Business and Financial Environment - Essay Example

Only on StudentShare

Extract of sample
Business and Financial Environment

As the company includes more and more debt to its capital structure the rate of Return required by the company increases. WACC which comprises of weighted average of cost of Debt and cost of Equity increases as the firm is exposed to more and more debt. The increase in debt increases the risk of the company and as the debt to equity ratio in a capital structure of the firm increases the Return on Equity required by the firm increases which increases the WACC for the firm. This will also increase the amount of earnings required by the firm to keep its value to its previous position.
This risk inherent for an organization due to its operations is called business risk. It is the risk of a firm when it uses no debt. Technically or in terms of formulation it is the uncertainty in the future returns on assets of a firm (ROA). We can write ROA as:
This gives us a way to measure the business risk of an un-levered firm i.e. measuring deviations in the ROE of that firm. Such a business risk is called firm's Basic Business Risk. "Business risk is the uncertainty associated with operating cash flows of a business. ...Show more


Organizations, when operate, face different type of risks. If the organization is financed all through equity, then stockholders will face the risk inherent in the operations of that business which is called the Business Risk. Business risk is influenced by many factors which include Demand Variability, Price Stability, Input Cost Variability, Adaptability of output prices with the changes in input prices, Ability to develop new products and Degree of Operating Leverage…
Author : antoinettekilba
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Business and Financial Environment"
with a personal 20% discount.
Grab the best paper

Related Essays

International Business Environment Essay
Business environment have been particularly influenced by factors such as Political / Legal, Economic Social / culture, Technological and Environmental. These factors are know as PESTEL analysis and are widely used by business enterprises to audit their environment and to help them establish a strategic approach to their business activities.
6 pages (1500 words) Essay
Dispute Resolution: Frustration and Deviation
Marine insurance covers the loss or damage of ships and goods at sea and is the oldest form of insurance Lloyd’s of London and the Institute of London Underwriters developed standardized clauses for marine insurance in the 19th century known as Institute Clauses (Nunes 2004).
20 pages (5000 words) Essay
International Business Environment
But, before confirming such assumption and to see if it could be a new hub for the US's financial industry, it is better to delve into all of the aspects around it to see if Kuwait's potentials could be a reality. Specifically, we would analyze if the economic state and political conditions of Kuwait bred well to become an interestingly good investment environment for US financial services, not discounting other factors like Kuwait's history, development progress, policies, and social-cultural ways along with its international position.
14 pages (3500 words) Essay
Business environment Research Proposal
This is an extensive research and it will involve a deep analysis of Bank Muscat's work environment. Bank Muscat is a front-runner in using technology to its customer advantage. With a market share of over 35% it is the largest bank in the Sultanate of Oman.
14 pages (3500 words) Research Proposal
Todays business environment
Almost all companies are turning global. The use of Internet has accelerated the movement towards globalisation. This leads a company to work in more than one environment- internal and external. The domestic companies are accustomed to the internal environment of the country they belong to but they have to know, understand and adjust to new external environment of other sovereign countries they plan to operate in future.
8 pages (2000 words) Essay
Business Environment
Banks, financial institutions and credit facilities are badly affected by the current financial meltdown that originated from Wall Street in America, with giants in financial industry like Lehman Brothers
7 pages (1750 words) Essay
Business environment
The current circumstances indicate that the world’s most sophisticated financial system is going to collapse because of multiple failures of giants such as AIG, Lehman Brothers; Northern Rock clearly indicating as to
7 pages (1750 words) Essay
Business Environment
With technological changes taking place and globalization impacting economies and companies, BP oil has experienced numerous challenges over its lifetime to-date. Yet again, the company which is mainly based in the United Kingdom has faced numerous
20 pages (5000 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email