Risk Exposure &
Risk Appetite Assessment

An evaluation of current risk exposure against fiscal-year 2026 financial performance, with recommended risk appetite levels calibrated to profitability, capital allocation, and enterprise value creation.

Performance & Exposure at a Glance

1 · Financial Performance, FY 2026

Year-over-year comparison (Jan–Aug)

Operating leverage is real: revenue grew 19% while opex grew 11%, expanding net margin from 10.0% to 14.0%. Annualized run-rate net income is approximately $1.84M. This earnings quality is the capital base against which risk appetite should be recalibrated — the enterprise can now afford to be selective about credit risk and ambitious about capital deployment.

2 · Risk Exposure by Domain

2.1 Credit & Receivables High

Open customer receivables total $928,247 across 37 customers. Of this, $799,240 (86.1%) is past due and $472,913 (50.9%) is more than 90 days past due — including single exposures aged 460, 327, and 262 days. Against invoice-channel revenue, effective DSO is ~168 days. The 90+ bucket alone equals 40% of YTD net income; a full write-off would erase four months of earnings.

Note that two of the top-10 delinquent accounts — Red Rivers Consulting and Magna Tech Limited — are simultaneously top-5 revenue customers this year. Collections posture toward them is a commercial decision, not merely a finance one; the recommended appetite framework (Section 3) prices that trade-off explicitly rather than leaving it implicit.

Two governance observations: credit limits are set on all 37 customers with open balances and none currently exceeds its limit — the control exists but is not binding, because limits do not throttle aged exposure, only new orders. And the Renewal Risk classification field (CUSTENTITY_RENEWAL_RISK) is unpopulated on all 274 customers, so the firm currently has no forward-looking credit signal in its system of record.

2.2 Concentration Elevated (supplier side)

A disruption at any of the top three suppliers (Generation N $431K, Bedline $309K, Broyhill $201K) would impair fulfillment across the inventory-led revenue base with limited near-term substitution. No dual-sourcing structure is visible in the purchasing data.

2.3 Liquidity & Capital Allocation Low risk — but inefficient

Cash stands at $2.60M (two operating checking accounts: $1.56M Sub 1, $1.04M Sub 2), the quick ratio at 3.2×, and open payables at just $180.9K — effectively all within terms. Days payable outstanding is ~8 days against a typical vendor-terms norm of 25–30. The liquidity risk here is not shortage; it is surplus: at a ~$264K monthly opex run rate, the firm holds nearly 10 months of opex in non-earning demand deposits and voluntarily finances its suppliers by paying three weeks early. Both are quiet, continuous transfers of enterprise value to counterparties.

2.4 Inventory Moderate

On-hand inventory at cost is $1.12M across 189 items, turning at a healthy ~7.1× annualized. Two flags: 49 items ($40.7K, 3.6% of on-hand value) have stock on hand but zero sales in 2026 — candidates for markdown or liquidation; and the GL inventory balance ($2.13M) exceeds the costing-subledger value by roughly $1.0M, a reconciliation gap that must be resolved before inventory can be used as a reliable planning input (see 2.5).

2.5 Data Integrity & Reporting Visibility Elevated

Three structural findings limit the precision of every other analysis in this document, and constitute a risk domain in their own right:

• 84% of GL revenue posts via journal entries ($7.04M of $8.39M), not customer invoices. Journals carry no item, class, or customer lines, so dimensional analysis (by product category, subsidiary, customer) covers only the ~$1.35M transactional slice.
• 36% of transactional revenue is unclassified ($493K carries no product class), and class 5 (Electronics) shows zero sales lines all year.
• GL/subledger divergence: GL AR ($2.16M) vs. open invoices ($0.93M), and GL inventory ($2.13M) vs. costing value ($1.12M). Until reconciled, balance-sheet-derived ratios should be treated as ranges, not points.

