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14 October, 19:48

How is financial risk impacted if a businesses operating expense percentage declines?

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  1. 14 October, 20:06
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    Decline in operational expense will lead the firm to a business risk as it is important in carrying the business, therefore it also lead to financial risk.

    Explanation:

    Financial risk is the business ability to manage its debt and financial leverage, which is liquidity risk, credit risk, currency risk, etc,. Financial risk also lead to the business risk, which is refered to the risk in the ability of generating revenue to cover its operation expenses. It occur due to higher fixed cost in the production process, which means higher operating leverage and higher business risk. Business operation expenses are the cost of day to day business operation like rent, cost of production, payroll, etc. These are essential expenses to run the business. Therefore, Business has high financial risk impacted if a businesses operating expense percentage declines.
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