Explain difference between business risk and financial risk, Financial Management

Assignment Help:

What is the difference between business risk and financial risk?

Business risk considers to the uncertainty a company has regarding to its operating income (as well termed as earnings before interest and taxes or EBIT).  Business risk is brought on through sales volatility and intensified by the existence of fixed operating costs.

The term financial risk is the additional volatility of net income caused by the existence of interest expense.  Firms that have just equity financing have no financial risk because they have no debt on which to make fixed interest payments. Alternatively, firms that operate primarily on borrowed money are exposed to a high degree of financial risk.


Related Discussions:- Explain difference between business risk and financial risk

Higher production costs, Previous MOS = 750 - 270 = 480 aircraft; Revised M...

Previous MOS = 750 - 270 = 480 aircraft; Revised MOS = 750 - 420 = 330 aircraft Explanation that a lower MOS = lower levels of profit and therefore exposes the business to more

Alternative dividend policies, The managing directors of three profitable l...

The managing directors of three profitable listed companies discussed their companies' dividend policies at a business lunch. Company A ; has deliberately paid no dividends for

Method to find seasonal variation in time series, Method to Identify the Co...

Method to Identify the Component of Seasonal Variation in a Time Series This technique is called as Ratio to Moving Average Method. In this technique, we construct an index wh

Analyse interest rate swap and currency swap, Problem: (a) Critically ...

Problem: (a) Critically analyse interest rate swap and currency swap. (b) Explain why a bank may face credit risk when it enters into offsetting swap contracts. (c) Two

Leverage, What are the importance of leverage on a small scale firm?

What are the importance of leverage on a small scale firm?

What is the matching principle of working capital financing, What is the ma...

What is the matching principle of working capital financing?  What are the benefits of following this principle? The matching principle is while short-term financing is used fo

Explain the npv criterion, Consider that you are deciding whether to undert...

Consider that you are deciding whether to undertake one of two projects. Project A involves buying expensive machinery which will produce a better product at a lower cost. The mach

What are the drawbacks of benchmarking, What are the Drawbacks of benchmark...

What are the Drawbacks of benchmarking -  Benchmarking systems and programmes can be costly and time consuming -  Diversity and complexity of information can 'overload 'mana

Computation of the value of the firm, Q. Computation of the Value of the fi...

Q. Computation of the Value of the firm? The argument given by MM in favour of their hypothesis is that whatever increase in the value of the firm results from the payment of d

Which banking regulators use in supervising banks, Question 1: In the f...

Question 1: In the financial system, the capital markets consist of the Bond and the Equities Market. Develop this statement. Question 2: (a) Discuss why banking regula

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd