"A business is started to earn profit but it may not earn profit at all and incurred loss "mention the element which is associated with this phenomena and explain any four factors which are responsible for this
Answers
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Nature Of Business Risk :-
Nature Of Business Risk :-1. Arises due to Uncertainties:
Uncertainties mean when you are not sure of what is going to happen in future. Common examples of uncertainties are: change in demand, government policy, technology etc. Business risk is due to these uncertainties.
2. Essential part of any Business:
A risk is an important characteristic of business. No business can avoid risk although the degree of risk may vary Risk can be reduced but cannot be eliminated.
3. Degree of Risk Depends upon the Nature and Size of Business:
The degree of risk depends upon the type of business; for example, a business involved in fashion items bears more risk as compared to the business involved in standardized goods. Similarly, a business operating at large scale bears more risk as compared to small-scale business houses.
4. Profit is the Reward for bearing the Risk:
The business earns a profit because they are bearing risk.”No risk no gain” larger the risk more is the profit. An entrepreneur bears risk with the expectations of earning a profit.
Causes of Business Risk :-
1. Natural Causes:
Nature is an independent phenomenon and human beings have no control over it. Natural calamities like earthquake, flood, drought, famine etc. Affect a business a lot and can result in heavy losses. The natural causes are such type of uncertain factors that human beings cannot make any preparation against.
Human Causes:
Human causes are related to a chance of loss due to human being or employees of the organization. The dishonesty of employees can bring heavy losses for business e.g., the employees may leak a business secret to a competitor and may commit fraud also bring heavy losses by wastage of resources.
The employees may hamper the production by going on strikes, riots etc. This can also lead to heavy loss of business condition. There can be price fluctuations in the market, there can be a change in fashion, taste, preferences, and demands of customers.
Economic Causes:
Economic causes are related to a chance of loss due to change in the market. There can be a change in the degree of competition. All these have a direct impact on the earnings of the business.
Even change in Government policy affects the business a lot. For example, in 1971 when Janata government came to power the Coca-Cola Company and many other foreign companies were sent back to India
Physical Causes:
All the causes which result in damage of assets are considered as a physical cause, for example, change in technology may result in machinery being outdated, use of old technology, mechanical defects may also result in damage of assets such as the bursting of a boiler, accident to employee etc.
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