Question

Business risk has brought myriad questions from three new independent board members. Discuss operating and financial risk in the context of your projected (i.e., 2015–2020) economic, market, and business cycle for this brewer of high-end craft beers. What factors weigh in on the optimal capital structure if annual growth is projected to exceed 18%, free cash flow is negative, and the debt/equity ratio is 100%? Be as specific as needed.

Answer 1

Operational risk is the prospect of loss resulting from inadequate or failed procedures, systems or policies. Employee errors. Systems failures. Fraud or other criminal activity. Any event that disrupts business processes.

But in this case as annual growth is exceed 18% from expected means operation is doing well. As per economic and market situation it is satisfactory but as cash flow is negative It may concern for working Capital Mangagement.

Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include company loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss.

But in this situation Debt/ equity ratio is 100% that means equity and debt are in equal position which may increase financial Risk.