ACFI201:Lecture 12(a) LeverageReferences: Extract 14 MMK chapter
14 (pp.456 - 468)Outlines:Introducton!usness Rs" #actors In$uencn%
a #r&'s !usness Rs"#nanca( Rs" #actors ndcatn% )nanca(
rs"*peratn% +e,era%e#nanca( +e,era%eE-ects of *peratn% and #nanca(
+e,era%e.o&/ned +e,era%e1Page 456Firm risk0RI1K2 &eans the
potenta( ,ara/(t3 n future cash $o4s.Total frm risk = Business risk
+ Financial riskBusiness risk the a&ount of ,ara/(t3 n the
)r&'s expected E!I5.s the rs" nherent n producn% a %ood or
ser,ce as &easured /3 the ,ara/(t3 n the )r&'s expected
E!I5.236Factors Infuencing a Firms Business isk7ara/(t3 of sa(es
,o(u&e7ara/(t3 of se((n% prce7ara/(t3 of cost8&ount of
&ar"et po4erExtent of product d,ers)caton#r&'s %ro4th
rate9e%ree of operatn% (e,era%e(9*+)!oth s3ste&atc and
uns3ste&atc rs"Web site for more info:
http://finance.yahoo.com/Firm risk (Cont!)Financial risk the rs" of
nso(,enc3 caused /3 the use of de/t or preference share plus the
extra a&ount of ,ara/(t3 n the )r&'s expected :I a,a(a/(e
to ordnar3 shareho(ders a/o,e and /e3ond that caused /3 /usness
rs". #nanca( rs" s caused /3 the use of )nanca(
(e,era%e455Financial isk#actors ndcatn% )nanca( rs"9e/t-to asset
rato9e/t-to-e;ut3 rato#xed char%e co,era%e rato 5&es nterest
earned rato
