OPTIMIZING RISK STRUCTURE IN CONNECTION WITH THE CORPORATE LIFE CYCLE AND SECTOR CYCLICITY

Transcription

1 ACTA UNIVERITATI AGRICULTURAE ET ILVICULTURAE MENDELIANAE BRUNENI Volue Nuber 3, OPTIMIZING RIK TRUCTURE IN CONNECTION WITH THE CORPORATE LIFE CYCLE AND ECTOR CYCLICITY Zdeněk Konečný 1, Marek Zineker 1 1 Departent of Eonois, Faulty of Business and Manageent, Brno University of Tehnology, Antonínská 548/1, Brno, Czeh Republi Abstrat KONEČNÝ ZDENĚK, ZINECKER MAREK Optiizing Risk truture in Connetion with the Corporate Life Cyle and etor Cyliity. Ata Universitatis Agriulturae et ilviulturae Mendelianae Brunensis, 64(3): Entrepreneurial ativities and thus also investents are onneted with two kinds of risks, naely with the operational and finanial risk. Both of the are dependent espeially on the orporate life yle and on the setor sensitivity to the eonoi yle. The ain ai of this artile is to propose a ethodology supporting anagers and investors when estiating the shares of operational and finanial risks in the entrepreneurial risk with taking into aount the orporate life yle and the setor sensitivity to the eonoi yle. This ethodology is subsequently applied in a seleted opany in the for of a ase study and thus their results prove its pratial appliability for both finanial anagers and potential investors as deision akers. This study relies on both seondary and priary data that were olleted using databases and a sei-strutured questionnaire. The data were proessed by using desriptive statistial ethods and a ase study. The proposed ethodology onsiders the atual phase of the orporate life yle and the degree of setor sensitivity to the eonoi yle. Deterining the risk struture should siplify the risk anageent and subsequently raise the apital aess. The ethodology also ontributes to investent deision-aking, beause the investors an assess investents with regard to their risk profile. Keywords: onetary poliy, business yle, aroeonois, iroeonois, anageent, orporate life yle, finanial risk, operational risk, investent deision-aking, risk anageent INTRODUCTION External finaning fro different types of investors represents a signifiant ite of apital in ost enterprises. Although every investent is onneted with additional expeted revenues, the risk ust be also onsidered, whih is arried by investors. The fator of risk is essential for investents in both real and finanial assets. Furtherore, the atual theory distinguishes the risk and the unertainty. As the risk, there is regarded not all type of unertainty, but just this one, whih is quantifiable. A very suitable tool for identifying and easuring risks is the fundaental analysis of finanial stateents, beause both the anagers and investors an get any iportant data just fro these douents. The entrepreneurial risks an be, aording to Reiners (2004), divided into operational and finanial risks. The operational risks follow fro either aroeonoi or iroeonoi environent, or they have their origin in the entrepreneurial ativities theselves. The finanial risks are related to using external apital, espeially debt. A very iportant fator influening the degree of both kinds of the entrepreneurial risks is the orporate life yle. In eah phase apital providers arry another degree of the individual risks. There is neessary to ephasize, that every phase is onneted with soe speifi risks. iilarly to the orporate life yle, there is suitable to onsider the relation between the arket life yle and the 949

2 950 Zdeněk Konečný, Marek Zineker eonoi yle, beause soe setors are ore sensitive to the eonoi yle, whih deterines a higher degree of risk, opared to other setors. The finanial anagers should be able to identify and easure operational and finanial risks in every phase of the orporate life yle. Thanks to this opetene they an anage these risks ore effetively and they an subsequently obtain new investors and keep the atual investors, beause suh investent would be ore attrative for the. For the purposes of easuring operational and finanial risk the input data should be easily aessible not only to anagers, but also to investors, beause the investors want to verify, whih degree of operational and finanial risks is arried by the. As there was written above, these input data an be found in finanial stateents that are set aording to doesti or international aounting standards. THEORETICAL BACKGROUND First of all, there are reorded the ost iportant harateristis of individual phases of the orporate life yle. ubsequently, relations between the orporate life yle and the degree of operational and finanial risk are desribed. There is expeted, that the orporate life yle onsists of four phases as entioned by Reiners (2004), naely foundation, growth, stabilisation and deline. No previous paper has, to our knowledge, dealt with the issue of the risk struture related to the setor sensitivity to the eonoi yle. There is just generally known, that doing business in neutral setors is less