THE RELATIONSHIP BETWEEN PROFITABILITY AND ECONOMIC RISK IN BUSINESS. METHODS FOR ESTABLISHING PROFITABILITY THRESHOLDS

Abstract

Depending upon the precise nature of a business, and its position in the economic environment, the success of that enterprise may be affected to a greater or lesser degree by socio-economic factors: increasing energy prices, rising salaries, pressure from competitors, technological innovation, and so forth. The degree to which success may be affected in this way represents a proportionate level of risk to the potential investor in the company. However, economic risk is not determined only by external factors, but by cost structure, performance and productivity. Taking this into account, economic risk assessment must be calculated with reference to the profitability threshold.