Scanner - Financial Management Commerce Notes | EduRev

Business Studies (BST) Class 12

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(Q1) Define Financial Management.                                     (CBSE, Delhi 2011, Sample Paper 2012)

Ans. Financial Management is concerned with management of flow of funds and involves decisions relating to procurement of funds, investment of funds in long-term and short-term assets and distribution of earnings to the owners.

 

(Q2) Cost of debt is lower than the cost of Equity share capital'. Give reason why even then a company cannot work only with the debt.                                                                                                                                                             (CBSE, Delhi 2010)

Ans. A company cannot work only with debt because a company cannot be formed or exist without equity.

 

(Q3) Management has to decide whether anew and modern plant should be replaced with the old one. Which type of financial decision is it?     OR

Name the financial decision which will help a businessman in opening a new branch of its business.                                                                                                                                     (CBSE, Delhi 2010)

Ans. Investment decision.

 

(Q4) A company wants to establish a new unit in which a machinery of worth Rs.10 lakhs is involved. Identify the type of decision involved in financial management.        (CBSE, Delhi 2008)

Ans. Capital budgeting decision or Investment decision.

 

(Q5) What is meant by Financial Risk"?                                                              (CBSE, All India 2014)

Ans. Financial risk refers to risk of inability to meet fixed financial charges like interest payment, preference dividend and repayment obligations.

 

(Q6) Define Capital Structure'.                                                                              (CBSE, Delhi 2014)

Ans. Capital Structure refers to proportion of debt and equity used for financing operations of the business.

 

(Q7) Name the concept which increases the return on equity shares with a change in the capital structure of a company.                                                                                          (CBSE, Delhi 2008)

Ans. Trading on Equity or Financial Leverage.

 

(Q8) State objective of financial management.             (CBSE, Delhi 2013, Sample Paper 2014)

Ans. Wealth Maximisation is the primary objective of Financial Management, which means maximising the market value of investment in the shares of the company.

 

(Q9) Identify why the requirements of Fixed Capital for a trading concern are different from that of a manufacturing organization.                                                                                 (CBSE, Foreign 2008)

Ans. Trading concern requires less fixed capital as compared to manufacturing organization because trading concern requires relatively much less investment in fixed assets.

 

(Q10) Identify the decision taken in financial management which affects the liquidity as well as the profitability of business.                                                                                          (CBSE, All India 2008)

OR

Name the type of investment decision which relates to short-term and affects day to day operations of a company.                                                                                           (CBSE, Sample Paper 2010)

Ans. Working capital decision.

 

(Q11) State why the working capital needs for a service industry are different from that of a manufacturing industry.                                                                                         (CBSE, All India 2008)

Ans. Service industry needs less working capital as it sells more on cash basis and has a short operating cycle. On the other hand, manufacturing industry needs more working capital as it sells largely on credit and has long operating cycle.

 

(Q12) Name any two essential ingredients of sound working capital management.                               (CBSE, All India 2010)

Ans. (i) Current Assets, (ii) Current Liabilities.

 

(Q13) Which component of capital structure determines the overall financial risk?

Ans. Debt component.                                                                               (CBSE, Sample Paper 2015)

 

(Q14) What does higher business risk indicates?                                 (CBSE, Delhi Compt. 2009)

Ans. Higher business risk indicates inability to meet. Fixed operating costs like rent, salary, insurance premium, etc.

 

(Q15) For optimal procurement of funds, a finance manager identifies different available sources and compares those in terms of costs and associated risks. Identify and define the concept highlighted in the above lines.                                           (CBSE, Sample Paper 2014)

Ans. The Concept is Financial Management and is concerned with management of flow of funds and involves decisions relating to procurement and investment of funds, in long term and short term assets and distribution of earnings to the owners.

 

(Q16) How do ‘Growing opportunities' as a factor affect dividend decision? State                              (CBSE, Delhi Compt. 2013)

Ans. Companies having growing opportunities in near future declare lesser dividend as compared to companies, which do not have any growth plans.

 

(Q17) State the objective of Financial Management'.                                       (CBSE, All India 2014)

Ans. The objective of Financial Management is maximizing shareholders’ wealth.

