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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