Difference between financial risk and business risk

Question

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

Answer 1

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.