Straco Corporation Limited • Annual Report 2014
82
NOTES TO THE FINANCIAL STATEMENTS
25
Financial risk management (cont’d)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and
arises principally from the Group’s receivables from customers.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all
customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets.
At the reporting date, there is no significant concentration of credit risk. The maximum exposure to credit risk is represented by the carrying amount of
each financial asset in the statements of financial position.
Cash and cash equivalents
The Group and Company held cash and cash equivalents of $112,465,351 and $3,770,236 respectively as at reporting date (2013: $108,055,060 and
$18,238,280), which represents the maximum credit exposure on these assets. Cash and fixed deposits are placed with banks and financial institutions
which are regulated.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or rising damage to the
Group’s reputation.
The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s
operations and to mitigate the effects of fluctuations in cash flows. The Group ensures that it has sufficient cash on demand to meet expected
operational expenses for a period of 60 days. Currently, the Group places excess funds in fixed deposits with banks and financial institutions which are
regulated.
The expected contractual undiscounted cash outflows of trade and other payables are expected to occur within one year and equivalent to their
carrying amount.
Market risk
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relate primarily to the cash balances placed in fixed deposits and bank borrowings.
The Company’s exposure to market risk for changes in interest rates relate primarily to the cash balances placed in fixed deposits, loans to subsidiaries,
and bank borrowings.
A change of 100 bp in interest rate at the reporting date would increase/decrease the Group’s and Company’s profit or loss by $76,623 and $74,587
(2013: $1,010,446 and $175,096), respectively. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
