What is financial risk when company experiencing changes, Financial Accounting

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Financial risk is the likelihood of a company experiencing changes in the level of its distributable earnings as a result of the need to make interest payments on debt finance or prior charge capital. The earnings instability of companies in the same business will therefore depend not only on business risk but as well on the proportion of debt finance each company has in its capital structure. Ever since the relative amount of debt finance employed by a company is measured by gearing, financial risk is also referred to as gearing risk.


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