Financial Risk Management for Theory & Practice- myassignmenthelp

Question: Discuss about theFinancial Risk Management for Theory Practice. Answer: The current and quick ratios are the liquidity ratios which reflect the position of companys liquidity. Having high ratios indicate that the organization is performing well and is able to meet its short term financial obligations easily and quickly. Considering the data provided for FV Ltd., the statement given by CFO is correct as it can be seen that there is a constant increase in the current ratio of the company and in 2017 it was 1.33 which was more than that of in 2016 and 2015. Also the ratio is more than the industry average of 1.25. Hence, it implies that the company has improved its liquidity position with high liquid assets. Also the quick ratio of the FV Ltd is almost equal to the industry average, which means the company is able to pay off its current liabilities with its quick assets (Tracy, 2012). The working capital management of FV is analysed through its inventory turnover ratio and the collection period of receivables. Company has a high and increasing ITR, which means it is very much efficient in managing its inventories. However, the collection period has increased over the year but is less than industry average. This means company has a better management of its working capital (Sagner, 2010). Beta is basically a measure of a systematic risk of a security or portfolio, in comparison to the whole market. It is the most important variable used in CAPM calculation. Companys beta is 2.1 which means it is more than 2 times as volatile as the overall market. In other words, it will give more returns than the market (Brigham and Ehrhardt, 2013). A systematic risk is a market risk which consist of day to fay fluctuations in the stock price of the company. This risk cannot be reduced through diversification. On the other hand, unsystematic risk is the diversifiable risk which is associated with the company in which the investment is made. It can be minimized through diversification. The currency derivatives such as forward, futures, options and swap can be used for the purpose of hedging. One of the strategy is hedging through options. In this, one can buy a call option and sell the put option or vice-versa. This technique directly helps in protecting the portfolio, specifically the equity portfolio. Another strategy is Hedging through structures. Under this one portion of the portfolio is invested in debt and other in derivatives. Debt portion makes the portfolio stable whereas, derivatives prevents from downside risk (eFinanceManagement.com, n.d.). References Tracy, A., (2012).Ratio analysis fundamentals: how 17 financial ratios can allow you to analyse any business on the planet. RatioAnalysis. net. Brigham, E.F. and Ehrhardt, M.C., (2013).Financial management: Theory practice. 15th ed. USA: Cengage Learning. eFinanceManagement.com. (n.d.).Hedging| Hedging Example, Hedging Types, Hedging strategies. [Online] Available at: https://efinancemanagement.com/derivatives/hedging#Hedging_through_Options [Accessed 24 March 2018]. Sagner, J., (2010).Essentials of working capital management (Vol. 55). New Jersey: John Wiley Sons.