Profitable Risk

Sri Lankan Prime Minister Ranil Wickremasinghe (2nd R) arrives to visit the site of a bomb attack at St. Anthony's Shrine in Kochchikade in Colombo on April 21, 2019. - A string of blasts ripped through high-end hotels and churches holding Easter services in Sri Lanka on April 21, killing at least 156 people, including 35 foreigners. (Photo by ISHARA S. KODIKARA / AFP) (Photo credit should read ISHARA S. KODIKARA/AFP/Getty Images)

Risk management is important for any company to deliver optimum shareholder value. For highly leveraged entities like banks, risk management takes an even more important role. Companies can earn economic profits, only if risks are managed. Risk management is important for any company to deliver optimum shareholder value. For highly leveraged entities like banks, risk management takes an even more important role. Companies can earn economic profits, only if risks are managed. If risks were not managed, a firm would not be able to make profits as private enterprise is all about assuming risk with a view to making profits.


“The new risk management not only seeks to mitigate, control risks and avoid losses from your normal operational activities. You create value by exploiting risks to your advantage. It allows firms to earn higher return on capitals. You focus on long term basis what your company does to your capital,” said David Belmont, Temasek Holdings speaking at a seminar organized the by the Sri Lanka Chapter of the Chartered Financial Analysts Institute.


A firm would pay interest on borrowed capital. The profits go to holders of share capital. Economic profits are earned only, when a firm can deliver returns higher than oth