Business finance

• Investment


  Funds engaged in profitable activities, otherwise it will be mere expenditure
• Questions to consider before an investment activity

  • Why is there a need for investment?
  • How much will it cost? How much funds is the investor willing to put into this investment?
  • How big are the chances of gaining or losing from this investment?
  • How long will the investor make hold of this investment?
• Investment risks


  Uncertainties or chances that the outcomes of investments are different from what is expected or projected
• An investor may lose as much as Php 2.5 million if franchising is chosen over establishing a store from scratch under the same economic conditions
• Investment returns


  The expected or projected profits to receive from an investment
• Franchising will give the greatest possible return primarily because of the established market strengths of a well-known business name, continuous support from the parent company, distribution of negative economic impacts, and provision of promotion, branding, and goodwill
• Risk-return trade-off


  Lower risk tends to give lower returns while higher risk tends to give higher returns
• Risk tolerance


  The level of acceptance of risk by an investor, classified into conservative, moderate, and aggressive
• Conservative risk tolerance


  • Willingness in accepting risks is very low, expects to gain profit with little to no disadvantage
• Moderate risk tolerance


  • Willing to put average resources and accept some risks, expects to gain above-average profit while enduring little disadvantages, more likely to pull-out an investment if risks are uncontrollable
• Aggressive risk tolerance

  • Willing to put more resources and accept maximum risks on high-quality investment with high expectation of return, has great knowledge about the industry and is willing to keep the investment at a longer holding period until investments create the highest possible return but is prepared for the worst - losing the entire investment
• Portfolio management


  The planning of investment opportunities based on the risk tolerance of an investor, to meet the financial objectives at a given time frame
• Investment diversification


  Putting resources into different investment "baskets" to reduce or spread the risks of losing all investments
• It is important that investments have clear financial objectives, and time should be the investor's ally because time is one key for funds to grow
• Harvesting investments too early may be more damaging to finances and objectives, and continuous market study is required to enjoy substantial to maximum profits