3 · Recommended Risk Appetite Levels

Why asymmetric appetite is the value-maximizing answer

Every dollar of 90+ receivable is capital lent, involuntarily and at 0% interest, to the counterparties least likely to repay — risk with no compensation. Every idle dollar above the cash floor forgoes a riskless ~4.5% — safety with no benefit. Cutting the uncompensated risk and deploying the uncompensated safety are the same decision viewed from two sides, and together they are worth roughly $0.5M of annual pre-tax value against a $1.8M earnings base:

4 · 90-Day Action Program

1. Stand up the collections sprint (Weeks 1–4)Assign owner; work the 13 invoices in the 90+ bucket ($473K) oldest-first. Payment plan, settlement, or legal referral decision on each by day 30. Book the ~$264K reserve at September close so earnings absorb the risk on your schedule, not a surprise’s.
2. Close the COGS/opex question on August (Weeks 1–2)Account-level review of the $722K COGS and $290K opex prints once August closes. Determine timing vs. trend before Q4 planning locks.
3. Reconcile GL to subledgers (Weeks 2–8)AR ($2.16M GL vs. $0.93M open invoices) and inventory ($2.13M GL vs. $1.12M costing). Identify the journal-posting practice driving 84% of revenue and either dimension those journals or route revenue through transactions.
4. Activate the credit framework (Weeks 3–6)Populate CUSTENTITY_RENEWAL_RISK for all active customers; add an order-entry hold for any account > 60 days past due; set the board KPI dashboard on the Section 3 limits with 80%-of-limit early warnings.
5. Rebalance the treasury (Weeks 4–10)Move to the 25-day DPO cadence; ladder ~$1.4–1.8M of excess cash into 1–6 month T-bills above the $1.2M floor (3 months opex + buffer).
6. Begin supplier diversification (Weeks 6–13)Qualify a second source for the Generation N and Bedline categories; target top-1 ≤ 20% of spend within 12 months.

Appendix A · Methodology & Source Queries

SELECT ap.periodname, ap.startdate,
 ROUND(SUM(CASE WHEN a.accttype IN ('Income','OthIncome') THEN -tal.amount ELSE 0 END),2) AS revenue,
 ROUND(SUM(CASE WHEN a.accttype = 'COGS' THEN tal.amount ELSE 0 END),2) AS cogs,
 ROUND(SUM(CASE WHEN a.accttype IN ('Expense','OthExpense') THEN tal.amount ELSE 0 END),2) AS opex
FROM transactionaccountingline tal
JOIN transaction t ON tal.transaction = t.id
JOIN account a ON tal.account = a.id
JOIN accountingperiod ap ON t.postingperiod = ap.id
WHERE t.posting = 'T'
  AND ap.id IN (173,174,175,177,178,179,181,182)
  AND a.accttype IN ('Income','OthIncome','COGS','Expense','OthExpense')
GROUP BY ap.periodname, ap.startdate
ORDER BY ap.startdate

SELECT
  CASE WHEN t.duedate >= TRUNC(SYSDATE) OR t.duedate IS NULL THEN '0_current'
       WHEN TRUNC(SYSDATE)-TRUNC(t.duedate) BETWEEN 1 AND 30 THEN '1_1-30'
       WHEN TRUNC(SYSDATE)-TRUNC(t.duedate) BETWEEN 31 AND 60 THEN '2_31-60'
       WHEN TRUNC(SYSDATE)-TRUNC(t.duedate) BETWEEN 61 AND 90 THEN '3_61-90'
       ELSE '4_90plus' END AS bucket,
  COUNT(*) AS invoices,
  ROUND(SUM(t.foreignamountunpaid),2) AS open_amt
FROM transaction t
WHERE t.type = 'CustInvc' AND t.status = 'A' AND t.foreignamountunpaid > 0
GROUP BY CASE WHEN t.duedate >= TRUNC(SYSDATE) OR t.duedate IS NULL THEN '0_current'
       WHEN TRUNC(SYSDATE)-TRUNC(t.duedate) BETWEEN 1 AND 30 THEN '1_1-30'
       WHEN TRUNC(SYSDATE)-TRUNC(t.duedate) BETWEEN 31 AND 60 THEN '2_31-60'
       WHEN TRUNC(SYSDATE)-TRUNC(t.duedate) BETWEEN 61 AND 90 THEN '3_61-90'
       ELSE '4_90plus' END
ORDER BY 1

