Financial Risk Management and Performance of Selected Business Organizations

Financial Risk Management, Organizational Performance, Liquidity Risk, Credit Risk, Profitability, Collected Data.

The impact of financial risk management on the performance of an organization may be manifested in the following aspects: 1. Liquidity; 2. Credit; 3. Market sensitivity; 4. Financing stability. In this study, these relationships are explored quantitatively using a simulation of some business organisations, without considering risk management practice as a separate entity from the financial exposure. There are 30 manufacturing organisations over 5 financial years (2020/21 to 2024/25) which equals 150 organisation years. Financial performance measured by return on assets, net profit margin and operating cash flow as a ratio of average total assets. The disclosure score is based on 8 items, risk management practices; and liquidity, receivables and leverage items are financial exposures. Descriptive statistics, correlations and regression analysis performed, including organizational and year effects and adjustments for repeated observations. The modified model is based on 147 full observations. For the simulated data, we find that the disclosure score is linearly related to the return on assets with a coefficient of 0.290 percentage points per increase in the disclosure score. There is no apparent adjusted relationship for the current ratio, while longer receivables collection periods are correlated with lower profitability. There are 19 observations that show that the accountant's profit is not matched by cash generation. These patterns are evidence of the need to consider the profitability in terms of cash availability and differentiate management practices from financial results. Cash forecasting, monitors receivables, reviews financing and overses risks become priorities for empirical research. The results, however, are based on data that have been created and assumptions that are made, which means that they are not evidence of organizations nor causal validation. This framework should be used in future studies that rely on audited organizational data to validate the model, interview managers to ensure that the practices are being applied as intended, and explore the relationship between individual practices and subsequent performance in the context of financial stress.