Finance Assignment: Financial Risk Assessment for Altrex

Question

Task: Most businesses face a landscape of uncertainty and a never-ending stream of risks and opportunities. Managers must continually project the likely financial impact of decisions, make recommendations, act on those decisions, determine how to pay for them and evaluate the costs and effectiveness of what has been done. Many decisions are short-term, routine and operational. Others are longer-term investment decisions that require substantial new resources, such as developing new services, expanding into new geographic markets or undertaking business combinations or spin-offs. Each require managers to forecast, plan and make decisions based on a thorough understanding of both internal and external factors that can affect a company’s financial success.

Submit a report on finance assignment that address critical element IV, risks of the final project. Discuss any risks that might affect the success of the project and how you have planned for those contingencies.

Answer

Introduction
The following report on finance assignment is being developed for the study of the different risks and their impact on the financial decision of the company about the investment in the new areas or not. The following report is being developed in four parts that discuss the different risks that are being faced by the business organization during the current business or investing into the new business, the first part of the report discusses the internal risk of the organization and the impact of the internal risk and the opportunities on thebusiness decision, the second part of the report is the external risks and the measures that will help in the reduction in the external risk, the third part of the report discussed the microeconomic factors that are associated with the business and the fourth part of the report discussed the different financial scenarios of the company.

Internal risks –
Internal risks of the organization are the risks that are within the organization it relates to the organization's internal systems and internal processes, Internal risks are related to the different factors of the organization these areas below- Policies and procedures – Policies and procedures that are being designed by the management of the company are the documents and the processes according to the working of the organization works if there is any flaw in the policies and procedures then in such case, these policies and procedures are major risks in the organization.

Resources – There are different resources required for the purpose of running the business or for any of the projects, therefore, the resources are critical for the purpose of running the business, the critical resources are manpower, money, machine, methodology. Scarcity of resources in the organization is the major internal risk (Martinez, Zouaghi, Marco, and Robinson, 2019).

Stability – Stability is all about the management of the company and the ability of management to maintain the business running smoothly. The management should arrange the finances and meet the requirements of the debt and provide sufficient return on the asset base of the company. Therefore if the company is not able to maintain the stability of the firm then in such a case there are risks.

Internal risks associated with the Altrex expansion –
There are different internal control risks associated with the alters expansion, these areas below-
1. Currently, the company is operated in Irvine California, and the development center of the company is Broomfield Colorado. A combination and arrangement of the resources at different levels are difficult tasks and the supply chain will create an internal risk for the organization.

2. Reliance so much on a single vendor will create an internal risk for the company. The company has a major supplier only that supplies to the different companies therefore it will increase and lead to the increase in the internal risk of the company. The company has a only major vendor Datawatch corp that prepares data preparation services for the fuel business.

3. High SG & A expense is a major internal risk with the company, the high SD & A expense will lead to lower profit ratios, and in terms of sensitivity, the profit is very much sensitive with the sale quantity and sale value of the organization (Kassem, Khoiry, and Hamzah, 2020).

Opportunities-
1. Currently offering services like data storage, data management data reporting, data retrieval, analytics, and solutions to data-related issues.

2. The company has a strong balance sheet position and the cash flow position of company dictates positive cash flow techniques and in the company, there is a good cash flow and liquidity position this will lead to an opportunity for the company to expand in the new areas and lead to increase in the success chances of the company in the new expansion.
Impact of internal risk and opportunity on the financial estimates-
There are different aspects of the internal risk son the financial estimates of the company that are as below- 1. The cost of goods sold will be high in the financial estimates as only a single major vendor in the company therefore it will be estimated after considering the issues that the cost of goods sold will be taken as a higher side. for removal of this risk, the company should identify the other vendors and suppliers for the case of emergencies and other related terms. 2. High SG&A expense, in case there is a high SG&A expense that will lead to estimation of the lower profits and to reduce the risk of the high SG&A expense the company will identify and assure the other methods and other manners for the purpose of the SG&A expense and the company will try to reduce the SG&A expense of the company.

