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Company-Specific Risk

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Company-specific risk

Company-Specific Risk
An unsystemic risk specific to a certain company's operations and reputation. For example, if a widget wholesaler has only one supplier and the supplier goes bankrupt, this could greatly impact the wholesaler's sales, profits, and other operations. Also, a company may have a bad reputation, making their operations difficult in a certain area. For example, a company that refuses to hire union workers might prove unprofitable if it opens a branch in a strongly pro-union town. Company-specific risks are difficult to quantify and thus qualitative analysis is needed to determine their natures and likelihoods. They may be reduced by appropriate diversification.


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Also look at the same types of factors you would use when determining company-specific risk factors for building a capitalization or discount rate.
Small businesses have much more company-specific risk than larger companies--Discount rates, used to value businesses, have a "company-specific risk factor.
But this is market risk, not company-specific risk, and when a recession appears imminent, Adamo and his team can decide whether to sell or ride it out.
 
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