Financial risk, which makes a firm's ROE and EPS more volatile, exists only if the firm has some debt financing (leverage).

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Financial risk, also known as leverage risk, refers to the risk that a company will not be able to meet its financial obligations when they become due. This risk arises when a company has debt financing, which increases the firm's financial leverage and makes its ROE and EPS more volatile. Without any debt financing, there is no financial risk.

Financial Risk, Which Makes a Firm's ROE and EPS More