ABSTRACT
The previous chapter has shown the linkage between the Stakeholder Knowledge Network and an analysis of market capitalisation into four slices (4S) of equity (ESTA, CUVI, NVP and GOV). The analysis integrates accounting returns and risk and thus requires consideration of risk as an input. For instance, the current use value of intangibles (CUVI) is dependent upon both the required rate of return on the equity stake in fixed assets/working capital (ESTA) and the required return on intangibles. The risk associated with these two slices of equity (ESTA and CUVI) has to be evaluated as a basis for judging the required returns. The value of NVP is influenced by the risks that impact upon the respective promises contained therein and in turn influence the need for assets held as precautionary capital. The assets held as precautionary capital should be very low risk but no assets are entirely risk free. The value of GOV depends upon the risks that impact on the future of the company. The chapter proceeds through a brief overview of the overall average required rates of return on equity based upon past experience of returns. These returns need to be modified according to the (business) risks faced in the specific business under evaluation. The remainder of the chapter provides a framework for the assessment of business risk. This framework translates the framework for understanding the business (coordinating strategy, stakeholder knowledge network, four slices of equity) into an equivalent framework for the understanding of business risk.
