METHODS OF ASSESSMENT OF THE IMPACT OF BUSINESS RISK ON FINANCIAL RISK IN FAMILY FARMS: LITERATURE REVIEW

Abstract

The article presents indicators for measurement of business and financial risks, which are chosen by researchers both when assessing individual risks and their interactions. The literature review revealed different approaches of scientists on these risks and their measurement. Business risk is usually measured by either the variability of EBIT or the interaction of EBIT with sales revenue. EBIT is chosen as one of the performance results because it is not influenced by financing decisions. Meanwhile, to measure financial risk, researchers usually use either financial leverage as an indicator of capital structure, or the interaction between net profit and EBIT, or calculate interest coverage ratio. Using the aggregated data of family farms EBIT equivalent is chosen as farm income before interests and taxes. Fixed or random effects, ordinary least squares regression models, or the systemic general method of moments are used to assess the impact of business risk on financial risk. The choice is usually determined by the heterogeneity of observations.