NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
Company A reported sales of Rs 800 crore, of which Rs 320 crore came from its largest customer. Which measure of business risk does this indicate, and what is the share?
This shows customer concentration risk of 40 percent, because the largest customer contributes Rs 320 crore out of Rs 800 crore of sales. Heavy dependence on one buyer exposes revenue and margins to loss or renegotiation by that customer.
- ACustomer concentration risk, 40%Correct
- BSupplier concentration risk, 40%
- CCustomer concentration risk, 25%
- DGeographic concentration risk, 60%
Explanation
Share of the largest customer = 320/800 = 40%. Dependence on one buyer for revenue is customer concentration risk. The 25% figure comes from inverting the ratio incorrectly (800/320 = 2.5, or a mistaken base), and the others misname the risk.
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