Explore BrainMass

Explore BrainMass

    Business and Financial Risk: Capital Structure Analysis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Please define business risk and financial risk. Explain their importance in capital structure analysis.

    © BrainMass Inc. brainmass.com June 3, 2020, 11:47 pm ad1c9bdddf

    Solution Preview

    Definition of financial risk :

    Financial risk is the risk of probability of loss inherent in the methods used in financing a firm that may impair its ability to provide adequate return.

    Meaning of financial risk:

    Therefore, financial risk is the risk associated with any form of financing. Risk is the probability of unfavorable condition. Financial risk is the possibility of loss in investment or speculation. It is the risk that the firm is unable to meet its financial obligations. Usually financial risk is associated with financing of asset by debt. If the debt is more, financial risk is more. Therefore, financial risk is the ...

    Solution Summary

    Solution defines business risk and financial risk, as well as explains their importance in capital structure analysis.