Fundamentals of Risk Management

Importance of risk appetite 
313
TAbLE 
25.3
Risk appetite for a manufacturing organization
business 
component
risk appetite statement
Target credit rating
Maintain a credit rating of at least BBB+
Earnings per share
Maintain an earnings per share level within the upper 
quartile of the peer group
Target capital ratio
Maintain a debt-to-capital ratio in the range 45% to 50%
Self-sustaining growth
New business will not dilute target capital ratio and 
maintain a capital working ratio in the range 1.5% to 2%
Financial strength
Maintain an earnings-before-interest and taxes-to-interest 
ratio between 5% and 7.5%
Customer dependence
No single customer will exceed 15% of total sales
Regulatory compliance
Score in the upper quartile of the peer set in regulatory 
reviews
Social responsibility
Seek a position in the upper quartile of the peer group in 
a social responsibility index
Risk appetite and lifestyle decisions
There is a relationship between personal risk appetite and lifestyle decisions. 
Decisions will be taken about, for example, long-term health issues, depending on 
family history and personal lifestyle. Decisions will also be taken on medium-term 
health issues, based on medical treatment, dieting and weight gain. Short-term
decisions will also need to be taken on health issues, including those related to
exercise, alcohol and recent illness or accident.
Individuals will need to take lifestyle decisions based on risk attitude, risk ap-
petite, risk exposure and risk capacity. In relation to health issues, decisions will need 
to be taken on the level of exercise that the individual is willing to take in the short 
term to maintain weight within a healthy range.
There may be a certain appetite for risk issues associated with health and well-
being, but the exposure that an individual actually suffers may be greater than the 

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