Managers of any organization usually several financial goals. They plan the movement of resources and use cash to maintain adequate cash flow or liquid assets for your organization. They also struggle to maintain the solvency of the organization and to avoid its bankruptcy. In addition, managers of companies whose shares are quoted on the stock exchange, trying to maximize the market value of the company.
The primary financial objective of most public organizations is to increase the market valuation (capitalization) of the company by maximizing the present value of future cash flow ( cash inflow minus cash outflow ). Theoretically, investors assess the public authority, trying to determine the size of future cash flows. Then they discount the expected cash flows to the present time to assess the current market value of the organization. If the organization is developing a successful new product, investors are likely to increase the current market assessment of the entity's shares, based on the assumption that the future cash flow from the production will be much greater.
Risk level (degree of Risk) , or volatility (volatility) , associated with the future cash flows will also affect the market value of public organizations. The higher the risk, the higher the discount rate, which investors use when planning the expected future cash flow of the organization. (This is especially true when assessing systemic risk that investors can diversify by buying shares of many companies of various types.) The higher the discount rate, the lower the present value of the cash flow of the organization and below the current market assessment of the organization. Consequently, there is an inverse relationship between the risk associated with cash flow organization, and its market value.
Financing risk - an integral part of the overall financial management of the organization, so that most of the financing of risk should be derived from the financial goals of the organization and support them. To increase its market valuation (value), a public organization must carefully manage costs for risks, which include minimizing costs per unit transferred and left on their own risk retention when the result should be a sufficient return on the risky asset.
Income (return) from the left on the net retention of net risk can be measured as the cost savings associated with the transfer of risk (assuming that the organization has the option to transfer or leave your own risk). Private and non-profit organizations must also manage their costs to compensate for the risk, taking into account that their primary financial goal - providing the necessary services - more significant than the increase in its market value. In any case, the organization must keep the risk at a level where it can take the possible variability of the results of losses (Loss Outcomes of variability) .
To manage their costs associated with the risks and maintain an acceptable level of uncertainty left on the net retention risk, an organization must manage all the sources of their risks by integrating them (associations). As will be described later in this chapter, this approach is preferable to other methods to help organizations define their goals financing risk.