External risks
External risk of the business leads towards that risk of the business that is beyond the control of the organization the external risks the business includes the risks of the economy and other external factors these cannot be reduced and eliminated, the unhappening in the external factors are considered the reason for the external risks of the organization. The external risks of the business and common external risks are as follows-

1. Economy – The economy is the external factor that will lead to change in the business and the forecast of the business is highly impacted with the income economy can be considered as the highest affecting factor. When there is a boom in the economy it will help the business and when the economy is worse than it will be difficult for businesses to operate (Lockamy III, 2017).
2. Technology – Technology is rapidly changes over the period and therefore the changing technology will impact the business at their worst, there are many examples that well-established business houses and companies have been collapsed because of the change in the technologies such as Kodak, many watch companies, etc.
3. Political factors – Political factors are those factors that are beyond the control of the organization and the political factors are creating external risks for the purpose of the business organization. Change in government and government regulations and policies that has been created by the previous government and a change in those policies will affect the business either positively or negatively, it creates uncertainty for the business this is an external risk factor for the organization.
4. Legal factors – the legal rules and regulations have been changed regularly and the change in the laws and rules and regulations will impact the business. Different companies have been collapsed because of the change in the legal framework of the differentorganizations.

Apart from the above described external risks, there is another risk also described by the companies, the external risks of the companies are required to be reduced for the purpose of the success of the business and the project (Hanggraeni, ?lusarczyk, Sulung, & Subroto, 2019). In the current case, there are different external risks for the Altrex company, in the current case the companyhas the following risk and they can be reduced by adopting the different measures-

(i) Mitigating the risk of natural disasters – there are different risks associated with the different geographic therefore in the current case the company should plan the geographic after proper working. There is natural risk associated with Costa Rica and the working of the company is IT-related services, therefore, the natural disaster risk does not impact the company much but there are still some external risks that are associated with the natural disaster the company should work on accordingly to reduce the natural risks.

(ii) Competition associated with the business – In the current scenario there is a very high competition of the company around the business, the company has different competition from the companies of Tableau, Microsoft, IBM, SAP, and other companies therefore there is a huge competition that is out of control of the organization, to reduce the risk associated with the competition the company must find the unique selling point and consider the other information for the purpose of application of the products and prevent the business from the competition.

(iii) Legal issues – in the current case the company is considering launching a new application that will track the different activities of the users and keep the data of the activities of the users, the application of the company will provide the reminder facilities to the users and this application will provide a weekly task alerting system to the users the app will schedule the task meeting and other activities of the user therefore for the purpose of the working the application needs to preserve the private data of the users and it can create an integrity issue if in the future there are legal changes about the data privacy and data security-related matters than in such case the company faces an external risk to prevent from these changes the company must focus on the function of the data security and data privacy and prevent from any type of data theft in the working.

(iv) Economic issues – economy is not in the control of the organization and therefore the company must focus on its backup plan in the course of the worst economic scenario the company must diversify its business portfolio to keep safe from the economic slowdown. Therefore the company must focus on diversification and improving the performance to reduce external risk.

The company must follow the above-prescribed plans and the activities for the purpose of safety from the external risks by adopting the different measures of the activities the company can follow the above measures to reduce the external risk.

Microeconomic factors that will impact the business and investment decision
Microeconomic factors are those factors that will study the individual and the business, in this analysis, the identification of factors that will relate with the individual factors and the microeconomic levels are discussed. The different microeconomic factors of the general business decisions are as follows-

Competition – Competition is the microeconomic factor that is related with the individual business and with the economy, the competition cannot be the same for the different businesses in the globe in the current scenario the business of the Altrex company is highly competitive there are various well-established business houses that are in the competition with the Altrex company, the business organization needs to cut the competition by using different business models and identification of the unique selling specification of the project. The competition will impact the financial forecast of the company and also it impacts the decision of the company that whether to start the new project in the new location or not.

