation minus taxes. It measures the cash generated from operating cash flowSee cash flow from operating activities. Operating Cash FlowIncome available after the payment of taxes, plus the value of the Operating cycleThe average time intervening between the acquisition of materials or services and the final Operating EarningsA term frequently used to describe earnings after the removal of the Operating expenseAny expense associated with the general, sales, and administrative OPERATING EXPENSESThe total amount that was spent to run a company this year. Operating ExpensesThe amount of money the company must spend on overhead, distribution, taxes, underwriting the risk and servicing the policy. It is a factor in calculating premium rates. Operating exposureDegree to which exchange rate changes, in combination with price changes, will alter a Operating incomeThe net income of a business, less the impact of any financial activity, Operating IncomeA measure of results produced by the core operations of a firm. It is common Operating leaseShort-term, cancelable lease. A type of lease in which the period of contract is less than the Operating leaseThe rental of an asset from a lessor, but not under terms that would Operating LeaseOne where the risks and benefits, as well as ownership, stays with the lessor. Operating leverageFixed operating costs, so-called because they accentuate variations in profits. operating leverageA relatively small percent increase or decrease in operating leveragethe proportionate relationship between operating leverageDegree to which costs are fixed. Operating Line of CreditA bank's commitment to make loans to a particular borrower up to a specified maximum for a specified period, usually one year. Operating LoanA loan advanced under an operating line of credit. Operating profitThe profit made by the business for an accounting period, equal to gross profit less selling, finance, administration etc. expenses, but before deducting interest or taxation. operating profitSee earnings before interest and income tax (EBIT). Operating profit marginThe ratio of operating margin to net sales. Overnight delivery riskA risk brought about because differences in time zones between settlement centers Political riskPossibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of Price riskThe risk that the value of a security (or a portfolio) will decline in the future. Or, a type of Product riskA type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or Purchasing-power riskRelated: inflation risk Rate riskIn banking, the risk that profits may decline or losses occur because a rise in interest rates forces up Regulatory pricing riskrisk that arises when regulators restrict the premium rates that insurance companies Reinvestment riskThe risk that proceeds received in the future will have to be reinvested at a lower potential Residual riskRelated: unsystematic risk Reverse price riskA type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an RiskTypically defined as the standard deviation of the return on total investment. Degree of uncertainty of riskuncertainty; it reflects the possibility of differences between RiskThe degree of uncertainty associated with the return on an asset. RiskA state in which the number of possible future events exceeds the number of events that will actually occur, and some measure of probability can be attached to them. Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |