Page 127 - RISK Management IC 86

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(a) Determination of the size of loss - Usually, for the
simplification of the size of loss, a single value is
shown, though practically that is not possible. The
size of loss which a firm can bear is basically a
function of time.

Obviously, the size of loss that a firm can absorb
within its monthly cash flow will be far smaller than
the loss that can be covered by the annual profit. For
over an even larger period of time, the firm can
tolerate a still larger loss by spreading the cost, by
borrowing and repaying the loan over several years.

The company's financial position, mainly the size of
any free reserve, the liquidity, the size and stability of
its profit also help to determine the size of risk.

(b) Corporate risk attitudes - Just as some individuals
are more risk averse than others, so too are corporate
bodies. Their attitude depends on the attitudes of the
individuals, who collectively comprise the decision
making body.

A firm may achieve a given amount of maximum profit

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