Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance

When analysing a company's business model, an analyst finds that most of its revenue comes from one customer. What is the most appropriate interpretation of this finding?

Heavy dependence on one customer is customer concentration risk. If that customer leaves or negotiates lower prices, the company's revenue and margins could fall materially. It signals weaker diversification and usually greater customer bargaining power, not lower business risk.

  1. AIt indicates customer concentration risk, as loss of that customer could materially reduce revenueCorrect
  2. BIt indicates strong diversification of the revenue base
  3. CIt shows the company has high bargaining power over customers
  4. DIt signals that the company has no business risk

Explanation

Dependence on a single customer exposes the company to customer concentration risk, and that customer usually holds strong bargaining power over pricing and terms. Therefore diversification and low risk claims are incorrect, and the company's bargaining power is not high.

Did you get it right without looking?

One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.

Practise Company Analysis - Business and GovernanceFree diagnostic mock

More Company Analysis - Business and Governance questions