The elasticity of price – The services offered by the company is highly related to the price and the demand and price are highly correlated with each other the application and the IT services are highly price-sensitive the demand elasticity of the company is very high. Therefore the price elasticity of the company will impact the price of the product and also the demand of the product it will impact the decision of the company that whether to invest in a new project at a new cost (Graveline, and Gremont, 2017).

Current position of the company – Current position of the company and investors for the new project is the microeconomic factor that will also impact the decision of the company that whether to invest in the new markets or not. The investors will be made the funds available to the company for investment in the new project in case the company is not able to get sufficient investors than might be the company is not interested to invest in the new project, therefore it will impact the decision of the company whether to invest or not.

General public of the area –The general public of that area and the view of the general people of the area about the project and the investment of the new company will impact the decision of the company that whether to invest in the new area or not, the general public behavior towards the company and the application will impact the financial performance of the company (Zmija, 2017).

Alternate financial Scenarios
Alternate financial scenarios describe those areas and those circumstances that deviate from the current base case scenario in the alternate financial scenarios the project is analyzed with the adoption of the different circumstances. In the current case of the Altrex Company, the sales are changed to understand the working of the project in different financial scenarios At the level of different financial scenarios, the performance of the future year profits are as follows-

On the basis of the above table, it is visible that the average profit at the base case scenario is 66460 and if the sales decline by 20 % then the new average profit of the project will be 22594 that is a decline of 66 % and if the sales have been increased by 20 % from the previous level than the average profit will be 90797 that will be an increase of 36.61 % in the profits of the company.

On the basis of the above calculations and the graphs and described above it is clearly visible that the sale decline will hit the profits up to a larger extend and an increase of the sale by 20 % will not impact the profits to a larger extent. This shows the profits on the lower side are much impacted by the sale volumes and the profit on the higher side is not that much sense to the levels of the sales volumes. The above analysis will provide us a giddiness that if there are any changes in the terms of the sale volume and sale value in the lower side and there is any decline In the sales volume in the future years will impact the profits of the organization very high and it may impact the success of the project and the level of the project successful or not successful. In the current scenario, it is assumed that the cash flow of the organization will remain the same in the case of absence of the sufficient information about the impact of the change in the cash flows by the change of the sales. Therefore the financial forecast should be clearly identified and applied because there is very high sensitivity when the profits and the sales values are being compared.

Conclusion
In the above report different risk associated with the business is being discussed and an organization should consider all the relevant risk and opportunities whether internal, external microeconomic factors and the different sensitivity analysis of the result while making any decision about the investment in the new project.

References
Graveline, N. and Gremont, M., 2017. Measuring and understanding the microeconomic resilience of businesses to lifeline service interruptions due to natural disasters. International journal of disaster risk reduction, 24, pp.526-538.
Hanggraeni, D., ?lusarczyk, B., Sulung, L. A. K., & Subroto, A. (2019). The impact of internal, external and enterprise risk management on the performance of micro, small and medium enterprises. Sustainability, 11(7), 2172.
Kassem, M.A., Khoiry, M.A. and Hamzah, N., 2020. Structural modelling of internal risk factors for oil and gas construction projects. International Journal of Energy Sector Management. Lockamy III, A., 2017, July. An examination of external risk factors in Apple Inc.’s supply chain. Finance assignment In Supply Chain Forum: An International Journal (Vol. 18, No. 3, pp. 177-188). Taylor & Francis.
Martinez, M.G., Zouaghi, F., Marco, T.G. and Robinson, C., 2019. What drives business failure? Exploring the role of internal and external knowledge capabilities during the global financial crisis. Journal of Business Research, 98, pp.441-449.
Zmija, K., 2017. Microeconomic factors of the development of enterprises as perceived by rural entrepreneurs of the Ma?opolskie Province. Acta Scientiarum Polonorum. Oeconomia, 16(1).