Financial risk

Question

Financial risk

Quizplus · Accepted Answer

Financial risk refers to the risk that arises from the financing decisions that a firm makes. It is concerned with the effect that debt, equity, and other financial instruments have on the riskiness of the cash flows that investors will receive. In particular, financial risk is related to the possibility that a firm may not be able to meet its debt obligations or that it may experience significant fluctuations in its cash flow due to its financing decisions. Financial risk can increase a firm's overall risk level, but it is distinct from business risk, which refers to the risk that arises from a firm's underlying operations.

Financial Risk