_________ of a company affects both the profitability and the financial risk.

Capital Structure

The correct answer is option (2) : Capital Structure

The correct answer is option

2: Capital Structure.

The capital structure of a company refers to the way in which the company finances its operations through a combination of debt and equity. The capital structure of a company affects both the profitability and the financial risk of the company. The use of debt financing increases the financial risk of the company, as the company has to pay interest on the debt regardless of its profitability. On the other hand, equity financing does not involve any fixed payments, but it dilutes the ownership of the existing shareholders and reduces their share in the profits. Therefore, the correct answer is option 2: Capital Structure.

Working Capital :

Working capital is the capital used for day-to-day operational expenses, such as managing short-term assets and liabilities. While it is essential for the smooth functioning of a business, it may not directly affect financial risk in the same way that capital structure does. Working capital primarily deals with short-term liquidity and operational efficiency.

Fixed Capital:

• Fixed capital, often referred to as fixed assets, includes assets like machinery, equipment, and buildings used in the production process. It is essential for the long-term productive capacity of a company but may not have as direct an impact on financial risk and profitability as capital structure does.

Dividend decision:

• The dividend decision involves determining how much of the company's profits are distributed to shareholders as dividends and how much are retained within the company. While dividend decisions can influence the financial well-being of shareholders, they are typically more related to shareholder wealth and corporate governance than directly impacting financial risk and profitability.