FINANCIAL MANAGEMENTVery Short Q & A
Q1: What do you mean by business finance?
Answer: The money required for carrying out business activities is called business finance.
Q2: What is Financial Management?
Answer: Financial Management is group of activities that are associated with optimal procurement as well as usage of finance.
Q3: Name the cheapest source of finance to a company.
Answer: Debt capital
Q4: What is wealth maximization concept?
Answer: It refers to primary aim of finance management i.e. to maximize shareholders’ wealth.
Q5: What is Financial Planning?
Answer: Financial Planning refers to determination of firms financial objectives, financial policies and procedures.
Q6: List the three broad decisions associated with financial decision making process.
i. Investment Decision,
ii. Financing Decision,
iii. Dividend Decision
Q7: Name the decision to acquire a new and modern plant to upgrade an old one.
Answer: Investment Decision
Q8: A decision is taken to raise money for long term capital needs of the business from certain sources. What is this decision called?
Answer: Financing decision
Q9: List the twin objectives of financial planning.
i. To ensure availability of funds whenever these are required.
ii. To see that the firm does not raise resources unnecessarily.
Q10: Define working capital.
Answer: It is the capital required for day to day operations of the business.
Q11: What is Capital structure?
Answer: Capital structure is the relative proportion of different sources of long term finance. In general it is the mix of owners's funds and borrowed funds.
Q12: Name the source of finance carrying two fixed obligations viz., interest and redemption.
Q13: What is the cost of raising funds called?
Answer: Flotation cost
Q14: Identify the decision taken in financial management which affects the liquidity as well as the profitability of business.
Answer: Capital Budgeting decision
Q15: What if Fixed capital?
Answer: Fixed capital refers to investment in long-term assets.
Q16: Name any two essential ingredients of sound working capital management.
Answer: Inventory, debtors
Q17: State the important difference between gross working capital and net working capital.
Answer: Gross working capital is the aggregate of the current assets, whereas
Net working capital = Current assets – current liabilities.
Q18: List any three factors that affect the requirements of Fixed Capital.
i. Nature of Business,
ii. Scale of Operations,
iii. Choice of Technique,
iv. Technology Up-gradation
Q19: Name that portion of current assets which is financed by fixed liabilities.
Answer: Net working capital
Q20: List any three factors that affect the working capital requirement.
i. Nature of Business,
ii. Business Cycle,
iii. Seasonal Factor,
iv. Production Cycle
Q21: List any three sources of from where long term finance is raised by companies.
i. Capital Market (Financial Institutions, Private Investors etc.)
ii. Leasing Companies
iii. Foreign Sources
Q22: How is Interest Coverage Ratio computed?
Answer: Interest Coverage Ratio = Earnings before interest and tax / Interest
Q23: How is Return on Investment computed?
Answer: Return on Investment = Earnings Before Interest and tax / Total investment
Q24: What is DSCR?
Answer: Debt Service Coverage Ratio (DSCR). It takes care of the deficiencies referred to in the Interest Coverage Ratio.