The risk arising due to the fluctuations in returns of a company’s security due to the micro-economic factors, i.e. factors existing in the organization, is known as unsystematic risk. The factors that cause such risk relates to a particular security of a company or industry so influences a particular organization only. The risk can be avoided by the organization if necessary actions are taken in this regard. It has been divided into two category business risk and financial risk, explained as under:
Business risk: Risk inherent to the securities, is the company may or may not perform well. The risk when a company performs below average is known as a business risk. There are some factors that cause business risks like changes in government policies, the rise in competition, change in consumer taste and preferences, development of substitute products, technological changes, etc.
Financial risk: Alternatively known as leveraged risk. When there is a change in the capital structure of the company, it amounts to a financial risk. The debt – equity ratio is the expression of such risk.