1. Risk of default. Since debt management is based on regular payment of interest and repayment of principal, if the investment made by the indebted company cannot be recovered on schedule and the expected income is obtained, the company will face the risk of being unable to repay the debt. In this way, it will not only lead to the company's financial shortage, but also affect the company's reputation, and may even suffer from extinction due to its inability to pay.
2. Risk of interest rate changes. During the company's debt period, due to the influence of inflation, the loan interest rate will increase and change, and the increase of interest rate will inevitably increase the company's capital cost, thus offsetting the expected income.
3. Refinancing risk. Due to debt management, the company's debt ratio rises and the degree of creditor's rights guarantee decreases accordingly, which greatly limits the company's ability to increase debt financing from other channels.
Financial risks can be divided into natural risks, political risks and economic risks according to their causes, systematic risks and unsystematic risks according to the scope of risk influence, and mild risks, moderate risks and bankruptcy risks according to the intensity of financial risks.
Focusing on the content of the paper will connect you with reality. So, it must be beyond your paper.
Generally speaking, the questions are directed at your paper. So be sure to be familiar with your paper.
Many teachers like to play with practical problems. For example, recent hot cases involving financial risks. I will ask you what you think of this problem, what suggestions you have and so on.
Personally, I suggest you read accounting journals and newspapers before replying, especially the key cases in the last two years.