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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 the uncertainty of expected return on an 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 to operating leverage. v. It relates to 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 an unavoidable risk. viii. This is an 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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About Mohammed Ahaduzzaman

Mr. Zaman is a Founder and Freelance Writer @ BBALectures Blog! Blogging is his passion. He loves writing on Entrepreneurship, Finances, Accounting, HR and Business Issues. By profession, He serving as Accounting Professional at Zaman Accounting.

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