Blog entry by Toritsemogha Afinotan
Anyone in the world
A company can finance its assets either with equity or debt. Financing through debt involves risk because debt legally obligates the company to pay interest and to repay the principal as promised. Equity financing does not obligate the company to pay anything -dividends are paid at the discretion of the board of directors.
There is always some risk, which we refer to as business risk,
inherent in any operating segment of a business. But how a company chooses to finance its
operations- the particular mix of debt and equity - may add financial risk on top of business risk
Financial risk is the extent that debt financing is used relative to equity.