risky opared to ylial or anti-ylial setors. Corporate Life Cyle In the phase of foundation, the value of gross investents inreases, aording to Reiners (2004), a little faster than depreiation, thus the value of net investents is positive. In the phase of growth both gross investents and depreiation inrease rapidly, the value of net investents inreases not rapidly but just slowly, beause depreiation inreases ore slowly than gross investents. In the phase of stabilisation depreiation is approxiately equal to gross investents and so the net investents are at first onstant and subsequently are getting to derease ildly. In the phase of deline, depreiation exeeds the gross investents, and so the net investents are negative. Aording to Reiners (2004) the apital need inreases at first onvexly, subsequently the inrease has been slowed down and at the end of the phase of growth or at the beginning of the phase of stabilisation the apital need reahes its highest values. Afterwards, the need for apital dereases onavely. At the beginning of the phase of foundation the entrepreneurial ativity are finaned alost exlusively by equity. Later the possibilities of getting debt inrease thanks to growing perspetive of the opany. The highest share of debt is at the beginning of the phase of stabilisation. In the phase of deline the reditors are less willing to provide their soures and so there doinates the finaning by equity again (Reiners, 2004). Bender and Ward (2009) ae to siilar onlusions; aording to their study the opanies in the phases of foundation and growth should be finaned by equity, in the phase of stabilisation by debt and in the phase of deline they should redue the indebtedness. Nývltová and Režňáková (2007) reord, that during the orporate life yle the opany has different possibilities to obtain funds fro the finanial arket to ondut investents. In the phase of foundation the enterprising an be finaned just by entrepreneurial deposits. During the phase of growth finanial soures provided by business angels and leasing opanies an be used. The phase of stabilisation is haraterized by the best aess to apital. There an be used various types of equity and debt like bank loans, venture apital or bond and share issues. There is expeted, that in this phase the sale to a strategi partner or ergers and aquisitions an be ipleented and so the opany does not have to swith to the phase of deline. A speifi external finanial soure is venture apital. Is it available for a opany alost in all phases of its life yle, but ost often in the growth- and stabilisation- stage, when the degree of entrepreneurial risk is not very high. E.g. ilvola (2008) entions that the venture apital is ostly used in opanies in the phase of stabilisation and in opanies that expand after a risis again. Internal soures like depreiation, profit and long-ter finanial reserves an be used at any tie, but their aount depends on the phase of the orporate life yle. Daodaran (2004) reords that in the phase of foundation the internal soures are very low or even negative beause of a deep reahed loss. That is also valid for an early growth, whih is usually rapid and is onneted with large investents. During a further growth are already internal soures generated, but their aount is relatively low onsidering the required aount of finanial soures for further investents. The internal soures are alost suffiient to finaning investents during the stabilisation and in the phase of deline their aount is higher than the need for finanial soures beause of a dereasing nuber of investents. Aording to Pashley and Philippatos (1990) in the phase of stabilisation and espeially deline opanies keep a higher liquidity. This is related to the ability of paying out dividends. Reiners (2004) points out that the highest probability of over indebtedness is reahed at the beginning of the foundation phase and during the deline. On the ontrary, the lowest probability is reahed at the beginning of growth. Aording to Reiners (2004) the sales are at the beginning of the phase of foundation equal to

3 Optiizing Risk truture in Connetion with the Corporate Life Cyle and etor Cyliity 951 zero, beause the opany still does not put its produts on the arket. In the phase of growth the sales are inreasing onvexly, at the end of growth slows down this inrease and during the phase of stabilisation the sales reah their axiu and then they derease onavely. iilar ourses during the orporate life yle also have, aording to Kislingerová (2010), the operating profits and losses. The only differene is in the fat that in the phase of foundation and deline even negative values an be reahed. Furtherore, authors Jenkins, Kane and Velury (2004) found out, that in the phase of growth the hange of sales has a greater influene on the orporate value than the returns, whilst in the phase of stabilisation the influene of returns is greater and in the phase of deline the orporate value is ore influened