There are two important aspects of business investments, which are risk and return. It is crucial to understand the relationship between risk and return, as it will help an investor make informed decisions about their investments. As a general rule, higher risks yield higher returns, and lower risks yield lower returns.
What is Risk?
The risk refers to the chance that the investor will lose money on their investment. It is always advisable to hire a practice accountant in Canary Wharf to help determine the risks in an investment. There are different types of risks that are considered before sending out investment proposals.
- Market Risk: It refers to the risk that the overall market will decline, causing the value of the investment to decrease.
- Company Risk: It refers to the risk that the company in which an investor will invest may not be successful. This may happen due to various factors, like poor management, competition or economic conditions.
- Financial Risk: It refers to the risk that the company an investor has invested in will be unable to repay its debts.
What is Return?
The return refers to the profit that the investor makes on your investment. It is usually calculated in terms of percentage. It is recommended to hire a practice accountant in Liverpool Street to help determine the return on investment. There are two types of returns on business investments.
- Capital Gains: It refers to the profit the investor makes when they sell their investment for more than what they paid.
- Dividends: It refers to the money that a company pays to its shareholders.
It is crucial to assess the risk and return so that an investor can make the right decision before investing. An accountant in Liverpool Street can help the investor in determining the risk and return of a business. Calculating the risk and return is not just about avoiding financial loss but also about reaching financial goals.