 

SHORT ANSWER TYPE QUESTIONS 

 

(Q1) What is meant by financial management? State any two financial decisions taken by a financial manager.         (CBSE, Delhi 2009)

 

(Q2) Which process prepares a blue print of an organisation's future preparations relating to finance? Give any two reasons why this process is needed?                 (CBSE, Sample Paper 2010)

 

(Q3) How are the shareholders of a company likely to gain with a debt component in the capital employed? Explain with the help of an example.                                  (CBSE Sample Paper 2010)

 OR

How does trading on equity increase the return on equity shares? Explain with an example.

 

(Q4) What is required to tackle the uncertainty in respect of availability and timings of funds?

Name the concept involved and explain any three points of its importance.                                        (CBSE, Delhi 2008)

                                                                        OR

To avoid the problem of shortage and surplus of funds, what is required in financial management? Name the concept and explain its any three points of importance.                                                                                                                     (CBSE, All India 2008)

Hint: The concept is "Financial Planning".

 

(Q5) Explain the objectives of Financial Planning.                                           (CBSE, Delhi 2009)

 

(Q6) What is meant by Financial Management? Explain “Investment decision' and Dividend decision' taken under financial decision-making.                                                                                                                                        (CBSE, Delhi Compt. 2013)

 

(Q7) Length of production cycle affects the working capital requirements of an organisation. Explain how?                                                                                                           (CBSE, Sample Paper 2nd 2008)

 

(Q8) Explain the factors that affect capital budgeting decision.          (CBSE, Delhi Compt. 2014)

 

(Q9) State the objective of Financial Management.                              (CBSE, Delhi 2009)

                                                                                    OR

“Primary objective of financial management is to maximise shareholders wealth." Explain.

OR                                                                                                     (CBSE, Sample Paper 2008)

Explain the meaning and the objective of Financial Management.  (CBSE, Delhi 2010, 2012)

 

(Q10) State any four factors which help in determining the working Capital requirements of a company.                                                                                                             (CBSE, Sample Paper 2014)

 

(Q11) What is meant by ‘Financial Planning’? State any two points of importance of Financial Planning.                                                                                                             (CBSE, Delhi 2012)

 

(Q12) How do ‘Choice of Technique' and ‘Nature of Business’ affect the ‘Fixed Capital’ requirements of a company? Explain.                                                          (CBSE, Foreign 2012)

 

(Q13) Explain any four factors which affect the ‘Dividend Decision' of a company.

(CBSE, All India 2013 (III))

(Q14) Investment decision can be long-term or short-term. Explain long-term investment decision and state any two factors affecting this decision.                              (CBSE, All India 2012)

OR

What is meant by ‘Long-term Investment Decision"? State any three factors which affect the long term investment decisions.                                                                                                                                                                                    (CBSE, Delhi 2013)

 

(Q15) Explain the following as factors affecting financing decision: (i) Cost; (ii) Cash flow position of business; (iii) Level of fixed operating cost; and (iv) Control considerations.  (CBSE, Delhi 2012)

 

(Q16) What is meant by an investment decision? Give two examples of investment decisions.                                                                                                              (CBSE, Delhi Compt. 2012)

(Q17) What is meant by Fixed Capital'? Explain any four factors which affect the fixed capital requirements of a company.                                                          (CBSE Delhi Compt. 2013)

 

(Q18) Give the meaning of ‘investment’ and ‘Financing’ decisions of financial management.

(CBSE, All India 2014)

 

LONG ANSWER TYPE QUESTION

 

(Q1) Name the process which helps in determining the objectives, policies, procedures, programmes and budgets to deal with the financial activities of an enterprise. (CBSE, 2008)

Ans. Financial Planning

 

(Q2) What are the essential ingredients of sound working capital management? (CBSE, 2010)

Ans.    (i) Efficient cash management,     (ii) Efficient inventory management,

(iii) Efficient receivables management.

 

(Q3) Capital budgeting decisions involve a number of calculations. List them.

Ans. (i) Amount of investment (ii) Interest rate (iii) Cash inflows (iv) Rate of return

 

(Q4) Name the major determinant of the dividend decision.                                        (CBSE, 2011)

Ans. Amount of earnings 

 

(Q5) Which company is in a position to declare high dividend?                                 (CBSE, 2011)

Ans. A company having stable earnings can declare high dividend.