by the returns than by the hange of sales. Reiners (2004) reports that in the phase of foundation the ash flows tend to be negative beause opanies ondut any investent projets. Next, the ash flows inrease gradually, up to the phase of stabilisation, and in the phase of deline the ash flows derease rapidly to the negative values, whih eans, that the expenditures are higher than inoes again. The volatility of ash flow is the highest at the beginning of the phase of foundation and then it dereases rapidly. During the phase of growth and stabilisation the ash flow reahes its lowest values. Therefore opanies an during these phases set the ash flow plans with a relatively high exatness. On the ontrary, in the phase of deline this is not possible, beause the volatility of ash flow inreases with an inreasing degree of risks. The arket value of a opany is at the beginning of the phase of foundation, aording to Reiners (2004), equal to zero, and then it inreases and reahes its axiu in the phase of growth. During the phase of stabilisation and deline the arket value dereases and reahes its zero value again. Copanies should, aording to Bender and Ward (2009), pay out no dividends in the phase of foundation. Dividends an be paid out in the phase of growth, but only in a inial extent. Paying out dividends should inrease onsiderably in the phase of stabilisation and their highest value is reahed in the phase of deline. Corporate life Cyle and the Operational and Finanial Risk The operational risk is related to ipleenting the enterpreneurial ativities. The finanial risk has its origin in finaning these ativities. Exaples of both operational and finanial risks are speified by Reiners (2004). Bender and Ward (2009) point out that the operational risk reahes the highest value in the phase of foundation. However it dereases peranently during the following phases. The developent of the finanial risk is the opposite. Both operational and finanial risks are oderate in the phase of stabilisation. There are used soe indiators for easuring both kinds of risk, entioned e.g. by Yan, Yu and Huang (2005), Nielsson (2009) or Doff (2008). Measuring the operational and finanial risk separately is possible by using the approah by Reiners (2004). This author easured the operational risk aording to the ash flow volatility and the finanial risk aording to the rate of indebtedness. His findings point out the ipat of the one-perent inrease in the ash flow volatility or in the rate of indebtedness on risk rewards of owners and reditors during the orporate life yle. There was found out, that oneperent inrease in the ash flow volatility auses alost a five-perent inrease of reditors risk rewards at the beginning of the phase of foundation. This inrease is less onsiderable in the next phases and in the phase of deline the reditors risk rewards inreased just by 2%. The owners risk rewards reat to one-perent inrease in the ash flow volatility alost not at all in the phase of foundation. In the following phases of growth and stabilisation the risk rewards of owners derease in a oderate way and in the phase of deline the risk rewards of owners derease onsiderably (up to by 40%). This is a onsequene of one-perent inrease in the ash flow volatility. The risk rewards of owners reat in a siilar way during the orporate life yle as a onsequene of one-perent inrease in the rate of indebtedness. The risk rewards of reditors inrease, as a onsequene of one-perent inrease in the rate of indebtedness, just slightly during the phase of foundation. However, during the phase of growth, they inrease onsiderably and the highest inrease (up to 10%) is reorded during the phase of stabilisation. In the phase of deline the inrease of reditors risk rewards is less onsiderable beause of one-perent inrease in the rate of indebtedness. Furtherore, Reiners (2004) addressed the issue if the owners opared to reditors inlude into their risk alulations ore operational or finanial risks during individual phases of the orporate life yle. To find out this, there was used the indifferene urve analysis. The axis x represents the rate of indebtedness (in %) and the axis y the ash flow volatility (in %). ubsequently, there was found, how any perentage points the ash flow volatility ust derease to keep the sae risk reward for both the owners and reditors, if the rate of indebtedness inreases by a ertain nuber of perentage points. There was found out, that in the phase of growth the owners are, opared to the reditors, ore sensitive to the finanial risks, whilst the reditors are ore sensitive to the operational risks. In the phase of stabilisation and deline this rule is also valid; oreover it is valid ore and ore distintly. The phase of foundation is very speifi, beause in the ase of owners the isoquants are growing, whih eans, that when the rate of indebtedness is inreasing the ash flow uss inrease as well to keep the risk rewards of owners on the sae value.

