What are the components of financial risk? How do companies employ diversification to reduce risk?
The variability of Earning per share caused by use of finnacial leverage is called financial risk.
Operating risk is called variability of EBIT(Earning before interest and taxes)
Financial risk arises because:
1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly ...
This explains the components of financial risk