What Is Operating Risk?

Operating risk is the possibility that the company's future operating cash flow changes due to changes in production and operation or changes in the market environment, thereby affecting the market value of the company. The degree of change in the value of an enterprise depends on the extent to which the changing factors affect the company's future sales, prices and costs. ^[1]

Operating risk

Certified Public Accountant

Basic classification of operating risk

In terms of the cause and effect of its formation, it can be divided into:

1. Pure risk and speculative risk. The difference between these two types of risk is that the consequences of the risk are different. There are only two consequences of pure risk, one is loss and the other is lossless. Such as transportation risks, property risks, and employee safety risks in enterprise operations. The result of speculative risk is profit, capital protection or loss. Such as securities investment risk, foreign exchange transaction risk, marketing risk, etc.

2. Static and dynamic risks. The difference between these two risks is the reason for the risk. Static risk is caused by natural forces or people's wrong behavior, while dynamic risk is caused by changes in economic or social structure. The former are earthquakes and shipwrecks, while the latter are exchange rate changes, tax reforms, energy crises, and so on.

For the Chinese business community, which is growing rapidly and the social environment is rapidly changing, operating risks are often caused by a variety of reasons. Therefore, the accounting countermeasures of enterprise operating risks should also be diversified.