BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Debt Risk
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Market Risk
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Business Risk
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Financial Risk
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Detailed explanation-1: -A company’s financial risk is related to the company’s use of financial leverage and debt financing, rather than the operational risk of making the company a profitable enterprise.
Detailed explanation-2: -Financial risk is an unsystematic risk because it does not impact every company. It is specific to each company as it depends on an organization’s operations and capital structure.
Detailed explanation-3: -Increasing debt causes leverage ratios such as debt-to-equity and debt-to-total capital to rise. Debt financing often comes with covenants, meaning that a firm must meet certain interest coverage and debt-level requirements. In the event of a company’s liquidation, debt holders are senior to equity holders.
Detailed explanation-4: -This is included in the category of financial risk. There are at least 4 risks included in it, namely income risk, expenditure risk, asset or investment risk, and credit risk.