StudentShare solutions
Got a tricky question? Receive an answer from students like you! Try us!

Essay example - Business and Financial Environment 2

Only on StudentShare
Pages 8 (2008 words)
Business risk is the fundamental inalienable risk of a business or line of business which is not diversifiable. (Moles and Terry, 1997). Business risk refers to the risk that the firm may not meet its short-term or operating liabilities as and when they fall due…

Extract of sample

(Moles and Terry, 1997). A firm faces finances risk if there is a high probability that it might be unable to meet its fixed financial obligations or prior chares such as interest, principal repayments, lease payments, or preferred stock dividends. Financial risk is therefore risk arising from the use of debt finance, which requires periodic payments of interest and principal and may not be covered by the firm's operating cash flows. (Moles and Terry, 1997).
The capital structure of a firm is made up of both debt and equity components. Although the use of debt in financing part of the firm's operations is advantageous to the firm, these advantages tend to disappear when too much debt is used. In effect when debt is used above the optimum level, the result is financial distress. (Ross et al, 1999). Ross et al (1999) asserts that debt puts pressure on the firm, since interest and principal repayments as well as short-term payables are financial obligations. In the event where these obligations are not met, the firm may risk some sort of financial distress. (Ross et al, 1999). Debt obligations are fundamentally different from stock obligations in that bondholders are legally entitled to interest and principal repayments more than stockholders are legally entitled to dividends. (Ross et al, 1999). ...
Download paper
Not exactly what you need?

Related papers

Business Environment
In order to maintain its focus on the quality aspect along with the overall organisational development, the company considers a mission statement. This mission statement tends to direct the organisational strategies and the strategic objectives of the company as well. The mission statement developed by the company depicts its concern regarding the quality of the products’ served with due…
20 pages (5020 words)
Business Environment
There are several types of economic systems but this paper will only concentrate on theses three namely, planned economy, participatory economy, and barter economy. In planned economy such as state socialism where the economy behaves like a hands on economy in which people follow the state laws of economy. In participatory economy, people guide the production and distribution of goods through…
8 pages (2008 words)
Business environment
Business organisations: Their aims, stakeholders, and responsibilities. 1.1 Vision, Mission and Values of HSBC bank HSBC’s vision is to be Turkey’s leading, powerful, profitable and admirable bank through exemplary service to millions of customers all over the world. In its endeavour to achieve this vision, the bank values its customers and as such provides quality service. It is enshrined in…
7 pages (1757 words)
Business Environment 2
Market structures, pricing and output decisions The key factors that influence British Airways pricing and output decisions include airport capacity, technology, fuel costs, costs of leasing or buying aircrafts and cost of labour. Accordingly, the route structure and distance of freight must be factored in the pricing decision. Network-Legacy Airlines use the Hub & Spoke model for the…
4 pages (1004 words)
Business Environment
1 5,6 1.3 Explain the responsibilities of an organisation and strategies employed to meet them. 1 6,7 LO2 Understandthe nature of the national environment in which businesses operate. 2.1 Explain how economic systems attempt to allocate resources effectively. 1 7,8,9,10 2.2 Assess the impact of fiscal and monetary policy on business organisations and their activities. 1 10,11 2.3 Evaluate the…
10 pages (2510 words)
Business Environment
Others macroeconomic factors like production, inflation, employment, investment, domestic income, international business relationships etc are discussed in Macro Economics (Childs, D, and Deitrich, S. 2003). P4: Economics can be described as social science. It is a study of how individuals, households, firms, consumers, nations maximizes there profit with limited resources and availabilities. In…
8 pages (2008 words)