 

(Q6) Which decision is involved in launching a new product line or opening of a new branch?                                                                                                                                                            (CBSE, 2010)

Ans. Investment or Capital budgeting decision

 

(Q7) Explain whether the following manufacturing concerns require large or small working capital: (a) Bread, (b) Sugar, (c) Coolers, (d) Furniture manufacturing against orders, (e) Motorcar/Scooters, (f) Clothes, (g) Industrial chemicals. 6 marks

 

Ans. (a) Bread: Small — The product is sold for cash, there is no need to maintain inventory and production cycle is short i.e., quick cash turnover.

(b) Sugar. Large–The ratio of cost of raw material to the total cost of production is quite high and the availability of raw material (sugarcane) is seasonal.

(c) Coolers: Large–It is a seasonal product. Therefore, it requires large amount of working capital to store the output during the non-season period.

(d) Furniture manufacturing against orders: Small-It is quickly converted into cash sales, advance from customers is also available and it does not require to maintain inventory.

(e) Motor car/Scooters: Large—The production cycle is long and these are costly items and are manufactured in large scale. So, funds are blocked up for a long period.

(f) Clothes: Large–The ratio of cost of raw materials to total cost is high. Moreover, different kinds of clothes are manufactured in different seasons. So, the inventory required is more.

(g) Industrial chemicals: Large–These chemicals are produced on a large scale and sold mostly on credit basis. Liberal credit terms are to be allowed.

 

(Q8) There are major decisions which an organization has to take in respect of financial management. Enumerate and explain in brief, these decisions. (CBSE Delhi 2000)

OR

Every manager has to take three major decisions while performing the finance function. State these decisions.                                                                                          (CBSE, Sample Paper 2014)

 

(Q9) Explain any 5 points of importance of financial planning. (CBSE, Delhi 2005)

OR

“Sound Financial Planning is essential for the success of any business enterprise.” Explain this statement by giving any six reasons.                                           (CBSE, Delhi 2011, 13)

 

(Q10) Explain any five factors that affect the requirement of fixed capital of an enterprise.

                                                                        OR                              (CBSE, Delhi 2005)

What is meant by ‘Fixed capital’? Describe any four factors which affect the fixed capital requirements of a company.                                                   (CBSE, Sample Paper 2010)

 

(Q11) Yogesh, a businessman is engaged in purchasing and selling of ice creams. Identify his working capital requirements giving reason in support of your answer. Now he is willing to start his own ice cream factory. Explain any two factors that will affect his fixed capital requirements.

(CBSE, All India Compt. 2011)

(Q12) Explain, in brief any five factors that should be taken into consideration while determining the long-term dividend policy.                                                              (CBSE, Delhi 2004, 06)

OR

What is meant by Dividend decision? State any four factors affecting the Dividend decision.                                                                            OR                              (CBSE Delhi 2010, 2013)

Identify the financial decision which determines the amount of profit earned to be distributed and to be retained in the business. Explain any four factors affecting this decision.

OR                              (CBSE, Foreign 2012)

Name the decision a financial manager takes, keeping in view the overall objective of maximising shareholder's wealth. Explain any two factors which affect this decision.

(Q13) Explain, in brief, any five factors that should be taken into consideration while determining the requirements of working capital for a business enterprise.     (CBSE, Delhi 2004, 08, 09)

                                                                        OR

What is meant by ‘Working Capital’? Describe any four factors which affect the working capital requirements of company.                                                             (CBSE, Sample Paper 1st 2010)

                                                                        OR

You are the finance manager of a newly established company. The directors have asked you to determine the amount of working capital requirements for the company. State any five factors that you would take into consideration while determining the amount of working capital requirements for the company.                                                                               (CBSE, Delhi 2009, 2011)

 

(Q14) What is meant by Financing decision? State any four factors affecting the financing decision.                                                                                                              (CBSE Delhi 2009, 2011)

(Q15) Explain the following as factors affecting the requirements of fixed capital: (i) Scale of operations; (ii) Choice of technique; (iii) Technology upgradation and (iv) Financing alternatives.                                                                                                                 (CBSE Delhi 2014)

(Q16) Explain the following as factors affecting dividend decision: (i) Stability of earnings; (ii) Growth opportunities; (iii) Cash flow position and (iv) Taxation policy.           (CBSE, Delhi 2014)

 

(Q17) Explain the following as factors affecting ‘financing decision’.(a) Cash flow position of the business; (b) Level of fixed operating cost; (c) Control consideration and (d) State of capital markets.                                                                                                             (CBSE, Delhi 2014)

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