KPI of the Day – Investment: $ Firm exposure
Definition
Measures the amount an underwriter will need to cover in the event that a sufficient number of investors do not commit to the deal or transaction.
Purpose
To evaluate the potential financial risk in terms of investor commitments.
Recommendations
Shifts in supply and demand, as well as global financial dynamics inevitably create the volatile markets of today. This leads to many investors being unable to complete their transactions. Financiers are expected to strategize and forecast accordingly, avoiding the deficit or even possible bankruptcy of the investment company.
Facing underwriting exposure, any company would invite insurance companies to lower the exposure risk. While taking up underwriting commitments, the banks and their subsidiaries should make sure that the aggregate of such commitments are included in the exposure limits.
By monitoring $ Firm exposure, managers can try to assess the degree of financial risk associated with the business. In addition, financiers can evaluate the collateral value of the company, as well as limit its $ Operating costs and $ Expenditures so as to avoid dipping down to deficit level.
Financiers can also employ future exposure measures in setting their credit limits to compensate for the current exposure of the company. Regularly assessing portfolios to measure the value of $ Risk exposure is also advised.
Other recommendations to evaluate the firm exposure level are as follows:
- Assigning a team to calculate and present a credit risk calculation regularly;
- Pricing the financial products according to the risks involved;
- Ensuring sufficient collateral are available through updated portfolios;
- Communicating with counter-parties regarding underwriting values and the company’s financial performance.
Accurate reporting on this KPI relies on an accurate estimation and a sound financial management system. Measurement targets are highly contextual, according to the size of the initial public offering and the amount of funding to be raised.
Image source:
Tags: Investments, KPI
