Systematic risk is the variation in the returns on securities that occur as a result of macroeconomic variables, including political, economic, or social variables that impact the business. It can be caused by acts of God, changes in government regulations, or economic changes. It can be classified into interest risk, inflation risk, and market risk and occurs due to uncontrollable factors (Fabozzi & Jones, 2019) . It can be eliminated through different ways, such as hedging or asset allocation.
On the other hand, unsystematic risks are variations in returns that arise from micro-economic variables. It can be caused by labor strikes and the production of undesirable products. It can be classified into business risk and financial risk and occurs due to uncontrollable factors (Fabozzi & Jones, 2019) . Unsystematic risk can be eliminated through portfolio diversification.
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The interest rate risk is likely to have an impact on SciTronics Inc.’s loans and fixed-income securities. The variability in interest rates is likely to affect the value of the loans and fixed-income securities owned by the medical device company. The upward shift in interest rates is likely to increment the entity’s cost of debt due to the increase in interest paid on its loans (Baker, 2019) . SciTronics Inc. has a loan in the form of long-term senior debt. An increase in the rates will also cause a reduction in the value of the fixed-income securities owned by the medical device company. SciTronics Inc. has fixed-income securities depicted by its other current assets.
Economic risk is likely to have a negative impact on the entity's revenues and net profits. It may arise due to political instability or changes in government regulations. When the country is politically unstable, medical devices' supply may be affected,, leading to a reduction in the entity's revenues and profits. SciTronics’ revenues and profits will also decrease when the government enacts a regulation affecting the production, design, or distribution of certain medical devices produced by the entity.
Credit risk is likely to impact SciTronics Inc.’s reputation and going concern status. An increase in the credit risk means an increased probability of loss arising from the entity’s failure to repay its debt (Baker, 2019) . If the entity fails to fulfill its contractual obligations to lenders, it is likely that lenders will shun away from the entity. Suppliers are also likely to avoid selling supplies to the medical device company on credit. In this case, the entity's reputation will be destroyed. The failure to repay its obligations will increase the entity's potential of collapsing. SciTronics is likely to be liquidated to settle the debt obligations.
Operational risk is likely to lead to a reduction in the entity's revenues and net income. When the internal controls of SciTronics Inc. fail due to the increase in operational risk, fraud and theft are likely to take place. In this respect, the medical device company is likely to lose its revenue-generating assets leading to the loss of revenues and eventually net profits. System failures are likely to lead to the loss of customers due to increased customer dissatisfaction arising from poor products and services. The loss of customers is likely to lead to a reduction in revenues and net profits.
Lower growth in sales is likely to lead to a low amount of cash resources. In this case, SciTronics Inc. is likely to lack the needed resources to pay a high amount of dividend. Resultantly, the dividend payout ratio is likely to be reduced considerably. The retained earning will also reduce due to lower net profits.
On the other hand, higher growth in sales may lead to an increase in SciTronics’ cash resources and net profits. As a result, both the dividends and retained earnings are likely to increase.
References
Baker, H. K. (2019). Debt markets and investments . New York, NY: Oxford University Press.
Fabozzi, F. J., & Jones, F. J. (2019). Foundations of global financial markets and institutions . MIT Press.
