What is profit risk?

This is a risk management tool focusing on a firm's income statement. If the income statement is too highly concentrated in a specific area, this could lead to a high level of profit risk.

Where have you heard about profit risk?

It's mainly used in the financial services industry. This is because it works well alongside other measures you might have heard of, such as credit risk management and asset liability management.

What you need to know about profit risk.

If a company gets most of its earnings from a limited number of customer accounts, products or delivery channels, then losing just a few of these would cause it to lose earnings. This would increase the firm's net income volatility and put it at a level of profit risk that is unlikely to allow it to sustain its net income. One way firms try to manage their profit risk is through diversification strategies, similar to the way an investor might try to increase the diversity of his or her portfolio.

Find out more about profit risk.

Profit risk is not to be confused with profit at risk. Find out more about what this means.