What is financial risk? How should it be identified and analyzed?

Financial risk refers to the risk that the company may not be able to pay the interest on debt financing on time due to unreasonable financial structure and improper financing, which leads to the decline of investors' expected income.

For example, enterprises have too many bad debts, cash is not enough to pay interest, or borrowed too much debt, and profits are not enough to pay off debts, and so on. Financial risk is a realistic problem that enterprises must face in the process of financial management. Financial risks exist objectively. Enterprise managers can only take effective measures to reduce financial risks, but can not completely eliminate financial risks.

Definition of risk analysis:

Financial risk can be divided into broad sense and narrow sense. Decision theorists define risk as the uncertainty of loss, which is a narrow definition of risk. Japanese scholar Liming Kamei believes that risk is not only the uncertainty of loss. But also the uncertainty of profit. This view holds that risk is uncertainty, which may bring both threats and opportunities to the main body of activities. This is the concept of generalized risk.