What factors contribute to the business risk of a company? What is financial risk? How do the various sources of risk affect the optimal capital structure?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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What factors contribute to the business risk of a company? What is financial risk? How do the various sources of risk affect the optimal capital structure?

 
 
 
 
 
 
 
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Financial risk relates to how a company uses its financial leverage and manages its debt load. Business risk relates to whether a company can make enough in sales and revenue to cover its expenses and turn a profit. With financial risk, there is a concern that a company may default on its debt payments

Financial Risk is one of the major concerns of every business across fields and geographies. This is the reason behind the Financial Risk Manager FRM Exam gaining huge recognition among financial experts across the globe. FRM is the top most credential offered to risk management professionals worldwide. Financial Risk again is the base concept of FRM Level 1 exam. Before understanding the techniques to control risk and perform risk management, it is very important to realize what risk is and what the types of risks are. Let's discuss different types of risk in this post.

 

Some of the Inter Factors affecting the capital structure decisions of a company are: –

1. Financial Leverage 2. Risk 3. Growth and Stability 4. Retaining Control 5. Cost of Capital 6. Cash Flows 7. Flexibility 8. Purpose of Finance 9. Asset Structure.

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