Business Risk

Business risk is related to the formation of the assets of companies. The company which is high share of fixed assets to total assets has got high risk of its company. The company which has got high fixed assets will invest in high items such as machinery and equipment. This means that the fixed expenses is high. In fact, the concept of business risk will be more clearly define as the variablility in profit before interest and tax. The sources of business risk are the issues in supply of raw material, technological developments, strikes, the changes of customers‟ tastes and preferences due to the increased competition. When these factors cause to adverse consequences for business, the profitability of companies reduces. Therefore the returns which investors provide as dividends or capital gains reduce.

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