When it comes to business investments, there are two key concepts that you need to understand: risk and return. Understanding the relationship between risk and return is important because it helps you make informed decisions about your investments.
What is risk?
Risk is the chance that you will lose money on your investment. Before sending out investment proposals, there are many different types of risks to consider, including:
- Market risk: This is the risk that the overall market will decline, which could cause the value of your investment to decrease.
- Company risk: This is the risk that the company you invest in will not be successful. This could be due to several factors, such as poor management, competition, or economic conditions.
- Financial risk: This is the risk that the company you invest in will not be able to repay its debts.
Having a business strategist mascot to drive brand recognition can lower your risk of investment, but it is not guaranteed.
What is return?
Return is the profit you make on your investment. It is typically expressed as a percentage. For example, if you invest $1,000 in a company worth $1,100 one year later, your return would be 10%.
There are two main types of returns:
- Capital gains: This is the profit you make when you sell your investment for more than you paid.
- Dividends: This is the money that a company pays to its shareholders.
When making a business investment decision, it is important to assess the risk and return of the investment. This will help you decide if the investment is right for you
Make the Right Choice with Practical Accountants Australia
Make informed business decisions by consulting expert accountants who provide accounting advice. Practical Accountants has a team of experts who will ensure your success. Contact us!
