Business Risk in NTPC Ltd. During the Pre-Liberalization and Post-Liberalization Periods: A Comparative Analysis

Abstract

Business organizations are much of substance to us because they arrange to provide the means by which we realize our preferred ends. Our individual opportunities and achievements vis-a-vis the societal accomplishments largely depend on the effi cient running of these organizations. Effi ciency of business organizations basically refers to the earning capability and earning capability, by and large, depends upon the fact that in what way and in what pace the fi rm acclimatizes itself with its environment because environment dominates the operating activities of a fi rm, which in turn, aff ects its risk profi le. Hence, it is not hard to understand that all fi rms are to face some form of risk at one time or other of earning stable returns at the backdrop of the ever-changing character of the environment where business operates and interacts. Considering the stiff competition that exists in the contemporary corporate world, understanding, analyzing and measuring business risk are immensely important to the corporate executives to instigate managerial effi ciency and excellence. Business risk of a company stems from its business operations and is caused by a number of factors that are generally categorized as economy-specifi c, industry-specifi c and company-specifi c. It is, in fact, results from the precariousness of the company's competence of creating operating surplus. Economy risk, industry risk and company risk-these three components of business risk originate from economy-specifi c factors, industry-specifi c factors and company-specifi c factors respectively. Th e genesis of company risk lies in instability in company's one or more fronts, important of which are instability in cost behaviour pattern, inconsistency in revenue generating capability using long term funds and instability in short term debt paying capability. Th ese weaknesses lead to cost structure risk, capital productivity risk and liquidity risk. Th e economy risk and industry risk associated with a company remain largely irrepressible while it is, to some extent, possible for the company to exercise control over the risk distinctively connected with its company-specifi c components, i.e. capital productivity risk, cost structure risk and liquidity risk. Th e present study is an eff ort to assess the business risk along with its company-specifi c components associated with NTPC Ltd, the only Maharatna Company in the Indian public sector, and also to make a comparison of its risk-return status between two periods, i.e., the pre-liberalization period and the post-liberalization period.