2.11. Business Risks
Lesson objective
Build a company-specific risk map.
Risks may come from competition, regulation, customers, suppliers, technology, currency, debt, litigation, execution, or valuation. A generic list is not enough. Identify the mechanism and potential impact.
Forms 10-K and 10-Q include risk factors and management's discussion of results. Management also explains major drivers, although those explanations should be evaluated critically.
A risk does not automatically invalidate an investment. The question is whether it is understood, reflected in the price, and balanced by the company's strengths.
Turn a risk list into a risk map
| Risk | Probability | Impact | Early indicator | |---|---|---|---| | Customer loss | Medium | High | Retention/concentration | | Input inflation | Medium | Medium | Gross margin | | Debt refinancing | Low/Medium | High | Maturity schedule |
Risk priority ≈ Probability × Impact(a qualitative framework, not a valuation formula)
Make risk specific
“Competition is a risk” is vague. Better: “45% of revenue comes from a product where two large rivals are cutting price; watch market share and gross margin.”
In Finzati
Use News, Company Profile, events, and peers as starting points, then verify material risks in official filings.
What you should remember
- Describe probability, impact, and a monitoring signal.
- Include valuation risk in the analysis.
Practice
Create a matrix of five risks with probability, impact, and a monitoring metric.