Ch-9(Financial Management)

Ch-9 Financial management


Syllabus
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Direct Questions
1.            Meaning of Business Finance
2.            Meaning of Financial Management
3.           Explain the role of financial management in an organisation 
4.(a)          What is the main objective of financial management? Briefly explain.
   (b)           What are objectives of Financial Management?
5.            Type of Financial Decisions or Financial Management decisions
6.            Define Investment decisions and give example
7.            Types of Investment decisions
8.            Why are Long term Investment decisions /Capital budgeting decisions important for business?
9.            Factors affecting Long term Investment decisions /Capital budgeting decisions
10.          What do you mean by Fixed Capital?
11.          Discuss Factors affecting Fixed Capital requirement in business.
12.          What do you mean by Working Capital?
13.          What do you mean by Net Working Capital?
14.          What are current Assets?
15.          What are current Liabilities?
16.          Discuss Factors affecting Working Capital requirement in business
17.          Define Financing decisions
18.          What is financial risk?
19.          What do you mean by Flotation cost?
20.          Differentiate between Debt and Equity on basis of Cost and Risk
21.          Discuss Factors affecting Financing decisions
22.          Define Financial Planning
23.          What is process of Financial Planning?
24.          What are Twin Objectives of Financial Planning?
25.          Discuss importance of Financial Planning
26.          Differentiate between Financial Management and Financial Planning
27.          What do you mean by Capital Structure?
28.          What are two formulas to calculate Capital Structure?
29.          What do you mean by Optimum Capital Structure?
30.          Discuss factors affecting Capital Structure
31.          What do you mean by Financial Leverage?
32.          What is favourable Financial Leverage?
33.          What is unfavourable Financial Leverage?
34.          Discuss factors affecting Financing decisions
35.          Define Dividend decisions
36.          Discuss Factors affecting Dividend decisions

Indirect Questions:
1.           “A capital budgeting decision is capable of changing the financial fortune of a business.” Do you agree? Why or why not?
2.            Under which situation the EPS of a company falls with increased use of debt? Explain with the help of an example.
3.            How does loan components or debentures in the capital structure act as lever to raise the return on equity share capital ?
4.            Explain how are the shareholders are likely to gain with the loan component in capital employed with example.
5.            What is meant by “Financial Leverage”? How does it affect the capital structure of a company? Explain with the help of an example of favourable financial leverage.
6.            Capital structure decision is essentially optimisation of risk-return relationship. Comment
7.            The directors of a manufacturing company are thinking of issuing Rs. 20 lacs additional debentures for expansion of their production capacity. This will lead to an increase . in debt-equity ratio from 2:1 to 3:1. What are the risks involved in it ? What factors other than risk do you think the directors should keep in view before taking the decision ?
8.            You are the finance manager of a company. The board of directors have asked you to determine the working capital requirement for the company. State the factors that you would take in consideration while determining the requirement of working capital for the company.
9.            Discuss the primary objective of Financial Management.
10.          “Financial Planning is not equivalent to or substitute for Financial Management” .Do you agree? Explain.
11.          What do you mean by Financial Blueprint of Organisation? Discuss its importance.
12.          How does working capital affect both the liquidity as well as profitability of a business ?
13.          A businessman who wants to start a manufacturing concern, approaches you to suggest him whether the following manufacturing concern would require large or small working capital:
                     (a)   Bread           (b)   Coolers        (c)   Sugar            (d)   Motorcar
                     (e)   Furniture manufactured against specific orders        (f)   Locomotives.
14. Debt and Equity differ significantly in terms of cost and risk . How ?


