Financial risk

Financial risk

Financial risk is associated with the bottom of the income statement; it deals with earnings and how business risk and the financial structure of the firm impact them.

This type of risk is related to the firm’s use of financial leverage (debt).

Interest payments are fixed costs the firm must pay to stay out of bankruptcy, regardless of the firm’s profitability.

Some people, in fact, will say that a firm with no debt has no financial risk.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk