Financial Management

1. What is the primary focus of finance?

Production Management
People Management
Management of flows of money
Marketing Strategies

2. The first approach to finance emphasizes____________.

Cash management
Providing funds on suitable terms
Financial risk assessment
Efficient utilization of funds

3. What does the term 'business finance' generally deal with?

Human resource management
Financial planning and control
Marketing strategies
Production techniques

4. Financial management is mainly concerned with____________.

Planning and controlling the firm's financial resources
Organizing company events
Developing new products
Managing employee relations

5. According to Wheeler, business finance is concerned with____________.

Asset creation
Acquisition and conservation of capital funds
Product innovation
Customer relationship management

6. Who defined business finance as the process of raising, providing, and administering
funds used in business?
Ezra Soloman
Joseph and Massie
Paul G. Hastings
Wheeler

7. Ezra Soloman describes financial management as concerned with the efficient use
of____________.
Human resources
Material resources
Capital funds
Technological advancements

8. The modern approach to financial management involves____________.

Only raising funds
Raising and effective utilization of funds
Maintaining financial records
Developing new financial institutions
9. Profit maximization as a firm's objective is primarily focused on____________.
Short-term gains
Long-term sustainability
Social responsibility
Employee welfare
10. The concept of wealth maximization focuses on____________.
Immediate profits
Long-term growth
Short-term market position
Reducing operational costs
11. The term "satisficing" in business finance means____________.
Achieving maximum profits
Accepting less than the maximum possible
Investing in safe assets
Prioritizing employee satisfaction
12. The traditional approach to finance function was primarily concerned with____________.
Daily financial operations
Procurement of long-term funds
Marketing and sales finance
Technological advancements in finance

13. In modern financial management, the allocation of funds relates to which decisions?
Investment, financing, and dividend
Production, marketing, and HR
Supply chain, logistics, and procurement
Research and development decisions

14. Shareholder wealth maximization as a goal implies____________.

Maximizing short-term profits
Maximizing the market value of the firm’s shares
Equitable distribution of profits
Focusing solely on shareholder interests

15. The primary source of long-term finance for a company is generally____________.

Bank loans
Government subsidies
Share capital
Revenue from sales
1. In ratio analysis, what does a liquidity ratio measure?
Long-term investment potential
Short-term solvency
Managerial efficiency
Market share

2. What is the purpose of the current ratio?

To evaluate marketing efficiency
To assess short-term financial stability
To measure stock market performance
To analyze long-term investments

3. A common size balance sheet expresses items as percentages of____________.

Total assets or total liabilities
The previous year's figures
Gross profit
Total equity

4. What does trend analysis in financial statements help identify?

Employee trends
Marketing trends
Changes in financial performance over time
Global economic trends

5. Which of the following is a limitation of financial statement analysis?

Inability to predict future trends
Limited use of a single ratio
Ignoring qualitative aspects
All of the above
6. What type of financial ratios are used to assess a company’s ability to meet short-term
obligations?
Liquidity Ratios
Profitability Ratios
Efficiency Ratios
Leverage Ratios
7. The 'Current Ratio' is primarily used to assess a company's____________.
Profitability
Inventory turnover
Short-term liquidity
Debt level

8. In ratio analysis, what does the term 'window dressing' refer to?
A technique to enhance a company’s performance in the short term
The process of decorating a company’s storefront
A method to improve the company's long-term profitability
The practice of presenting financial statements in a favourable light

9. Horizontal analysis is also known as____________.

Vertical analysis
Trend analysis
Ratio analysis
Profit analysis
10. What is the main focus of vertical analysis?
Comparison with competitors
Analysis over multiple years
Proportion of individual items to a total within a single period
Forecasting future performance

11. The 'Debt to Equity Ratio' is a type of____________.

Liquidity ratio
Solvency ratio
Profitability ratio
Efficiency ratio

12. A company’s 'Return on Equity' (ROE) measures____________.

Total sales revenue
Efficiency in managing inventory
Profitability from shareholders' perspective
Ability to pay short-term debts
13. What does the 'Quick Ratio' assess?
Long-term investment potential
Overall profitability
Immediate short-term liquidity
Efficiency in using assets to generate sales

14. Comparative financial statements typically show____________.

Only the current year’s data
Data over multiple years for trend analysis
Data from different companies for comparison
Projected future financial data

15. The main purpose of 'Earnings per Share' (EPS) ratio is to measure____________.
Total revenue of the company
The value each share brings to shareholders
The company’s liquidity
The effectiveness of sales strategies
1. Why is the future value of money typically higher than its present value?
Due to deflation
Because of the certainty of the future
Due to the potential for investment and earning interest
Because future money has more purchasing power

2. What does the future value of a cash flow represent?

The original amount of money invested
The value of money after a specified period, including interest
The depreciation of money over time
The amount needed to be invested today for a future return

3. How is future value calculated for a single cash flow?

By subtracting the interest rate from the principal amount
By dividing the principal amount by (1 + interest rate)^n
By multiplying the principal amount by (1 + interest rate)^n
By adding the principal amount to the inflation rate

4. What is the formula to calculate the present value of a future cash flow?
Present Value = Future Value x (1 + interest rate)^n
Present Value = Future Value / (1 + interest rate)^n
Present Value = Future Value + Interest Earned
Present Value = Future Value - Interest Rate

5. What is an annuity?
A single payment made at the end of a period
A series of equal payments made at regular intervals
A method of depreciating assets
A type of long-term investment

6. How is the future value of an annuity due calculated?

By multiplying each payment by the interest rate
By adding the future value of each payment
By compounding each payment at the interest rate for its respective period
By discounting the value of each payment to its present value

7. What distinguishes a perpetuity from other types of annuities?

It has a fixed-term
Payments increase over time
It consists of infinite periodic payments
It is only used for corporate finance

8. What is the formula for calculating the present value of a perpetuity?

Present Value = Annual Payment x (1 + interest rate)
Present Value = Annual Payment/interest rate
Present Value = Annual Payment - interest rate
Present Value = Annual Payment + interest rate

9. When calculating the present value of a cash flow with an arithmetic growth rate, what
must be considered?
The inflation rate only
The constant rupee growth value and annuity value
The interest rate only
The future value of the cash flow only
10. What happens to the future value of a receipt when the frequency of compounding
increases?
It decreases
It remains constant
It increases
It becomes negative

11. What is the effect of compounding interest on an annual basis?

Decreases the effective rate of interest
Does not affect the future value of the receipt
Increases the future value of the receipt
Reduces the principal amount

12. How is the annual percentage yield (APY) different from the annual percentage rate
(APR)?
APY is always lower than APR
APY considers the effect of compounding, while APR does not
APR is used for investments, while APY is used for loans
There is no difference between APY and APR

13. What is the present value of Rs 1000 to be received after 5 years at a 10% rate of
discount?
Rs 1000
Rs 610
Rs 621
Rs 500

14. How is the present value of a series of future values calculated?

By adding the present values of individual future values
By multiplying the future values by the interest rate
By dividing each future value by the interest rate
By subtracting the future values from the principal amount

15. In the context of the time value of money, what is the impact of inflation?
It increases the future value of money
It has no impact on the value of money
It decreases the future value of money
It only affects the interest rate
1. Which of the following is a long-term source of funds for a company?
Trade credit
Overdraft facilities
Preference share capital
Accounts payable

2. What is operating leverage?

The use of variable operating costs to increase profits
The ratio of fixed costs to total costs
The impact of sales volume on operating income
The use of financial instruments in operations

3. What does a high degree of operating leverage indicate?

Low business risk
High business risk
Insignificant changes in EBIT due to sales changes
Stability in earnings

4. How does financial leverage affect a company’s financial risk?

It decreases financial risk
It has no effect on financial risk
It increases financial risk
It only affects operational risk

5. What is the main concern of financial leverage?

The ratio of current assets to current liabilities
The relationship between EBIT and EPS
The company’s investment decisions
The proportion of equity to debt in financing

