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

Examine the difference between explicit and implicit cost, Examine the diff...

Examine the difference between Explicit Cost and Implicit Cost Cost of capital can be either implicit cost or explicit. Explicit cost of any source of capital is the discount r

Calculate the maximum price of machine, Silvana Zhang of Sajjad Jafri & Geo...

Silvana Zhang of Sajjad Jafri & Geopeng Li Limited is considering purchasing a new widget making machine. She would like to know the maximum price she should pay for the new machin

Advantages and disadvantages of accounting rate of return, Advantages of AR...

Advantages of ARR: It is simple to calculate and easy to catch. With the help of this technique, direct comparisons among proposed projected of varying lives with no bu

Explain potential and current lenders of long-term funds, Which ratios woul...

Which ratios would a potential long-term bond investor be most interested in? Explain. Potential and Current lenders of long-term funds, such as bondholders and banks, are con

Calculate the expected return and risk, QUESTION The Stock of Max Ltd ...

QUESTION The Stock of Max Ltd performs relatively well compared to other stocks during recessionary periods. The stock of Bax Ltd, on the other hand, does well during growth p

State the traditional approach of financial management, Traditional Approac...

Traditional Approach of financial management Traditional approach to the scope of financial management refers to its subject matter, in academic literature in initial stages o

Define capital rationing, What is capital rationing?  Should a firm practic...

What is capital rationing?  Should a firm practice capital rationing?  Why? The term Capital rationing is the practice of setting dollar limits on what will be invested in new ca

Strategies to achieve financial targets, The XYZ company supplies products ...

The XYZ company supplies products to a number of original equipment manufacturers (OEM's). It employs 5,000 mostly unionized workers and generates about $2.2 billion in revenue ann

Prepare an investment plan proposal, Yanni and Joanna need some investment ...

Yanni and Joanna need some investment advice. Joanna has sold $660,000 worth of Woolworths Limited (WOW) shares that she inherited late last financial year. She has $616,000 remain

How do financial managers calculate the average tax rate, How do financial ...

How do financial managers calculate the average tax rate? Average tax rates are computed by dividing tax dollars paid by earnings before taxes (EBT).

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