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HI sir, credit risk is the risk of not being paid on time or at all, by customers right ?
This means that only the seller will face the credit risk not the buyer right ?
Okay. But why is credit risk indicated by high gearing ? What’s the link between high gearing and credit risk ?
High gearing is a risk to a borrower. If profits fall or interest rates rise the company might not be able to pay the interesr due. If there is a bad history of paying interest the company might find it difficult to obtain more loans ie to obtain more bank credit
All that might be,described as a credit risk, but a different use of the term when describing bad debt risk.
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