BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Business risk
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Financial risk
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Long-term risk
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Market risk
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Detailed explanation-1: -Financial risk is the chance that a firm would fail to meet its payment obligations. Interest & Repayment on borrowed funds have to be paid regardless of whether or not a firm has earned a profit. The risk of default on payment is known as financial risk.
Detailed explanation-2: -Bankruptcy risk, or insolvency risk, is the likelihood that a company will be unable to meet its debt obligations. It is the probability of a firm becoming insolvent due to its inability to service its debt. Many investors consider a firm’s bankruptcy risk before making equity or bond investment decisions.
Detailed explanation-3: -An FCCR of less than 1 (<1) means the company lacks sufficient profitability to cover its fixed charges.
Detailed explanation-4: -Financial risk refers to a company’s ability to manage its debt and financial leverage, while business risk refers to the company’s ability to generate sufficient revenue to cover its operational expenses.