SELECT c.entityid AS customer,
  COUNT(t.id) AS open_invoices,
  ROUND(SUM(t.foreignamountunpaid),2) AS open_ar,
  ROUND(SUM(CASE WHEN t.duedate < TRUNC(SYSDATE) THEN t.foreignamountunpaid ELSE 0 END),2) AS overdue_ar,
  MAX(CASE WHEN t.duedate < TRUNC(SYSDATE) THEN TRUNC(SYSDATE)-TRUNC(t.duedate) ELSE 0 END) AS max_days_overdue
FROM transaction t
JOIN customer c ON t.entity = c.id
WHERE t.type = 'CustInvc' AND t.status = 'A' AND t.foreignamountunpaid > 0
GROUP BY c.id, c.entityid
ORDER BY SUM(t.foreignamountunpaid) DESC
FETCH FIRST 10 ROWS ONLY

SELECT c.entityid AS customer,
  ROUND(SUM(ABS(tl.netamount)),2) AS ytd_revenue
FROM transaction t
JOIN transactionline tl ON tl.transaction = t.id
JOIN customer c ON t.entity = c.id
WHERE t.type IN ('CustInvc','CashSale') AND t.posting = 'T'
  AND t.trandate >= TO_DATE('2026-01-01','YYYY-MM-DD')
  AND tl.mainline = 'F' AND tl.taxline = 'F' AND tl.subsidiary <> 4
GROUP BY c.id, c.entityid
ORDER BY SUM(ABS(tl.netamount)) DESC
FETCH FIRST 10 ROWS ONLY

SELECT v.entityid AS vendor, COUNT(*) AS bills,
  ROUND(SUM(ABS(t.foreigntotal)),2) AS ytd_purchases
FROM transaction t
JOIN vendor v ON t.entity = v.id
WHERE t.type = 'VendBill'
  AND t.trandate >= TO_DATE('2026-01-01','YYYY-MM-DD')
GROUP BY v.id, v.entityid
ORDER BY SUM(ABS(t.foreigntotal)) DESC
FETCH FIRST 10 ROWS ONLY

SELECT a.accttype, ROUND(SUM(tal.amount),2) AS balance
FROM transactionaccountingline tal
JOIN transaction t ON tal.transaction = t.id
JOIN account a ON tal.account = a.id
WHERE t.posting = 'T'
  AND a.accttype IN ('Bank','AcctRec','AcctPay')
GROUP BY a.accttype
-- Cash detail: same body filtered to accttype = 'Bank', grouped by a.id, a.fullname.
-- Inventory GL: accttype = 'OthCurrAsset' restricted to inventory accounts (ids 10, 119, 149, 227, 237).

SELECT COUNT(*) AS slow_movers, ROUND(SUM(v),2) AS slow_value FROM (
  SELECT ail.item, SUM(ail.onhandvaluemli) AS v
  FROM aggregateitemlocation ail
  WHERE ail.quantityonhand > 0
  GROUP BY ail.item
  HAVING NOT EXISTS (
    SELECT 1 FROM transactionline tl
    JOIN transaction t2 ON tl.transaction = t2.id
    WHERE tl.item = ail.item
      AND t2.type IN ('CustInvc','CashSale')
      AND t2.trandate >= TO_DATE('2026-01-01','YYYY-MM-DD')))

SELECT
  SUM(CASE WHEN x.creditlimit IS NULL OR x.creditlimit = 0 THEN 1 ELSE 0 END) AS no_limit_customers,
  SUM(CASE WHEN x.creditlimit > 0 AND x.open_ar > x.creditlimit THEN 1 ELSE 0 END) AS over_limit_customers,
  COUNT(*) AS customers_with_open_ar,
  ROUND(SUM(x.open_ar),2) AS total_open_ar
FROM (
  SELECT c.id, c.creditlimit, SUM(t.foreignamountunpaid) AS open_ar
  FROM transaction t
  JOIN customer c ON t.entity = c.id
  WHERE t.type = 'CustInvc' AND t.status = 'A' AND t.foreignamountunpaid > 0
  GROUP BY c.id, c.creditlimit
) x

Appendix B · Assumptions, Definitions & Limitations