4 952 Zdeněk Konečný, Marek Zineker The next speifi harateristi is the fat, that the isoquants representing the preferenes of owners and reditors do not have the lassi shape of a line, whih is usual for the reaining phases of the orporate life yle; on the ontrary they have the shape of a broken line. OBJECTIVE The ain ai of this artile is to propose a ethodology supporting anagers and investors when estiating the shares of operational and finanial risks in the entrepreneurial risk with taking into aount the orporate life yle and the setor sensitivity to the eonoi yle. This ethodology is subsequently applied in a seleted opany in the for of a ase study and thus their results prove its pratial appliability for both finanial anagers and potential investors as deision akers. No previous paper has, to our knowledge, dealt with the issue of the risk struture related to the setor sensitivity to the eonoi yle. The proposed ethodology onsists in unifiation of three odels, desribed in our previous studies. The otivation for unifying the into one ethodology onsists in onsidering the arket (setor) data in eah odel. The odel of the risk struture deterination (Konečný and Zineker, 2015a) enables, based on the quantifiation of the share of operational risk, onsidering the relation between the return on equity of an individual opany and the return on equity on the arket. The return on equity depends onsiderably on sales and it is influened not only by the aount of profit or ash flow, but also by the value of equity. In the seond odel (Konečný and Zineker, 2015b) the sales are onsidered as the ain indiator serving for identifiation phases of the orporate life yle. There are opared the values of sales in the opany with the values of sales on the arket. Furtherore, the sales on the arket are influened also by the rate of the setor sensitivity to the eonoi yle and its quantifiation enables our third odel (Konečný, 2013). The rate of setor sensitivity to the eonoi yle is alulated by using the pearan orrelation oeffiient beause of its appliability for two quantities, that do not have a noral distribution, and siultaneously for two quantities, whose orrelation is not linear. Thus the setor sensitivity is not deterined aording to the Pearson orrelation oeffiient, whih is used, in a odified for, by Beran and Pfleeger (1997) and whih was proposed in Konečný (2013). The shee representing the interonnetion of partial odels used in the ethodology and areas for its appliation is illustrated in Fig. 1. DATA OURCE AND METHOD This hapter is divided into two parts. The first part is dediated to the data soures, the seond part to the applied ethods. oures of Data The following soures of seondary data are used to deterine the phase of the orporate life yle and the risk struture: 1. Unonsolidated finanial stateents, available at 2. Maroeonoi data published by the Czeh tatistial Offie at 3. etoral data published by the Czeh Ministry of Industry and Trade at The otivation of using the seondary data onsists in the pratial appliability of the proposed ethodology. All potential investors have a full aess to publily available data. However, the following preonditions have to be respeted while using the seondary data: 1. There is ignored the fat that a part of opanies sales an have their origin in subsidiary ativities or ativities that belong to other setors. 2. The data about arket sales are available only on national levels. Verifying the appliability of the proposed ethodology under onditions of a real opany required olleting finanial data about the opany and also priary data were used for identifying respondents opinions and attitudes to the proposed ethodology. 1: The Methodology Interonnetion of partial odels oure: own researh

5 Optiizing Risk truture in Connetion with the Corporate Life Cyle and etor Cyliity 953 Used Methods The researh approah was developed after an extensive review of risk struture and orporate life yle-oriented aadei literature. The seondary data have been proessed by using statistial ethods, naely relative frequeny to deterine the phase of the orporate life yle and weighted hronologial ean to deterine the risk struture. The ethodology for optiizing the risk struture related to the orporate life yle and the setor yliity has been proposed by using the ethods based on a thought proess. The ain ethod is ontent analysis of existing douents. The ethodology supporting anagers when estiating the shares of operational and finanial risks in the entrepreneurial risk with taking into aount the orporate life yle and the setor sensitivity to the eonoi yle was ipleented in a anufaturing opany operating in the Czeh Republi. The ain outputs are presented in the for of a ase study inluding the opany introdution, data soures, epirial findings and the disussion. The ain otivation for using the ase study as a researh ethod is verifying the appliability of the proposed ethodology under onditions of a real opany. The ase study relies on finanial (seondary data) and further on priary data that were olleted using a seistrutured questionnaire. The questionnaire was put into an eletroni for and, in autun 2014, sent by e-ail to the CFO with a request for