Financial Management — Business Studies STD 12 Commerce — Question
CBSE BoardEnglish MediumSTD 12 CommerceBusiness StudiesFinancial Management1 Mark
Question
What is Financial Risk? Why does it arise?
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Answer
It refers to the risk of the company not being able to cover its fixed financial costs. The higher levels of risks are attached to higher degrees of financial leverage. With the increase in fixed financial costs, the company is also required to raise its operating profit (EBIT) to meet financial charges. If the company cannot cover these financial charges, it can be forced into liquidation.
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