Business risk and Financial risk

This topic has 3 replies, 4 voices, and was last updated 11 years ago by Christine.

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October 20, 2014 at 8:59 am #205078
Oscar
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Equity shareholders are exposed to both financial risk and business risk and hence the cost of equity takes into account both of the risks.

Are creditors/lenders exposed to both financial risk and business risk?
October 23, 2014 at 5:41 pm #205670
Sangria9
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Hi @Oscar,

Creditors/lenders provide finance to the company (directly by cash or by providing services/products on credit). From this point they look similar to shareholders that also provide resources to the company. Thus I think they all are exposed to both financial risk and business risk.
October 25, 2014 at 8:17 am #205884
fikideen
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creditors/lenders are only exposed to financial risk(the risk that their money will not be paid or be delayed)
October 25, 2014 at 9:26 am #205896
Christine
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I agree with Sangria.

The risk to lenders is that they will not be repaid, but this risk depends partly on the riskiness of the business (business risk) and partly on how highly geared the business is (financial risk).
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