opletion. To inrease the quality of inforation, the respondent was inquired by phone in the next stage. The ontent of the interview was foused on assessent the quantities used in partial odels. The opleentary inforation onern the risk profile of shareholders, aounting ethods and differenes between arket and aounting value of the opany and the quadrant of the Boston Matrix whih is typial for key produts of this opany. REEARCH REULT Firstly, there is proposed a ethodology for optiizing the risk struture related to the orporate life yle and the setor sensitivity to the eonoi yle in the following hapter. The ethodology onsists of three partial odels. In eah odel there are illustrated inputs, data proessing and outputs. Next, a hapter is dediated to a ase study whih ais to verify the appliability of the proposed ethodology under onditions of a real opany. Inputs Aounting data for the opany and the arket Data proessing Calulation of the unlevered and levered beta n t t CF CF CF CF E E t arket arket E opany E opany n unlevered n t CF CF t E arket E arket n D levered unlevered t E Outputs hare of the operational and finanial risk unlevered levered unlevered levered 2: Model for easuring the shares of operational and finanial risk Explanatory notes: unlevered...unlevered beta, levered...levered beta, CF...ash flow, E...equity, t...effetive tax rate, D...debt. oure: own researh

6 954 Zdeněk Konečný, Marek Zineker Methodology for Optiizing the Risk truture Related to the Corporate Life Cyle and the etor ensitivity to the Eonoi Cyle The proposed ethodology onsists of three partial odels that are interonneted by using arket (setor) data. The odel for deterining the risk struture is desribed in Fig. 2. There are inputs in the first, the ethod of data proessing in the seond and outputs in the third window displayed. The ain advantage of this odel is the possibility of easuring the operational and finanial risk separately and thus to alulate shares of both kinds of risks. The pratial ontribution is evident for both anagers and investors. The finanial anagers an anage the risks ore effetively to get ore external finanial soures. Aording to the risk struture the anagers an deide, whether they will aquire new owners or reditors. The odel for identifiation phases of the orporate life yle is desribed in Fig. 3. There are inputs in the first, the ethod of data proessing in the seond and outputs in the third window displayed. The ontribution of this odel to the theory of the orporate life yle onsists in setting intervals for high and low sales growth and high and low arket share. This enables to identify all the phases of the orporate life yle regardless the values of inputs quantities. The odel an be used in opanies ating in any ountry, beause of onsidering the rate of inflation. The anagers should strive for swithing the opany into stabilisation, beause this phase is the ost favourable for investors. Inputs Aounting data for the opany, the arket and inflation developent data Data proessing Calulation of the sales growth and arket share t P t P * * P P t t A A Outputs Phases of the orporate life yle t P t P * * P P A t t A t P t P * * P P A t t A t P t P * * P P A t t A t P t P * * P P A t t A 3: Model for identifiation phases of the orporate life yle Explanatory notes: t... sales in the opany in the atual year, t 1... sales in the opany in the previous year, t... sales on the arket in the atual year, t 1... sales on the arket in the previous year, P... prie level in the setor (arket) in the atual year, P 0... prie level in the setor (arket) in the previous year, A... assets in the opany, A... assets on the arket. oure: own researh

7 Optiizing Risk truture in Connetion with the Corporate Life Cyle and etor Cyliity 955 Inputs Aounting data about the arket sales and gross doesti produt sales GDP Data proessing pearan oeffiient of the rank orrelation r i n i sales Outputs etor sensitivity aording to the intervals of r n n i GDP i i 4: Model for deterination the rate of setor sensitivity to the eonoi yle Explanatory notes: r... pearan oeffiient of the rank orrelation sales i... sales on the arket, easured i-ties GDP i... gross doesti produt, easured i-ties oure: own researh The odel for deterining the rate of setor sensitivity to the eonoi yle is desribed in Fig. 4. There are inputs in the first, the ethod of data proessing in the seond and outputs in the third window displayed. This odel for onsidering setor sensitivity to the eonoi yle enables to identify anti-ylial, neutral and ylial setors for all values of the pearan orrelation oeffiient. The odel an be used as a opleent by anaging risks and also by onsidering the riskiness of investents. Case tudy There was ipleented the researh ethod of a ase study to prove the pratial appliability of all the three odels and thus the proposed ethodology desribed in the previous hapter within a opany. The ase study onsists of three essential parts an introdution, researh results, and a suarizing and onluding part. Introdution The opany has been ating in the setor of fertilizers and nitrogen opounds anufaturing. It is a joint-stok opany with the aount of assets round CZK 300 M, sales CZK 500 M and 75 eployees. Researh