For shareholders, there are three types of risk.  The first is the risk that the company’s revenue disappears next year (what’s sometimes called cyclicality). Funeral homes’ revenues are consistent. By contrast, construction firms’ revenue go through big booms and sharp busts. The second risk is the sensitivity of profits to a given drop in revenue. For some companies, a 10 per cent drop in revenue cuts profits by 10 per cent. For others it cuts profits 100 per cent. This is the risk posed by fixed costs. Airlines and hotels are two industries with lots of fixed costs. Planes and…

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