Diversification and Mid-sized companies: Difference between pages

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(Reference hedging.)
 
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''Risk management.''
Smaller, large companies.


Diversification is the process of spreading risk, to limit the possibility that an adverse event affecting a small number of investments could have an unacceptably detrimental effect on the overall portfolio.
Often firms are classified as small, medium or large. Different definitions of the categories apply for different purposes, in different jurisdictions and in formal and informal use.


Often summarised as 'Don't put all your eggs in the same basket'.
A common grouping is [[Small and Medium-sized Enterprises]] (SMEs). They may benefit from easier financial reporting requirements, tax provisions or eligibility for various government-provided support.


In corporate finance, the term is often used to mean the process of ensuring that an investment portfolio is constructed such that all possible specific risk (diversifiable risk) is eliminated.
Most firms are small, some are medium-sized and few are large. But the size of firms in the large category vary greatly. It has become useful to distinguish smaller large companies for some purposes.


For example, in European Union usage, SMEs do not exceed €43m in turnover while large companies turn over many billions. Opportunities of many kinds vary materially with a firm's size, for example, the available range of investment and financing opportunities.


Diversification is a form of risk reduction and hedging.


However, some residual risks cannot be eliminated by diversification.  
No doubt terminology will continue to develop until its use in law and regulation makes further change more difficult or confusing.


 
[[Category:The_business_context]]
== See also ==
* [[Asset allocation]]
* [[Cash in the new post-crisis world]]
* [[Correlation]]
* [[Credit risk diversification]]
* [[Diversifiable risk]]
* [[Diversity]]
* [[Hedging]]
* [[Market risk]]
* [[Matching]]
* [[Non-diversifiable risk]]
* [[Portfolio]]
* [[Specific risk]]
 
[[Category:Risk_frameworks]]

Revision as of 11:17, 16 July 2019

Smaller, large companies.

Often firms are classified as small, medium or large. Different definitions of the categories apply for different purposes, in different jurisdictions and in formal and informal use.

A common grouping is Small and Medium-sized Enterprises (SMEs). They may benefit from easier financial reporting requirements, tax provisions or eligibility for various government-provided support.

Most firms are small, some are medium-sized and few are large. But the size of firms in the large category vary greatly. It has become useful to distinguish smaller large companies for some purposes.

For example, in European Union usage, SMEs do not exceed €43m in turnover while large companies turn over many billions. Opportunities of many kinds vary materially with a firm's size, for example, the available range of investment and financing opportunities.


No doubt terminology will continue to develop until its use in law and regulation makes further change more difficult or confusing.

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