Complete retention refers to a situation where a company does not distribute any of its earnings to shareholders in the form of dividends. The company instead retains all of its earnings and reinvests them back into the business. This strategy is often used by high-growth companies that need to reinvest their earnings in order to finance their expansion.
What is the purpose of retention? The primary purpose of retention is to ensure that a company has the funds available to meet its financial obligations as they come due. This includes both short-term obligations, such as accounts payable and payroll, and long-term obligations, such as debt repayments.
Retention can also be used to build up a cash reserve to fund future growth initiatives or to make acquisitions. In this case, the goal is to have enough cash on hand to take advantage of opportunities as they arise, rather than having to go through the time-consuming and often costly process of raising additional capital.
Finally, retention can also be used as a tool to manage earnings. This is because companies can choose to reinvest their earnings, rather than paying them out to shareholders in the form of dividends. By doing so, they can smooth out earnings volatility and provide a more consistent return to shareholders over time. How long is retention held? In corporate finance, retention refers to the portion of earnings that is not paid out as dividends, but is instead reinvested back into the company. The length of time that retention is held can vary depending on the company's financial needs and goals. In some cases, retention may be held indefinitely, while in others it may be held for a set period of time before being distributed to shareholders. What is meant by risk retention and transfer? Risk retention is the decision by a firm to take on a particular risk, rather than transfer it to another party. Risk transfer is the movement of a particular risk from one party to another. In the context of corporate finance, risk retention and transfer are often used in the context of insurance. For example, a firm may decide to retain the risk of a natural disaster, rather than transfer it to an insurance company. What are the three risk financing techniques? There are three primary risk financing techniques: self-insurance, insurance, and hedging.
Self-insurance is when a company sets aside money to cover potential losses. The company is essentially betting that the probability of a loss occurring is low enough that the money set aside will cover the costs of any losses that do occur.
Insurance is when a company purchases a policy from an insurance company that will cover the costs of any losses that occur up to the limit of the policy.
Hedging is when a company takes out a financial contract (such as a futures contract) that will offset the potential losses from a negative event.
What are the types of risk control? There are four main types of risk control:
1. Diversification
Diversification is a risk control strategy that involves investing in a variety of different asset classes in order to spread out your risk. This is often considered the most effective way to control risk, as it allows you to benefit from the performance of different asset classes while hedging against the risk of any one particular asset class.
2. Risk Management
Risk management is a broad term that refers to the process of identifying, assessing, and managing risks. This can be done through a variety of methods, including insurance, hedging, and diversification.
3. hedging
Hedging is a risk control strategy that involves taking positions in financial instruments in order to offset the risk of losses in other investments. For example, if you are worried about the stock market crashing, you could buy put options on a stock index to hedge against the risk of your stock portfolio losing value.
4. Insurance
Insurance is a form of risk control that helps to protect you from the financial losses that can result from certain events, such as accidents, fires, or theft. When you purchase insurance, you are essentially transferring the risk of loss to the insurance company in exchange for a premium.