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Abstract
Competitive forces with the unleashing of the liberalisation policy have made analysis of business and financial risk essential for survival and growth of business houses in India. With the change in the economic scenario, the earning trends and the financing policies in the Indian corporate sector have changed significantly. This leads to notable changes in the pattern of business as well as financial risks associated with the companies. Some of them have been able to adapt themselves to the new situation while others could not. In this backdrop, the present paper seeks to evaluate empirically the business and financial risks associated Hindustan Unilever Ltd. (HUL), the largest private sector company in Indian Fast Moving Consumer Goods (FMCG) industry during the 10-year period from 2002-03 to 2011-12. It has also been attempted to see how the return of the company reacted to the changes in aforesaid risks during the period. It has been observed that HUL managed to keep the overall business risk and financial risk at moderate level during the study period. The risks rather declined during the second half of the study period. Interestingly, negative correlations were seen between the risks and returns in the present study which contradicts the age-old theoretical foundation.
Keywords
Competitive forces, business risk, financial risk, return, FMCG
Introduction
With the change in the economic scenario, the earning trends and the financing policies in the Indian corporate sector have changed significantly. This leads to notable changes in the pattern of business as well as financial risks associated with the companies. The private and public sector enterprises in India have also been forced to reorient their operational, financial and managerial strategies for managing their risks in the competitive era. In today's challenging and competitive environment, efficient management of risk is an integral component of the overall corporate strategy to create shareholder value. In running the business, a company is exposed to various risks from within or outside the company. The total risk associated with a company can broadly be divided into two components, viz. business risk and financial risk. Business risk is inherent in the business operations of the company. It arises out of dispersion of the expected operating profitability of the company. The volatility of the company's...