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Discuss the components of business risk. Discuss how the components affect the variability of operating earnings...

Discuss the components of business risk. Discuss how the components affect the variability of operating earnings (EBIT).
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Answer #1

Business risk is basically the exposure of the factors by which any business or company may lower its profit or held a loss .Anything that threatens a company's ability to meet its target or achieve its financial goals and its future objectives may  called business risk. These risks come from a various factors which affect the overall profitability of business.

for example, a company may face risks in production

risks due to irregular supply of raw materials

risks due to machinery breakdown problem

risks may arise due to fluctuations in market prices, changing trends and fashions

These are the main component of business risk:-

i- Product Risk:- product risk is related to any particular product in the market its sales and other issues

ii-Financial Risk:- financial stability of business its cash flow requirement and other finance related issues

iii-Market Risk:- market competitor ,market conditions, market growth rate etc

iv-Strategic Risk:- strategic decision of the company and its impact on business

v-Execution Risk:- execution of its strategy in business

vi-Operational Risk:- operational efficiency of the business

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