Which of the following accurately compares business risk and operating risk?
A) Business risk is related to the inability of a firm to hold its competitive position and maintain stability and growth in earnings, while operating risk focuses on the volatility of operating earnings.
B) Business risk involves the ratio of sales to assets; while operating risk involves changes to the competitive environment due to changing consumer tastes, new players, and new technology.
C) Business risk and operating risk are exactly the same.
D) Both occur because the company does not keep up with its competitors due to lack of research and development, lack of forward planning, and poor management.
E) Both can be measured by the standard deviation of operating earnings.

Question

Quizplus · Accepted Answer

Sometimes, business risk and operating risk are confused, but they are not exactly the same. Business risk is related to the inability of a firm to hold its competitive position and maintain stability and growth in earnings. This occurs because the company does not keep up with its competitors due to lack of research and development, lack of forward planning, and poor management. On the other hand, operating risk focuses on the volatility of operating earnings. Given the cyclical nature of the economy and the stability of the industry, this risk can be measured by the standard deviation of operating earnings. One measure of operating risk is the ratio of sales to assets.

Which of the Following Accurately Compares Business Risk and Operating