Results Applying the Methodology There was alulated the pearan oeffiient of rank orrelation, desribing the relation between the gross doesti produt and sales on the arket. Its value is ; so the anufature of fertilizers and nitrogen opounds is a neutral setor. The appliation of the odel for easuring the shares of operational and finanial risk (see Fig. 2) and for identifiation phases of the orporate life yle (see Fig. 3), opany aounting data fro the period between 2007 and 2012 were used. The opany data were obtained fro finanial stateents and the arket data were olleted fro the analytial aterials of the Czeh Ministry of Industry and Trade. By using the proposed odels, the ost frequent phase of the orporate life yle in the seleted opany ould be identified (see Tab. I) as well as the prevailing for of risk within the risk struture (see Tab. II). Furtherore, ipats of individual ites of the balane sheet on the share of operational risk were alulated (see Tab. II). Tab. I shows that the predoinant phase of the orporate life yle in the opany was the growth (in three surveyed periods). Tab. II desribes the proess of alulation the shares of operational and finanial risk. Furtherore, there are reorded the seleted ites of balane sheet and their ipats on shares of the operational risk. Thus there is opared the share of operational risk assuing all the ites of the balane sheet hange with the share of operational risk assuing just one ite hanges and other ites are onstant. Conluding Rearks All the ites of assets have approxiately the sae ipat on the ash flow volatility and thus on the share of operational risk in the seleted opany (see Tab. II). Any hanges of eah ite, assuing onstant values of other ites, would ause a derease in the share of operational risk fro 70%

8 956 Zdeněk Konečný, Marek Zineker I: Corporate life yle phase identifiation Partial alulations (in %) Charateristi ales growth in the opany ales growth on the arket Market share hare of assets Relative sales growth High High Low High Low Relative arket share High High High High High Quadrant of the Boston Matrix tars tars Cash ows tars Cash ows Phase of the orporate life yle Growth Growth tabilisation Growth tabilisation oure: own researh II: Deterination of the risk struture Partial Calulations (in the index for) Charateristis Value Covariane with the arket Variane of the arket Unlevered beta Weighted hronologial ean of indebtedness and effetive tax rate Levered beta hare of operational risks hare of finanial risks Influene of tangible and intangible fixed assets 0.2 Influene of long-ter finanial assets 0.2 Influene of inventory 0.2 Influene of long-ter and short-ter reeivables 0.2 Influene of registered apital Can t be quantified Influene of profit/loss urrent year 0.1 Influene of profit/loss previous years and apital funds 0 Influene of reserves 0.2 Influene of long-ter payables 0.2 Influene of short-ter payables 0.1 Influene of bank loans and finanial aoodations 0.2 oure: own researh to 50%. The sae ipat is also valid for soe ites of liabilities, naely reserves, long-ter payables and bank loans and finanial aoodations. However, it is neessary to ephasize, that hanges of these ites influene not only the operational risk, but also the finanial risk. uh hanges would ause a different struture of liabilities and thus the rate of indebtedness. That is the ain arguent for the fat that no of these ites has a positive ipat on the share of operational risk. The hanges in profit/loss of the urrent year and the short-ter payables would ause a derease in the share of operational risk up to 60%. The hange of profit/ loss of previous years and apital funds would not have any ipat on the struture of entrepreneurial risks. The registered apital was the sae in all the researhed periods, whih eans, that the influene of this ite annot be quantified. The unlevered and levered beta would be equal to zero and so there would not be possible to deterine the share of operational risk as a ratio of these two oponents of the beta oeffiient. Our respondent, who is the ain aountant in the opany, expressed her opinions towards the proposed ethodology within a seistrutured interview. The aquired inforation was subsequently opared with the results of the finanial analysis. Most produts of the opany are in the quadrant of ash ows (aording to the Boston Matrix). This quadrant is typial for the phase of stabilisation. Therefore, inongruene between the orporate life yle and the produt life yle ould be identified (see Tab. I). The respondent rather disagrees with the deriving the orporate life yle fro the produt life yle. On the ontrary, the respondent adits that there is rather diffiult to deterine the quadrant of the Boston atrix for individual produts. The respondent s opinion is that the inflation has just a negligible ipat on the rate of sales growth. On the ontrary, using

