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Related Articles ... The amount of risk varies between businesses and is an important factor in determining a ... Financial risk refers to the chance a business's cash flows are not enough to pay creditors and fulfil other financial responsibilities.
According to the Houston Chronicle, business risk has nothing to do with the amount of money a business owes the bank or those who invest in the business. It deals exclusively with not having enough money to pay the rent on a building, wages to the employees or suppliers of good to be sold. It even includes not being able to pay light and telephone bills or taxes. Systematic business risk occurs when the economy is bad, affecting most businesses. Unsystematic business risk applies to a specific company or type of company that is struggling.
Financial risk, on the other hand, deals solely with the lack of income to pay back borrowed money. Often when a business gets behind financially, the owner borrows the money to pay daily expenses. If business does not improve, he not only does not have the money to pay those expenses when they occur again, but now he has a financial obligation to a creditor he is unable to fulfill.
Business Risk is any risk that company may not be able to achieve its financial objective i.e to earn profits. This may affect company's Going concern.
Financial Risk is the risk that a company may not be able to pay its debt. Therefore, a company can be liquidated.
When a company injects a lot of debt in its capital structure, which increases the gearing, the company is considered Financial risky. This increase in debt obligations increases the interest payments. Interest payments reduces Operating profits hence resulting in low net income or potentially a loss.
Hence, the business risk in this case is that the company will earn a loss if it increases it debt obligations, which could lead to going concern issues.
Hope this answers the question.
Both deal with uncertainty of outcome. whether it's a downward for business by any mean, or if it's a financial loss.
