What is trade-off between profitability and liquidity?

Profitability – A measure of the amount by which a company`s revenue exceeds its relevant expenses. If you are on the line and move towards one,you automatically move away from the other.In other words, there is a trade – off between liquidity and profitability.

What is the risk/return trade-off?

The risk-return tradeoff states that the potential return rises with an increase in risk. According to the risk-return tradeoff, invested money can render higher profits only if the investor will accept a higher possibility of losses.

What do you mean by trade-off?

A trade-off is a kind of compromise that involves giving up something in return for getting something else. When looking you for an after-school job, you might have to make a trade-off: a lower hourly wage for a more convenient location, for example.

What are the trade offs in net working capital management?

The trade-off between profitability and risk is the key to working capital management. Too little working capital increases profit but reduces liquidity, as current assets are more expensive than fixed assets. For instance if a management feels that worker training is a cost they will apportion less funds for it.

Does higher risk mean higher return?

Definition: Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return. This trade off which an investor faces between risk and return while considering investment decisions is called the risk return trade off.

What’s the trade off between probity and risk?

In evaluating a film’s NWC position, an important consideration is the trade off between probity and risk. In other words, the level of NWC has a bearing on profitability as well as risk term profitability used in this context is measured by profits after expenses.

How to calculate the trade off between risk and return?

To do so, we have to obtain the equation that would give his risk-return trade-off. This equation, again, is obtained by rewriting equation (7.1): Equation (7.9) is a budget line because it describes the trade-off between risk (σ Rp) and expected return (R p ).

Which is a better tradeoff between risk and reward?

For example, a portfolio composed of all equities presents both higher risk and higher potential returns. Within an all-equity portfolio, risk and reward can be increased by concentrating investments in specific sectors or by taking on single positions that represent a large percentage of holdings.

Which is a tradeoff between uncertainty and risk?

Using this principle, individuals associate low levels of uncertainty with low potential returns, and high levels of uncertainty or risk with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if the investor will accept a higher possibility of losses .