Tag: financial management

Questions Related to financial management

Working capital is the difference between

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  1. Inflow and outflow of funds

  2. Inflow and outflow of savings

  3. Internal and external capital sources

  4. Gross cash flow and net cash flow

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Correct Option: A

Financial leverage is

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  1. The process of using debt capital to increase the rate of return on equity

  2. The utilisation of current assets to effect disproportionate changes in income

  3. Both (a) and (b)

  4. A relationship between preference share capital and securities

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Correct Option: A

If on account of inadequacy of profits, a company wants to pay dividends out of previous year's reserves, it has to follow the rules made by

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  1. Central Government

  2. State Government

  3. Articles of Association

  4. Memorandum of Association

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Correct Option: A

Choose the correct answer:
(a) Working capital management is an integral part of overall corporate management
(b) There are four tests of working capital policy

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  1. Both (a) and (b) are true

  2. (a) is true, (b) is false

  3. (a) is false, (b) is true

  4. Both (a) and (b) are false

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Correct Option: A

Accumulated profits

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  1. Are the profits possessed by the company on the date of liquidation

  2. Include the amounts of Development Rebate

  3. Are the profits in the hands of the company at the time of distribution of payment

  4. All the above

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Correct Option: D

Factors determining working capital:

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  1. Nature of Industry and the nature of business

  2. Demand of creditors and volume of sales

  3. Cash requirements and inventory turnover

  4. All the above

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Correct Option: D

Cash dividends are ordinarily paid from _______.

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  1. current earnings

  2. retained earnings

  3. paid-in-surplus

  4. capital surplus

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Correct Option: A

Direct plan can be made for which one of the following.

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  1. Sales message

  2. Request refusal letters

  3. Claims letters

  4. None of the above.

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Correct Option: D
Explanation:

Direct plan can only be made for event which are sure to happen in a manner as foreseen and predicted by the planners. Therefore, it cannot be made for sales message, request refusal letters and claim letters which are unpredictable in nature.

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

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  1. Financial planning

  2. Material planning

  3. Value chain planning

  4. Capital structure decision

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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 has got many objectives to look forward to:
  • Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
  • Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.
  • Framing financial policies with regards to cash control, lending, borrowings, etc.
  • A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.

What are the twin objectives of financial planning?

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  1. To ensure availability of funds whenever require

  2. To see that the firm does not raise resources unnecessarily

  3. Both a and b

  4. None of the above

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Correct Option: C
Explanation:
Financial planning strives to achieve the following twin objectives.
a) To ensure availability of funds whenever required: This include a proper estimation of the funds required for different purposes such as for the purchase of longterm assets or to meet day-to-day expenses of business etc. Apart from this, there is a need to estimate the time at which these funds are to be made available. Financial planning also tries to specify possible sources of these funds.
(b) To see that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost.