The risk associated with a firm's operations, ignoring any financing effects, is known as <u>business</u> risk.
Leverage ratios like debt-to-equity and debt-to-total capital rise as debt levels rise. Covenants, which require a company to satisfy specific interest-coverage and debt-level standards, are frequently attached to debt financing.
Compared to bank debt financing, stock equity financing can increase businesses' desire for innovation risk taking more, and is more effective at boosting technological innovation performance by encouraging businesses to take business risks.
Both the profitability and the risk of a company's operations are impacted by financial decisions. For instance, increasing cash holdings lowers risk, but because cash is not an asset that generates income, converting other asset classes to cash lowers the firm's profitability.
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