12th Class Business Studies Financial Management

  • question_answer 15)
    What is 'financial risk'? Why does it arise?

    Answer:

    It refers to the risk of company not being able to cover its fixed financial costs. The higher level of risks are attached to higher degrees of financial leverage with the increase in fixed financial costs, the company its also required to raise its operating profit (EBIT) to meet financial charges. If the company cannot cover these financial charges, it can be forced into liquidation.


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