Financial strategy Essay Example | Topics and Well Written Essays - 1500 words

Financial dodge - Essay ExampleIt is however, critical to on a lower floorstand that such balancing act often depend upon the inviolables choice of the risk level which it attempts to under express. (Walsh, 1996), As such the growing firms whitethorn be much risk loving and willing to take on higher level of risks and therefore all their decisions to exsert and develop their markets will be based upon the higher degree of risk firm is willing to assume. Similarly, if a firm is more mature and risk averse in nature, its overall strategies will be comparatively different as compared to a growing firm. (De Wit, & Meyer,1998). This paper will attempt to argue and explore that a firms overall risk consciousness governs the underlying strategies of the firm. The concept of endangerment and firm The wonder of whether risk is the major factor behind the strategy formulation or not need to be discussed from the different perspectives. Each organization operates in an milieu which is bo th internal and immaterial to it and therefore develops its strategies in accordance with its purlieu. Firms, to a large extent, develop their capabilities to deal with the risks arising from their internal environment however its the outside(a) competitive landscape of a firm which poses it signifi force outt and in-chief(postnominal) risks because of the volatile and uncontrollable nature of the external environment. The overall development of the risk consciousness of the firm therefore largely depends upon the kind of external environment faced by the firm and how firm can actually utilize its strengths to withstands such external risks Risk as a concept therefore outlines that the outcome of any decisions or strategies of a firm may not be exactly according to what is perceived by the firm. As such it becomes critically important for the firms to account for and plan risks and develop strategies which can help them to counter risks arising from their internal as well as ex ternal environment. It is this uncertainty of the external environment which firms need to account for and prepare themselves through proper intend and strategy formulation process. It is also important to understand that the overall risk factors in an external environment can be diverse however normally firms perform PESTLE Analysis to analyze their external environment. PESTLE Analysis allows the firms to actually evaluate the impact which political, economic, social, technological, legal and environmental factors could have on the firm. (Ellis, & Williams, 1993) If a firm has relatively high tolerance for the risk, it may choose to work in an environment which can be politically volatile and uncertain. For example, any firm willing to operate in Afghanistan now moldiness have relatively higher tolerance for the risk because of volatile and extremely uncertain political environment. As such its policies and strategies will be driven by the volatility of the external environment w ithin which it is operate or willing to operate. Risk and Return Risk and Return criteria serves as the basic premise under which all the economic decisions are made. Every investor as well as the firm attempts to decide and take actions based on their overall risk and return profile.