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Distinguish between Business risk and Financial risk

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Distinguish between Business risk and Financial risk

Distinguish between Business risk and Financial risk

Distinguish between Business risk and Financial risk

Distinguish between Business risk and Financial risk

Business risk is the risk that a business faces in not being able to generate adequate income to cover operating expenses.

Financial risk is the risk that a business will not be able to generate enough cash flow and income to pay their debts and meet their other financial obligations.

 

Distinguish between Business risk and Financial risk

Business risk

Financial risk

i. Business risk is uncertainty of expected return on asset if the company does not use debt. i. Financial risk is the uncertainty of return if the company takes debt.
ii. It is calculated from the overall asset invested in the business. ii. It arises if the total debt of the firm is more in the capital structure.
iii. It is related to the total profit if the business. iii. It is related to the financial profit of the business.
iv. It is related to the investment policy of the firm. iv. It is related to both investment policy and capital structure of the firm.
v. It relates operating leverage. v. It relates financial leverage.
vi. Owners and creditors are concerned with this risk. vi. Owners of the business are concerned with this risk.
vii. Owners as well as creditors can control this risk. vi. Only the owners of the business can control this risk.
viii. This is unavoidable risk. viii. This is avoidable risk.
ix. Capital structure is not considered in analyzing business risk. ix. Capital structure is considered in analyzing financial risk.

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Distinguish between Business risk and Financial risk
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Distinguish between Business risk and Financial risk
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Business risk is the risk that a business faces in not being able to generate adequate income to cover operating expenses. Financial risk is the risk that a business will not be able to generate enough cash flow and income to pay their debts and meet their other financial obligations.
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BBALectures.com
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