6. Which of the following best describes 'dividend policy'?

Policy on investment diversification
Decision on the allocation of net profits
Strategy for long-term financing
Plan for managing operational costs
7. What is a 'bonus share' issue?
Issuing shares in exchange for cash
Distribution of extra shares to existing shareholders
Sale of shares at a bonus price
Shares issued to company executives as a bonus

8. What are 'rights issues' in the context of corporate finance?

Legal rights associated with share ownership
Shares offered to existing shareholders at a discount
Shares sold to raise capital for legal disputes
Rights to purchase additional shares in the future

9. In a company with high operating leverage, what happens if sales volume significantly
increases?
Profit decreases disproportionately
Profit remains constant
Profit increases disproportionately
There is no impact on profit
10. What does the Degree of Operating Leverage (DOL) measure?
Change in net income due to change in sales
Change in EBIT due to a change in sales
Variation in dividends due to changes in net income
Fluctuations in sales due to changes in market conditions
11. How does an increase in fixed costs affect operating leverage?
Decreases operating leverage
Has no effect on operating leverage
Increases operating leverage
Changes the variable cost structure

12. What impact does financial leverage have on a company's EPS?

It stabilizes EPS
It decreases EPS
It increases the variability of EPS
It has no impact on EPS
13. Why might a company with high financial leverage be considered risky?
Due to the high proportion of equity
Because of the variability in operating income
Due to the high fixed financial obligations
Because of the instability in market conditions

14. What is the primary factor that influences a company's dividend policy?
The preference of shareholders
The company’s current stock price
The availability of investment opportunities
The current interest rates

15. What does a high 'Degree of Financial Leverage' (DFL) indicate?

Low sensitivity of EPS to changes in EBIT
High sensitivity of EPS to changes in EBIT
Stability in the company's capital structure
The company's ability to pay off its long-term debt
1. How does variable working capital differ from permanent working capital?
It is required throughout the year
It does not change over time
It is needed for fixed assets
It fluctuates with seasonal demands

2. What is the key concern in managing working capital?

Balancing risk and return
Investing in fixed assets
Reducing employee turnover
Expanding market share

3. What does negative working capital indicate?

High profitability
Current assets exceed current liabilities
Efficient asset management
Current liabilities exceed current assets

4. Which factor is an internal determinant of working capital?

Economic conditions
Nature of the business
Government policies
Market competition

5. How does the size of a business impact its working capital needs?
Larger businesses need less working capital
Smaller businesses do not require working capital
The size of a business is not a factor
Larger businesses need more working capital

6. Why is the working capital cycle important for a manufacturing company?

It determines the company's credit rating
It affects the company's fixed assets
It influences the time it takes to convert current assets into cash
It is relevant only for calculating taxes
7. How does a strict credit policy impact working capital?
It increases the need for working capital
It has no impact on working capital
It decreases the need for working capital
It affects only the fixed capital

8. What effect does technological development have on working capital?

It increases the need for long-term investments
It may reduce the working capital requirement
It has no impact on working capital
It only affects the production policy

9. What is the consequence of inadequate working capital?

Increased profitability
Ability to take advantage of cash discounts
Inability to fully utilize production facilities
Reduced need for short-term loans

10. What is the risk of having excessive working capital?

It leads to overtrading
It always increases profitability
It reduces liquidity
It enhances creditworthiness

11. What does the operating cycle in working capital management involve?
Only the acquisition of fixed assets
The process from cash to inventory and back to cash
The period from sales to profit realization
Only the management of long-term debts

12. Why is working capital management crucial for small businesses?

Because they have more fixed assets
They heavily rely on long-term investments
Due to limited access to capital markets and dependence on short-term financing
Small businesses have a larger customer base
13. What is the main benefit of maintaining adequate working capital?
It ensures uninterrupted production activity
It reduces the total assets of the company
It increases the fixed costs
It eliminates the need for sales

14. How does the production policy of a firm affect its working capital?
Uniform production policies lower working capital needs
Varying production plans increase working capital requirements
Level production plans require more working capital
Production policies have no impact on working capital

15. What is the impact of a firm's credit policy on its working capital?
Liberal credit policies reduce working capital needs
Strict credit policies increase the funds locked in receivables
Credit policies do not affect working capital
Liberal credit policies increase working capital needs