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 company’s ... 
Debt Ratio
A financial ratio that measures the extent of a company’s or ... 
Bankruptcy Risk
The possibility that a company will be unable to meet its debt ... 
Total DebttoCapitalization Ratio
An indicator that measures the total amount of debt in a company’s ... 
Leverage Ratio
Any ratio used to calculate the financial leverage of a company ...

Investing Basics
Will Corporate Debt Drag Your Stock Down?
Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference. 
Professionals
Financial Risk Ratios
CFA Level 1  Financial Risk Ratios. Learn the ratios behind a company's financial risk. Provides ratios for determining a company's use of debt and interest rate coverage. 
Professionals
Capital Structure
This is an important concept in valuing a company. 
Trading Strategies
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy. 
Bonds & Fixed Income
Evaluating A Company's Capital Structure
Learn to use the composition of debt and equity to evaluate balance sheet strength. 
Credit & Loans
Debt Ratios: Cash Flow To Debt Ratio
By Richard Loth (Contact  Biography)This coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of shortterm borrowings, ... 
Investing
Debt Ratio
The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ... 
Investing Basics
4 Leverage Ratios Used In Evaluating Energy Firms
Analysts use specific leverage ratios to compare firms within an industry. A basic understanding of these ratios helps when evaluating oil and gas stocks. 
Fundamental Analysis
4 Leverage Ratios Used In Evaluating Energy Firms
These four leverage ratios can help investors understand how oil and gas firms are managing their debt. 
Investing
Total Debt to Total Assets
Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage.

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 >> 
If a company has a high debt to capital ratio, what else should I look at before ...
Learn about some of the financial leverage and profitability ratios that investors can analyze to supplement examining the ... Read Answer >> 
What is the difference between the debt ratio of a company and the debt ratio of ...
Discover the different financial evaluation measures that are most commonly applied to individuals and corporations, respectively. Read Answer >>