What is 'Financial Risk'
The possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations. When a company uses debt financing, its creditors will be repaid before its shareholders if the company becomes insolvent.
Financial risk also refers to the possibility of a corporation or government defaulting on its bonds, which would cause those bondholders to lose money.
BREAKING DOWN 'Financial Risk'
Investors can use a number of financial risk ratios to assess an investment's prospects. For example, the debttocapital ratio measures the proportion of debt used, given the total capital structure of the company. A high proportion of debt indicates a risky investment. Another ratio, the capital expenditure ratio, divides cash flow from operations by capital expenditures to see how much money a company will have left to keep the business running after it services its debt.

DebtToCapital Ratio
A measurement of a company's financial leverage, calculated as ... 
Capitalization Ratios
Indicators that measure the proportion of debt in a companyâ€™s ... 
Debt Ratio
A financial ratio that measures the extent of a companyâ€™s or ... 
Debt Financing
When a firm raises money for working capital or capital expenditures ... 
Total DebttoCapitalization Ratio
An indicator that measures the total amount of debt in a companyâ€™s ... 
Bankruptcy Risk
The possibility that a company will be unable to meet its debt ...

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How can I use the debttocapital ratio to evaluate a stock?
Understand the significance of the debt to capital ratio of financial leverage, and learn how investors and analysts make ... Read Answer >> 
What are financial risk ratios and how are they used to measure risk?
Explore some of the primary financial risk ratios that investors and analysts commonly use to evaluate a company's overall ... Read Answer >> 
Does a high debt to capital ratio make a company a bad investment?
Understand the debt to capital ratio and why a high debt to capital ratio doesn't necessarily mean that a stock is a bad ... Read Answer >> 
Which financial ratio best reflects capital structure?
Learn about the debttoequity ratio and why this metric is widely considered the most useful reflection of a company's capital ... Read Answer >> 
How do I use the debt ratio to decide when to invest in a company?
Understand the calculation and interpretation of the debt ratio and how this metric is used by investors to analyze a company's ... Read Answer >> 
What is the most widely used gearing ratio?
Understand the most commonly used gearing, or leverage, ratio used to evaluate a company's financial condition, the debt ... Read Answer >>