9 Optiizing Risk truture in Connetion with the Corporate Life Cyle and etor Cyliity 957 a oparison of the values of the opany with the values of the arket was evaluated as a suitable tool while identifying the phase of the orporate life yle. That eans, that there is an understanding that the growth of sales on the arket supports anagers to deterine a high or low rate of sales growth and that the aount of assets is a tool how to deterine a high or a low arket share. The respondent assues that the value of the beta oeffiient is ore influened by the operational risk than by the finanial risk. This is a support given to our finding that the share of the operational risk is over 50%. Furtherore, the respondent quite agrees with the stateent, that the ash flow volatility ust be related to the aount of equity. Aording to the respondent, the aounting data are very different fro the arket data. However, the aounting data are not too distorted by aounting ethods. DICUION AND CONCLUION The ain ai of this artile is to propose a ethodology supporting anagers and investors when estiating the shares of operational and finanial risks in the entrepreneurial risk with taking into aount the orporate life yle and the setor sensitivity to the eonoi yle. This ethodology is subsequently applied in a seleted opany in the for of a ase study and thus their results prove its pratial appliability for both finanial anagers and potential investors as deision akers. This study relies on both seondary and priary data that were olleted using databases and a seistrutured questionnaire. The data were proessed by using desriptive statistial ethods and a ase study. One of the basi tasks of finanial anageent is to iniize the entrepreneurial risk. The anagers should know, whether the operational risk, whih has its origin in entrepreneurial ativities theselves, or the finanial risk, related to using debt for finaning these entrepreneurial ativities, doinates. When there is proven, that the share of operational risk is higher than the share of finanial risk, the finanial anagers should strive for dereasing the volatility of suh ites of assets or liabilities, that influene the ash flow volatility the ost. When the share of finanial risk is ore than 50%, the finanial anagers should strive either for raising equity, or redue the ost signifiant ites of debt. o the effort of finanial anagers should be aied at reahing the balane of both kinds of risk, i.e. to the state, when the shares of operational and finanial risk are approxiately the sae. In this ase, anaging operational risk, to its reduing, has approxiately the sae effet on the ost of equity as anaging the finanial risk. The next advantage of this situation is the fat, that anagers an use either equity, or debt within external finanial soures, whih is derived fro results by Reiners (2004). If the share of operational risk is higher than the share of finanial risk, then the opany has an easier aess to equity, beause the owners are not uh afraid of operational risk and are ore sensitive to finanial risk. There would be a proble with aquiring debt, beause the reditors are sensitive just to operational risk, whose share is ore than one half, in this ase. On the ontrary, the opany has an easier aess to debt, when the share of finanial risk is higher than the share of operational risk. Furtherore, the opany should be in the phase of stabilisation. Even in this phase there are reahed high sales and also high profits and ash flow, beause the opany does not have to ipleent any large investents that are typial for the phase of growth. In the phase of stabilisation, there is reoended, that the value of investents should be approxiately equal to the value of depreiation and so the opany should ipleent just reprodution investents. In the phase of stabilisation ost of apital is iniized, too. Fro the results by Bender and Ward (2009), who reord that the operational and finanial risk is kept on the iddle level, an be derived, that the share of operational and finanial risk should be approxiately the sae in the phase of stabilisation. If the opany should swith to the phase of stabilisation, there is needed to reah or keep a high arket share and siultaneously to reah a low rate of sales growth. Neither the sales, nor the assets on the arket an be influened, and so the only one possibility for reahing this state is to arrange the sales growth higher than the growth of assets. But the sales of the opany ust inrease ore slowly than the sales on the arket. Fro these findings soe reoendations are derived. The finanial anagers should not raise the apital and ipleent additional investents, but they should fous on ore effetive using of available assets, whih an be onitored by using the indiator of assets turnover. The rate of setor sensitivity to the eonoi yle annot be influened by the opany, but the finanial anagers should know, whether the setor, where the opany is ating on, is haraterized as a ylial or anti-ylial, or whether the setor belongs to neutral setors. This fator onsiderably influenes the aessibility of external finanial soures, whih is in ylial setor the highest, when the gross doesti produt inreases, in anti-ylial setors is it the highest, when the gross doesti produt dereases, and in neutral setors is approxiately the sae regardless the eonoi yle. o if the opany ats on a ylial setor, then the finanial anagers have probles with obtaining external equity and debt, even though the operational and finanial risks are held on the sae level.

