--%>
Assignment Help - homework help

Difference between financial risk and business risk

Explain in brief the difference between financial risk and business risk?

E

Expert

Verified

a) Business risk symbolizes to the insecurity that a company has related to its earnings before interest and taxes or EBIT (also known as operating income). Business risk is intensified by the presence of fixed operating costs and brought on by sales volatility.
b) The additional volatility of net income which is there because of the presence of interest expense is financial risk. There are firms which have no financial risk but have only equity financing. As they don’t have debt on which they can make fixed interest payments. On the other hand, firms that work mainly on borrowed money are more exposed to a high degree of financial risk.

   Related Questions in Financial Management

  • Q : Running of net balance of payments

    Explain how a country can run net balance of payments deficit or surplus.A country can run net BOP deficit or surplus by engaging in the official reserve transactions. For instance, an overall BOP deficit can be supported through drawing down th

    		•
  • Q : Define market for foreign exchange

    Define market for foreign exchange.Broadly described, the foreign exchange (FX) market encompasses the conversion of purchasing power from one currency to another, bank deposits of foreign currency, the extension of credit denominated in a forei

    		•
  • Q : When was quantitative finance domain of

    When was quantitative finance the domain of either economists or applied mathematicians?

    		•
  • Q : Tabulate advantages of the flexible

    Tabulate the advantages of the flexible exchange rate regime. The advantages of the flexible exchange rate system comprise: (I) automatic attainment of balance of payments equilibrium and (ii) maintenance of national policy autonomy.

    		•
  • Q : Calculate rate of return of investment

    Assume you are a euro-based investor who just sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to purchase Microsoft shares for $120 per share; the exchange rate was $1.15 per euro. You sold the stock for $135 per share

    		•
  • Q : What is probability of probabilistic

    What is the probability of probabilistic concepts occurrence in distribution?

    		•
  • Q : Describe how to calculate the overall

    Describe how to calculate the overall balance and discuss its significance.The overall BOP is finding out by computing the cumulative balance of payments by including the current account, capital account, and the statistical discrepancies. The n

    		•
  • Q : Why is volatility annualized standard

    Why is volatility annualized standard deviation of return?

    		•
  • Q : Matching loan and deposit maturities

    Good fellow national bank decided to compete with a savings and loan by offering 30 year fixed rate mortgage loans at 8% annual interest. It plans to obtain the money got the loans by selling one year 6% CD to it's depositors. During first year of operation, good fellows sold it's depositors 1,000,0

    		•
  • Q : Explain an example of finite-difference

    Explain an example of finite-difference method.

    		•