Risk and Return In Corporate Finance. This Ppt Would Give An Insight Into An Important Aspect Of Corporate Finance- "Risk And Return". I Have Tried Explaining The Concept Of Risk And Return In A Very Simple Manner To Give A Better Understanding.The Correlation Between Risk And Return Has Also Been Explained. After Going Through These Slides One Would Be Able To Understand The Relative Importance Of Taking Into Consideration Both Risk Involved And Return From The Financial Asset And Why Is It Important To Measure The Relative Risk And Return Before Making Any Important Investment Decision. Both The Perspective of Corporations As Well As Investors Has Been Taken Into Consideration

1. CORPORATE
FINANCE
RISK AND RETURN

2. BASICS OF CORPORATE FINANCE
• Interactions between the corporations and investors for
trading of financial assets
• Selling of securities like equity, debt, commercial paper are
all the ways through which a corporation tries to generate
funds from the investors
1. Corporation’s perspective :-
• To meet the financing requirement in lowest possible cost

3. CONTINUED
• Using the generated fund in best possible investment projects
to acquire beneficial business returns from there
• These business returns need to be greater than the cost of
raising fund so that the returns could be provided to the
investors who allocated their fund in business by buying the
securities
2. Investor’s Perspective :-
• Financial analysis by measuring the risk associated and return
expected before making purchase decision to ensure future
benefit

4. Corporations
They would try
to ensure
maximization of
shareholder’s
and investor’s
wealth by
making sound
investment
decisions after
analyzing the
market trends
Investors
They would try
to make a
balanced
decision on the
basis of risk
involved and
return pattern
from the
purchase of
particular
financial asset
Generates Fund
Provides Fund
Sell Securities
Buy Securities

5. RISK AND RETURN- AN OVERVIEW
1. Risk- Future uncertainities that may lead to variability in the actual
return when compared with the expected return
• The objective of making sound financial decision is not to eliminate
the risk but to measure it and determine whether the risk bearing
would be useful as and when compared with the expected return
2. Return- Final outcome of investment made in purchasing the
securities. It may turn out to be profit or loss depending upon the
market scenario
• The expected return is higher with higher risk associated and vice-

6. RISK AND RETURN- A
CORRELATION
Return
Risk
Share
s
Bond
s
Fixed
Deposits

7. WAYS TO CALCULATE RISK AND
RETURN
• Return
Periodic Return
Arithmetic Mean Return
Geometric Mean Return
• Risk
Standard Deviation
Beta

8. THANK YOU FOR WATCHING
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