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Question: Risk analysis Outline and comment on the risk (both systematic and unsystematic risk) profile of the company.
Solution:
Company: Bluescope Steel Limited
Systematic Risk: Such risks are inherent risk which are in lieu of the stock market. One of the measures to measure such risk is Beta, which measures the volatility of the stock in relation to the market. The beta of the stock is 1.34. Positive beta indicates, that the stock moves in the same direction as the market, however, being beta greater than 1, the prices of the stocks will tend to increase 1.34 times, in comparison to the change in prices of stock market. Hence, the stock is more sensitive to systematic risk and is highly volatile. The stock will perform better in bullish market.
Unsystematic Risk: Unsystematic risks are industry risks, or the ones directly related to the entity. Some of them can be enumerated as under:
• Downturn in the world economy
• Decline in the prices of the steel or increase in raw material prices
• Exchange rate fluctuations
• Increase in competition, etc.
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