Distinguish between the following: Business risk and Financial risk.

Distinction between Business Risk and Financial Risk S.No. Business Risk Financial Risk 1 Business risk is associated with day to day operations and the operating leverage of the business. Financial risk relates to the fixed interest bearing cost and is related to its financial leverage. 2 This is affected by changes in cost of sales, cost of production and other operating expenses. This is affected by changes in the capital structure and the fixed interest bearing component of the capital structure. 3 Business risk arises from the investment decision itself, i.e., variability in PBIT due to cost structure, changes in the level of demand, competition and so on. Financial risk is affected by changes in interest rates, RBI monetary policy, and any changes for whatever reason in the cost and proportion of debt of the entity.