CBSE Class 12 - Business Studies - CH9 - FINANCIAL MANAGEMENT (V Short Q and A)

FINANCIAL MANAGEMENT

Very 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.

Answer:
   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.

Answer:
   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.

Answer: Debentures

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.

Answer:
   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.

Answer:
   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.

Answer:
   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.