lOMoARcPSD|64024314
STUDY MATERIAL:-
FINANCIAL MANAGEMENT
VERY SHORT QUESTIONS ( 1 MARK)
1 Define Financial Management.
Ans financial management is that specialized activity which is responsible for
obtaining and affectively utilizing the funds for the efficient functioning of the
business and, therefore, it includes financial planning, financial administration
and financial control.
2 State the primary objective of Financial management.
Ans. To maximize the shareholders wealth.
3 State the decisions involved in Financial management.
Ans.. a) Investment decision b) Financing decision c) Dividend decision
4 What is meant by Financial Planning?
Ans.. Financial planning means deciding in advance, the financial activities to
be carried on to achieve the basic objective of the firm. The basic objective of the
firm is to get maximum profits out of minimum efforts.
5 What are the objectives of financial planning?
Ans.. a) to ensure availability of fund whenever required.
b) to see that the firm does not raise funds unnecessarily.
6 What is Working Capital ?
Ans.. The capital required for day to day operations of the business is called
Working capital.
7 State the difference between gross working capital and net working
capital.
Ans.. Gross working capital is the sum/ aggregate of the current assets,
whereas
Net working capital = Current assets – current liabilities.
8 What is meant by capital budgeting decision?
Ans.. A long term Investment decision is called capital budgeting decision.
9. When is financial leverage considered favorable?
Ans) Financial leverage is considered favorable when return on investment is
higher than the cost of debt.
10. How does production cycle effect working capital?
Ans) working capital requirement is higher with longer production cycle.
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11. What do you mean by floatation cost?
Ans) Cost incurred for raising funds.
12. What is capital structure of a company?
Ans.. Capital structure is the relative proportion of different sources of long
term finance. In other words Capital structure of a company refers to the make
up of its capitalization
SHORT ANSWER QUESTIONS ( MKS)
1. Are the share holders of a company likely to gain with a debt component in
the capital employed ? Explain with the help of an example?
Ans) The shareholders of a company are very likely to gain with debt component
in the capital employed by way of trading
On equity as it increases the earning per share(EPS) of the share holders.
2 Define current assets and Give four examples.
Ans. Current assets also called as floating assets or fluctuating assets are short
term assets whose value fluctuates in the short period. These assets are required to
pay off the current liabilities. For e.g. cash in hand/Bank, Inventory, Debtors.
Bills receivable, Marketable securities etc.
3 “To avoid the problem of shortage and surplus of funds, what is required
in Financial management? Name the concept and explain four points of
importance.
Ans.Financial Planning is required to avoid shortage or surplus of finance.
Importance of financial planning is:
a) By planning utilization of finance, it reduces waste ,duplication of efforts
and
gaps in the planning.
b) It helps in coordinating the various business activities such as sales,
purchases, production, finance etc.
c) It is a technique of control. It helps in setting up standard and compare
with the actual performance. The deviations, if any are then analysed.
Causes found out and corrective measures are taken.
(d)It helps in avoiding shocks and surprises as proper provision regarding
Shortage or surplus is made in advance by anticipating future receipts and
Payments.
.
4 Explain the role of ‘Operational efficiency’ in the determination of
working capital requirement.
Ans. The firm with a better operational efficiency has to invest less in working
capital because-
a) they convert raw materials quickly into finished goods, and sell them at their
earliest. i.e. converts stock into sales quickly.
b) Promptly collects debts from debtors and bills receivable.
Downloaded by derrick maina ()
STUDY MATERIAL:-
FINANCIAL MANAGEMENT
VERY SHORT QUESTIONS ( 1 MARK)
1 Define Financial Management.
Ans financial management is that specialized activity which is responsible for
obtaining and affectively utilizing the funds for the efficient functioning of the
business and, therefore, it includes financial planning, financial administration
and financial control.
2 State the primary objective of Financial management.
Ans. To maximize the shareholders wealth.
3 State the decisions involved in Financial management.
Ans.. a) Investment decision b) Financing decision c) Dividend decision
4 What is meant by Financial Planning?
Ans.. Financial planning means deciding in advance, the financial activities to
be carried on to achieve the basic objective of the firm. The basic objective of the
firm is to get maximum profits out of minimum efforts.
5 What are the objectives of financial planning?
Ans.. a) to ensure availability of fund whenever required.
b) to see that the firm does not raise funds unnecessarily.
6 What is Working Capital ?
Ans.. The capital required for day to day operations of the business is called
Working capital.
7 State the difference between gross working capital and net working
capital.
Ans.. Gross working capital is the sum/ aggregate of the current assets,
whereas
Net working capital = Current assets – current liabilities.
8 What is meant by capital budgeting decision?
Ans.. A long term Investment decision is called capital budgeting decision.
9. When is financial leverage considered favorable?
Ans) Financial leverage is considered favorable when return on investment is
higher than the cost of debt.
10. How does production cycle effect working capital?
Ans) working capital requirement is higher with longer production cycle.
Downloaded by derrick maina ()
, lOMoARcPSD|64024314
11. What do you mean by floatation cost?
Ans) Cost incurred for raising funds.
12. What is capital structure of a company?
Ans.. Capital structure is the relative proportion of different sources of long
term finance. In other words Capital structure of a company refers to the make
up of its capitalization
SHORT ANSWER QUESTIONS ( MKS)
1. Are the share holders of a company likely to gain with a debt component in
the capital employed ? Explain with the help of an example?
Ans) The shareholders of a company are very likely to gain with debt component
in the capital employed by way of trading
On equity as it increases the earning per share(EPS) of the share holders.
2 Define current assets and Give four examples.
Ans. Current assets also called as floating assets or fluctuating assets are short
term assets whose value fluctuates in the short period. These assets are required to
pay off the current liabilities. For e.g. cash in hand/Bank, Inventory, Debtors.
Bills receivable, Marketable securities etc.
3 “To avoid the problem of shortage and surplus of funds, what is required
in Financial management? Name the concept and explain four points of
importance.
Ans.Financial Planning is required to avoid shortage or surplus of finance.
Importance of financial planning is:
a) By planning utilization of finance, it reduces waste ,duplication of efforts
and
gaps in the planning.
b) It helps in coordinating the various business activities such as sales,
purchases, production, finance etc.
c) It is a technique of control. It helps in setting up standard and compare
with the actual performance. The deviations, if any are then analysed.
Causes found out and corrective measures are taken.
(d)It helps in avoiding shocks and surprises as proper provision regarding
Shortage or surplus is made in advance by anticipating future receipts and
Payments.
.
4 Explain the role of ‘Operational efficiency’ in the determination of
working capital requirement.
Ans. The firm with a better operational efficiency has to invest less in working
capital because-
a) they convert raw materials quickly into finished goods, and sell them at their
earliest. i.e. converts stock into sales quickly.
b) Promptly collects debts from debtors and bills receivable.
Downloaded by derrick maina ()
