Investment 101: The Risk and Return Concept

Posted by D&V Accounting Services
Aug 03, 2015
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Investment 101

Your cashflow is considered as the prime mover of your business. Without a steady and reliable inflow of cash, your business will be greatly challenged with budgeting and expense management. The good news is, there are many ways to keep your cashflow healthy. One of such is to invest your hard-earned capital, thus making your money work for you. Note, though, that before making any serious business financial decision, you need to have a clear understanding of some important investment concepts, such as risks and returns.

Investment risks and returns

The concept of risks in investments invariably goes with the concept of returns. This is why you need to be certain that you understand the relationship between risks and returns before you go ahead and leap right into investments. By knowing the basics behind risks and investments, you can make better investment decisions, driving more profitability to your business.

The risk and return relationship

There are certain investments that are riskier than the others. Meanwhile, there are also those that we consider “safe”, primarily because they are low in risk. Clearly, investment risks have a direct relationship with your expected returns. If a particular investment comes with high risks, its probable returns could be very profitable. On the other hand, if the said investment comes with low risks, then your expected returns could be minimal as well.

Assessing risks and returns

There are many different ways to ensure that your investments will gain the profit you have in mind. To date, one of the more effective means to succeed in investments is to carefully assess risks and returns. As a business owner, you can assess prospective risks and returns by identifying your return on investment ratio. This ratio is very essential as it gives you the clear picture on the profitability of the money you have put in your investment. It will also help you check whether your investment has indeed been a success or not.

Investments could play a big role in your wealth generation initiatives. You can keep your revenues up if you have a good investment strategy which includes a tight grasp of risks and returns such as analysis of the return on investment ratio.

Make your money work for you through strategic investments. But before all that, you should know your critical business numbers very well. Do your business accounting differently by outsourcing your finance and accounting requirements with us. Contact us for more information.


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