Total risk is equal to business risk plus financial risk. Companies then manage total risk by balancing the two. A low risk business like a bank, can take a lot of financial risk. Banks are often financed with up to 92% debt. Deposits are amounts owed by the bank and therefore a form of debt. Up until the financial crisis, only a handful of banks had failed in the previous 12 months. On the other hand young high tech companies know that they have high business risk. These firms fail all the time. Therefore they finance with little or no debt.
What industry has both high business risk and high financial risk?© BrainMass Inc. brainmass.com June 4, 2020, 4:40 am ad1c9bdddf
Business risk is the risk which is present in the company's operations. It may refer to the possibility of insufficient profits or rather no profits to run the normal operations. Such high uncertainties may happen due to change in tastes, increased competition, change in input prices etc. Financial risk is the risk ...
This solution gives a 217 word explanation of which industry has both types of risk at a high level.