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Business Risks and Financial Risks

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Why do companies in different industries often have different levels of risk?

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Solution Summary

Business operation is a risky business. A business owner must accept a level of risk such as it may not succeed and not recover the investment. There are two significant risks factors: business risk and financial risk. This solution discusses both.

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According to Brigham and Houston (2007), there are two new dimensions of risk:
(1) Business risk, which is the riskiness of the firm's assets if it uses no debt.
(2) Financial risk, which is the additional risk placed on the common stockholders as a result of using debt (p. ...

Solution provided by:
Jennifer Agard, PhD
Education
  • MA, Capella University
  • BA, Empire State College, NY
  • MBA, Empire State College, NY.
  • PhD , Concordia University
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