MAC 2602 ASSIGNMENT 2
SEMESTER 1 EXAM -
QUESTIONS AND WELL
DETAILED ANSWERS 2024
UPDATED
1.
Question: Describe the five stages of the strategic management process and explain their
importance in financial management.
Answer:
● Goal Setting: Identifying clear business objectives.
● Analysis: Evaluating internal and external environments to recognize opportunities and
threats.
● Strategy Formulation: Developing strategic plans to achieve objectives.
● Strategy Implementation: Allocating resources to execute strategies.
● Evaluation and Control: Monitoring outcomes and making adjustments as needed.
This process helps ensure financial decisions align with overall business goals and that risks
are managed effectively.
2.
Question: Explain the difference between systematic and unsystematic risk. Provide examples
of each.
Answer:
, ● Systematic Risk: The risk that affects the entire market or a segment, such as changes
in interest rates or inflation. This risk cannot be mitigated through diversification.
● Unsystematic Risk: The risk specific to a company or industry, like a company’s
management decisions or product recalls. This risk can be reduced through
diversification.
3.
Question: Discuss the key financial ratios used to assess a company’s liquidity and explain
their significance.
Answer:
● Current Ratio: Current assets divided by current liabilities. It measures a company’s
ability to pay off short-term obligations.
● Quick Ratio: (Current assets - inventory) divided by current liabilities. It offers a stricter
view of liquidity by excluding inventory.
● Cash Ratio: Cash and cash equivalents divided by current liabilities. It shows the
company’s ability to cover liabilities with available cash.
These ratios help assess the short-term financial health of a company and its ability to meet
immediate liabilities.
4.
Question: What is the role of financial forecasting in strategic planning, and how does it
influence decision-making?
Answer: Financial forecasting involves predicting a company’s future financial performance
based on historical data and market trends. It plays a crucial role in strategic planning by
providing estimates of revenue, expenses, and capital needs. This helps managers make
informed decisions about investments, cost management, and resource allocation, ensuring that
financial strategies align with the company’s long-term goals.
5.
Question: Describe the difference between a financial and a non-financial risk and how
companies mitigate each type.
Answer:
● Financial Risk: Risk related to monetary transactions, such as interest rate fluctuations
or credit risk. Companies mitigate financial risks through hedging strategies like
derivatives or managing debt levels.
SEMESTER 1 EXAM -
QUESTIONS AND WELL
DETAILED ANSWERS 2024
UPDATED
1.
Question: Describe the five stages of the strategic management process and explain their
importance in financial management.
Answer:
● Goal Setting: Identifying clear business objectives.
● Analysis: Evaluating internal and external environments to recognize opportunities and
threats.
● Strategy Formulation: Developing strategic plans to achieve objectives.
● Strategy Implementation: Allocating resources to execute strategies.
● Evaluation and Control: Monitoring outcomes and making adjustments as needed.
This process helps ensure financial decisions align with overall business goals and that risks
are managed effectively.
2.
Question: Explain the difference between systematic and unsystematic risk. Provide examples
of each.
Answer:
, ● Systematic Risk: The risk that affects the entire market or a segment, such as changes
in interest rates or inflation. This risk cannot be mitigated through diversification.
● Unsystematic Risk: The risk specific to a company or industry, like a company’s
management decisions or product recalls. This risk can be reduced through
diversification.
3.
Question: Discuss the key financial ratios used to assess a company’s liquidity and explain
their significance.
Answer:
● Current Ratio: Current assets divided by current liabilities. It measures a company’s
ability to pay off short-term obligations.
● Quick Ratio: (Current assets - inventory) divided by current liabilities. It offers a stricter
view of liquidity by excluding inventory.
● Cash Ratio: Cash and cash equivalents divided by current liabilities. It shows the
company’s ability to cover liabilities with available cash.
These ratios help assess the short-term financial health of a company and its ability to meet
immediate liabilities.
4.
Question: What is the role of financial forecasting in strategic planning, and how does it
influence decision-making?
Answer: Financial forecasting involves predicting a company’s future financial performance
based on historical data and market trends. It plays a crucial role in strategic planning by
providing estimates of revenue, expenses, and capital needs. This helps managers make
informed decisions about investments, cost management, and resource allocation, ensuring that
financial strategies align with the company’s long-term goals.
5.
Question: Describe the difference between a financial and a non-financial risk and how
companies mitigate each type.
Answer:
● Financial Risk: Risk related to monetary transactions, such as interest rate fluctuations
or credit risk. Companies mitigate financial risks through hedging strategies like
derivatives or managing debt levels.
