What might indicate a high business risk in a company?

What might indicate a high business risk in a company?

• A. A high level of product diversification
• B. A strong cash flow
• C. A narrow market focus
• D. A robust management team

Answer: (C)

A narrow market focus can indeed indicate a high business risk for a company. When a business concentrates on a limited segment of the market, it may become vulnerable to changes in that specific market sector. For instance, if the market experiences a downturn, regulatory changes, or shifts in consumer preferences, the company may struggle significantly, as it lacks the diversification needed to mitigate such risks. Companies with a narrow market focus might also face intense competition within that small market, which can further heighten their exposure to risk. In contrast, having a high level of product diversification can actually serve to lower business risk by spreading exposure across different markets. A strong cash flow indicates financial stability, providing a cushion to navigate economic challenges. Similarly, a robust management team can effectively steer a company through difficulties and capitalize on opportunities, thus further reducing risk. Therefore, a narrow market focus presents a clear indicator of heightened business risk, making it a crucial element to consider when assessing a company's overall risk profile.

A narrow market focus can indeed indicate a high business risk for a company. When a business concentrates on a limited segment of the market, it may become vulnerable to changes in that specific market sector. For instance, if the market experiences a downturn, regulatory changes, or shifts in consumer preferences, the company may struggle significantly, as it lacks the diversification needed to mitigate such risks. Companies with a narrow market focus might also face intense competition within that small market, which can further heighten their exposure to risk.

In contrast, having a high level of product diversification can actually serve to lower business risk by spreading exposure across different markets. A strong cash flow indicates financial stability, providing a cushion to navigate economic challenges. Similarly, a robust management team can effectively steer a company through difficulties and capitalize on opportunities, thus further reducing risk. Therefore, a narrow market focus presents a clear indicator of heightened business risk, making it a crucial element to consider when assessing a company's overall risk profile.