What is contribution loss from 150 lost sales at a 40% contribution margin?
Reveal the worked answer
60 million.
Connect the risk event to business economics.
Fundamentals · FUND-11 · Core
Risks and disconfirmation
What could make the business thesis wrong?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read first: Understand the business
'The stock could fall' is an outcome, not a risk mechanism. Name what could weaken cash generation, financing or owner claims: competition, customer loss, execution, refinancing or excessive valuation.
Write disconfirming evidence before entry so the thesis cannot be endlessly rewritten afterward.
Understand the mechanism
Business, financial, valuation and portfolio risks differ. A strong company can be too concentrated in one account. A low-frequency funding problem can matter more than frequent minor forecast errors.
Do not assign precise scenario probabilities without a basis. Severity and likelihood need separate treatment.
Walk through the process
Translate a small set of adverse events into economic consequences. Identify leading indicators that would trigger review. Compare downside with capital and alternatives.
Diversifying tickers does not necessarily diversify shared customers, sectors or funding risks.
Evidence and decision boundary
These are original fictional teaching figures, not a company screen. Actual analysis should use primary disclosures and distinguish management's explanation from your inference. Favorable or unfavorable evidence depends on the specific business, valuation and risk; no single ratio establishes a recommendation.
A worked example
Harbor gets 30% of 1,000 revenue from one customer. Losing half that customer's purchases removes 150. If those sales contribute 40% before fixed costs, the profit contribution lost is 60 before mitigation.
This is a stress case, not a forecast. The graph varies the customer's lost share to show why concentration disclosures matter.
Risks and disconfirmation—worked comparison
Vertical: Lost contribution (USD millions)
Horizontal: Fraction of concentrated customer's revenue lost
1. Fictional example
Read the graph as a data table
| Fraction of concentrated customer's revenue lost | Fictional example |
|---|---|
| 0 | 0 |
| 0.25 | 30 |
| 0.5 | 60 |
| 0.75 | 90 |
| 1 | 120 |
What would invalidate the reading?
A long unquantified risk list can substitute for real analysis. Assuming different tickers eliminate common exposures hides concentration.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
A long unquantified risk list can substitute for real analysis. Assuming different tickers eliminate common exposures hides concentration.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: What could make the business thesis wrong? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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