10 958 Zdeněk Konečný, Marek Zineker The sae proble an arise during the expansion, when the opany ats in an anti-ylial setor. The setor sensitivity to the eonoi yle influenes not only the rate of indebtedness, whih is the easuring indiator of finanial risk, but also the ash flow volatility, serving for easuring operational risk. There an be, depending on the eonoi yle, onsiderably hanged sales of the opany and other ites, whih are onneted with sales like variable osts, urrent assets, shortter payables and the profit. Thus the rate of setor sensitivity to the eonoi yle an be refleted in the orporate life yle. If the opany ats in a ylial setor, then the finanial anagers should, in the ase of growing gross doesti produt and sales on the arket, strive for inreasing sales of the opany for the purpose of holding a high arket share and the orporate sales growth should be lower than the arket sales growth. In the ase of dereasing gross doesti produt, and thus dereasing sales on the arket, the opany an hold a high arket share ore easily; nevertheless, the finanial anagers should arrange the inrease of the orporate sales would not be very signifiant. These findings are valid analogously for opanies ating on anti-ylial setors. There is only the differene that the sales on the arket derease, when the gross doesti produt inreases, and vie versa. There is also needed to ephasize, that finanial anagers in opanies ating on neutral setors should onitor the rate of setor sensitivity to the eonoi yle, whih an hange in the ourse of tie, and the neutral setor an beoe a ylial, or anti-ylial setor and so on. The entioned findings point out that the potential investors should know the struture of entrepreneurial risk. If the share of operational risk is ore than 50%, rather new owners should be aquired. On the ontrary, when finanial risks doinate, suh a opany is ore suitable for potential reditors. Both the potential owners and reditors an use the findings about the orporate life yle and about the rate of setor sensitivity to the eonoi yle, espeially investors with risk aversion. When investing into opanies the investors should prefer suh entities whih are in the phase of stabilisation and siultaneously at in a neutral setor. Another investent option is represented by opanies operating either in ylial or anti-ylial setor, when the atual phase of the eonoi yle is favourable for this setor. oe essential reoendations an be derived fro the proposed ethodology for finanial anagers in the seleted opany. They should fous espeially on reduing the volatility of their profit/loss of previous years and apital funds. This ite is volatile in suh an extent that in the ase that all other ites of the balane sheet are onstant there is reorded no dereasing of the share of operational risk within entrepreneurial risks. The evidene presented in our ase study shows that the opany is operating in the phase of growth, whih is haraterized by a high growth of sales and siultaneously by a high arket share. Therefore, the finanial anagers of this opany should hold a high arket share, whih an be reahed by an effetive using of atual assets. There should be ipleented only reprodution investents, whih would ause an inrease of profits and ash flows. A low growth of sales in the opany would be reorded in oparison to the sales growth of the arket. The opany ats in a neutral setor and the flutuations in the eonoi yle should not have any signifiant ipat neither on sales of the opany, nor on the risk struture and the aess to external apital. Nevertheless, we reoend finanial anagers to onitor the rate of setor sensitivity to the eonoi yle ontinuously, beause the neutral setor an beoe a ylial setor and the swith of the national eonoy to the reession would signalize any probles. Investing in suh a opany is ore suitable for potential equity providers, beause of their finanial risks sensitivity to and the low share of this kind of risk. On the ontrary, we do not reoend reditors to invest in this opany. The suarized key onlusions of our study are: 1) The proposed ethodology onsiders the atual phase of the orporate life yle and the degree of setor sensitivity to the eonoi yle. Deterining the risk struture should siplify the risk anageent and subsequently raise the apital aess. The ethodology also ontributes to investent deision-aking, beause the investors an assess investents with regard to their risk profile. No previous paper has, to our knowledge, dealt with the issue of the risk struture related to the setor sensitivity to the eonoi yle. 2) The results of the ase study onfir that the ethodology is appliable in the entrepreneurial environent. The only signifiant disadvantage of the odel, derived fro the Boston Matrix, is a siplifying assuption that the orporate life yle opies the produt life yle. Furtherore, there is evidene that signifiant differene between aounting and arket data exist, whih is a weakness of our odel of easuring risks.

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