What is business risk, and how can it be measured?

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What is business risk, and how can it be measured?

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What is business risk, and how can it be measured?

Explanation & AnswerSolution by a verified expert

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Business risk is related to the variability of the firm's operating returns.

Explanation

Business risk is uncertainty inherent to the firm's operations without the consideration of the type of financing the firm uses. This risk can be measured by computing the standard deviation of the firm's return on invested capital (ROIC)

Verified Answer

Business risk is the uncertainty inherent in the operations of the firm without considering the additional risks of incurring debt. It is the risk associated with the variabilities inherent in the firm's revenues and/or operating profit. It can be measured by computing the standard deviation of the return on invested capital (ROIC).

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