The correct answer is: A. Business Risk
Operating leverage is a measure of how a firm’s operating costs react to changes in sales. A firm with high operating leverage has a high proportion of fixed costs, which means that a small change in sales can lead to a large change in profits. A firm with low operating leverage has a low proportion of fixed costs, which means that a small change in sales can lead to a small change in profits.
Business risk is the risk that a firm will not be able to generate enough cash flow to meet its obligations. Business risk is affected by a number of factors, including the firm’s industry, its product mix, its pricing strategy, and its cost structure.
Financing risk is the risk that a firm will not be able to meet its financial obligations. Financing risk is affected by a number of factors, including the firm’s debt-to-equity ratio, its interest rate structure, and its cash flow.
Production risk is the risk that a firm will not be able to produce its products at the desired level of quality or quantity. Production risk is affected by a number of factors, including the firm’s manufacturing process, its quality control procedures, and its supply chain.
Credit risk is the risk that a borrower will not be able to repay its loan. Credit risk is affected by a number of factors, including the borrower’s financial condition, its debt-to-equity ratio, and its interest rate structure.
Operating leverage is a measure of business risk, not financing risk, production risk, or credit risk.