BUSINESS AND FINANCIAL RISKS IN RELIANCE INDUSTRIES LIMITED: AN EMPIRICAL INVESTIGATION

Abstract

Risk exists because lack of certainty in future. Risk attached to a firm can be categorised as business risk and financial risk. Present study attempts to analyse various company specific risk indicators in context of business and financial risks. These indicators namely; degree of operating leverage, fixed asset to total asset ratio, degree of financial leverage, debt equity ratio and degree of combined leverage have been analysed with various statistical tools such as descriptive statistics parameters like mean, median, standard deviation and skewness etc., correlation and regression. Total study period has been bifurcated into first half (2008-2012) and second half (2013-2017). These two separate periods then analyzed and compared with each other along with the entire period. A linear regression analysis has also been done to examine the extent of impact of DOL and DFL on DCL. Association between D/E ratio and FATA has also been examined. Various correlation measurement criteria namely; Pearson’s correlation, Spearman’s rank correlation and Kendall’s correlation have been applied to examine the degree of association between risk and return of RIL. Findings reveal that during the study period, covering last ten years, RIL experienced rise in overall risk influenced more by operating risk. Pearson correlation matrix exhibits statistically insignificant association between debt equity and FATA. Further, study also observed negative association between risk undertaken and return generated by RIL. Such association contradicts established theoretical arguments toward positive association between risk and return.