Craig's Construction Company borrowed money to buy the heavy machinery it needs to complete its construction projects. As a result, this company has a high ________ risk.
A) operating
B) financial
C) business
D) liquidity
E) currency

Question

Quizplus · Accepted Answer

In this scenario, Craig's Construction Company has high financial risk because it has borrowed money to buy its heavy machinery. Financial risk occurs when a company uses too much financial leverage as measured by the debt to asset ratio, the debt to equity ratio, and the times interest earned ratio. Too much debt can cause the firm to fail to pay its interest and principal on its debt obligations as they come due.

Craig's Construction Company Borrowed Money to Buy the Heavy Machinery