Finance Functions in a Two-Parameter World of Risk and Return

question 62

Essay

Finance functions in a two-parameter world of risk and return.Define risk and return in a financial sense and discuss how these two concepts are "joined at the hip."

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Definitions:

Receivables Ratio

The Receivables Ratio, also known as the Accounts Receivable Turnover Ratio, measures how efficiently a company collects cash from its customers by comparing sales to the average receivables.

Outstanding Accounts

Accounts or invoices that have been billed but not yet paid by customers.

EBIT

Earnings Before Interest and Taxes, a financial metric indicating a company's operating profitability by excluding interest and taxes from earnings.

Interest Expense

The cost incurred by an entity for borrowed funds; interest expenses are a non-operational cost affecting the company’s net income.