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Elaborate Business Risks .

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The term ‘business risks’ refers to the

possibility of inadequate profits or even

losses due to uncertainties or

unexpected events. For example,

demand for a particular product may

decline due to change in tastes and

preferences of consumers or due to

increased competition from other

producers. Decrease in demand will

result in lesser sales and profits. In

another situation, the shortage of raw

materials in the market may shoot up

its price. The firm using these raw

materials will have to pay more for

buying them. As a result, cost of

production may increase which, in

turn, may reduce profits.

Business enterprises constantly

face two types of risk: speculative and

pure. Speculative risks involve both the

possibility of gain as well as the

possibility of loss. Speculative risks

arise due to changes in market

conditions including fluctuations in

demand and supply, changes in prices

or changes in fashion and tastes of

customers. Favourable market

conditions are likely to result in gains

whereas unfavourable ones may result

in losses. Pure risks involve only the

possibility of loss or no loss. The chance

of fire, theft or strike are examples of

pure risks. Their occurrence may result

in loss whereas non-occurrence may

explain absence of loss, instead of gain.