TRADE OFF BETWEEN PROFITABILITY AND RISK Homework Help

TRADE OFF BETWEEN PROFITABILITY AND RISK

In evaluating a film’s NWC position, an important consideration is the trade off between probity and risk. In other words, the level of NWC has a bearing on profitability as well as risk term profitability used in this context is measured by profits after expenses. The term defined as the probability that a firm will become technically insolvent so that it will not be meet its obligations when they become due for payment.

The risk of becoming technically insolvent is measured using is assumed greater the amount of NWC, the less risk prone the firm is. Or, the greater the NWC, the liquid is the firm and, therefore, the less likely it is to become technically insolvent. Covertly lower levels of NWC and liquidity are associated with increasing levels of risk. The relative between liquidity, NWC and risk is such that If either NWC or liquidity increases, the firm decreases.

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