Tag: financial management

Questions Related to financial management

The twin objective to ensure availability of funds whenever required, includes a proper estimation of the funds required for different purposes such as for the purchase of _______ assets or to meet day-today expense of business.

commerce business finance financial planning financing financial management

  1. short-term

  2. long-term

  3. current

  4. non-current

Show answer
Correct Option: B
Explanation:

Financial management involves decision about the proportion of long term and short term finance. An organisation wanting to be more liquid would raise relatively more amount of long term bass and vice versa. There is a choice between liquidity and profitability. The underlying assumption here is that the current liability cost less than long term liability. 

The process of estimating the fund requirement of a business and specifying the sources of funds is called ____________.

commerce business finance financial planning financing financial management

  1. working capital

  2. financial planning

  3. capital structure

  4. working structure

Show answer
Correct Option: B
Explanation:

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Financial planning is done for ______ to _______ years.

commerce business finance financial planning financing financial management

  1. One, two

  2. two, three

  3. three, five

  4. five, ten

Show answer
Correct Option: C
Explanation:
Financial planning is done for three to five years. For longer periods it becomes more difficult and less useful. Plans made for periods of one year or less are termed as budgets. Budgets are example of financial planning exercise in greater details. They include detailed plan of action for a period of one year or less.

Avoiding business shocks and surprises and helping the company in preparing for the future is the _________ of financial planning.

commerce business finance financial planning financing financial management

  1. factor

  2. objective

  3. importance

  4. disadvantage

Show answer
Correct Option: C
Explanation:

Importance of financial planning

  1. Income: It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.
  2. Cash Flow: Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.
  3. Capital: An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.
  4. Family Security: Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
  5. Investment: A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.
  6. Standard of Living: The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.
  7. Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
  8. Assets: A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.
  9. Savings: It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.
  10. Ongoing Advice: Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.

____________ means pre-estimating financial needs of an organization to ensure availability of adequate finance.

commerce business finance financial planning financing financial management

  1. Financial planning

  2. Material planning

  3. Value chain planning

  4. Capital structure decision

Show answer
Correct Option: A
Explanation:

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives.

The working capital term loan representing excess borrowings

commerce business finance financial planning financing financial management

  1. Should be gradually reduced

  2. Should be allowed to go up

  3. Should not be allowed to go up

  4. Both (a) and (c)

Show answer
Correct Option: D

Companies with higher growth potential are likely to ______________.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. pay lower dividends

  2. Pay higher dividends

  3. Dividends are not affected by growth consideration

  4. None of the above

Show answer
Correct Option: A
Explanation:

Generally a company with higher growth paternal are likely to pay lower dividends. This is because the companies wants to invest that money in earning higher income and growing at a higher rate which is in the benefit for the long term rather than paying dividend which will only benefit the company for a short term.

A decision to acquire a new and modern plant to upgrade an old one is a______________.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. Financing decision

  2. Working capital decision

  3. Investment decision

  4. Dividend decision

Show answer
Correct Option: C
Explanation:
Investment Decision:
Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
It includes Decisions relating to the disposal and acquiring and upgrading new assets.

Higher dividends per share is associated with  ______________.

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. High Earning, High Cash Flows, Unusable Earnings and Growth Opportunities

  2. High Earning, High Cash Flows, Stable Earnings and Growth Opportunities

  3. High Earning, High Cash Flows, Stable Earnings and Lower Growth Opportunities

  4. High Earning, Low Cash Flows, Stable Earnings and Lower Growth Opportunities

Show answer
Correct Option: C
Explanation:

There are two primary causes for increases in a company’s dividend per share payout.

 The first is simply an increase in the company's net profits out of which dividends are paid. 
The second is a shift in the company’s growth strategy that leads the company to decide to expend less of its earnings in seeking growth and expansion, thus leaving a larger share of profits available to be returned to equity investors in the form of dividends.

Which of the following methods does a firm adopt to avoid dividend payments?

functional area of management financial management nature and significance of management organisation of commerce and management business studies

  1. Share splitting

  2. Declaring bonus shares

  3. Rights issue

  4. All of the above

  5. Both (A) and (B) above

Show answer
Correct Option: E