Answer to indirect question 10
“Financial Planning is not equivalent to or substitute for Financial Management” .Do you agree? Explain.
click here

Watch video below for ans to  Q14  Indirect question


Debt and Equity differ significantly in terms of cost and risk . How ? 
Click here to check answer

Kindly check the video on Trading on equity 





Also Click here to get notes and Indirect questions based on this topic 


Answers to NCERT Questions

Short Ans type (Page 265)
Q7 Discuss about working capital affecting both liquidity as well as profitability of a business
Ans
 Working capital is excess of current assets over current liabilities.
More  Investment in current assets helps in increasing the liquidity of business as compare to Fixed assets as these are converted in to cash  or cash equivalents  very quickly
Insufficient  Investment in current assets make it more difficult for organisation to meet its payment obligations(decreases Liquidity)
But current assets provide little or no returns  (they contribute less to profit)as compare to fixed assets
Conclusion:
Balance need to be struck between liquidity and profitability as more working capital increases  liquidity  but  decreases profitability

Long Answer Questions
Q2 Capital Structure decision is essentially optimisation of risk-return relationship.Comment
Ans
Capital structure policy involves a trade-off between risk and return.
·         Using more debt raises the riskiness of the firms because payment of  interest and return of principal amount is obligatory for business. Any default in meeting these commitments may force business to go in to liquidation
·         But a higher propor-tion of debt generally leads to a higher expected rate of return for equity shareholders as EPS increases because of Tading on Equity
·          We know that if debt is increased beyond a point , the higher risk associated with greater debt tends to lower the share price .
Conclusion:
Therefore, the optimal capital structure is the one that strikes a balance between risk and return to achieve our ultimate goal of maximizing the price of the equity shares(Wealth maximisation)
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Check this Presentation on Topic"Factors affecting working capital"

Factors affecting working cap...


More PowerPoint presentations from mamta
Try worksheet on Factors affecting working and fixed Capital - Click here 


13 comments:

  1. Is process of Financial Planning in syllabus ?
    Could you also post the required Answer

    ReplyDelete
    Replies
    1. Yes ,it is advisable to know answer to process of financial Planning .
      check page 248 in NCERT Book 2 of Business studies.
      Although answer is given in para form but you can make flow chart to learn and present answer.
      Check link;(Post link in your browser)
      https://drive.google.com/file/d/0ByIErKS8bKircjlMR0dSWTd0MGM/edit?usp=sharing

      https://drive.google.com/file/d/0ByIErKS8bKirdVRmVk1FbWktMGM/edit?usp=sharing

      Delete
  2. Indirect Questions
    What is the answer to Q4 and Q5?
    Do we need to explain the favourable financial leverage?

    Q6 - How much marks? And required answer please?

    Q12) - marks and answer?

    ReplyDelete
  3. Ans to question no 4 and 5 is favourable financial leverage or Trading on equity .Always write example comparing two companies and proving that company having Debt component is in position to give higher returns to shareholders.

    Ans to Indirect question 6 and 12 is written above under the heading " Answers to NCERT Questions"

    ReplyDelete
  4. 1.“Financial Planning is not equivalent to or substitute for Financial Management” .Do you agree? Explain.
    2.What is meant by “Financial Leverage”? How does it affect the capital structure of a company? Explain with the help of an example of favourable financial leverage.

    ReplyDelete
  5. where to use feature and importance of Business Studies Terms????
    most of the time Time I Confused ..

    ReplyDelete
  6. Features are same as nature,characteristics
    Importance is same as role ,advantages or merits

    ReplyDelete
  7. Thanks for sharing the syllabus tenture with the books objectives to make a good choice from the market.
    Indraday Stock Tips

    ReplyDelete
  8. 1.“Financial Planning is not equivalent to or substitute for Financial Management” .Do you agree? Explain.

    ReplyDelete
    Replies
    1. Paste this link in browser to check answer
      https://drive.google.com/file/d/0ByIErKS8bKirMjdHQms4OE1wRTg/view?usp=sharing

      Delete
  9. thank you for sharing the great information.......i got the many more message for this bog...
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    ReplyDelete
  10. WHAT IS THE ANSWER FOR THIS QUESTION “A capital budgeting decision is capable of changing the financial fortune of a business.” Do you agree? Why or why not?

    ReplyDelete
  11. “A capital budgeting decision is capable of changing the financial fortune of a business.” Do you agree? Why or why not?. what is the answer for this question?

    ReplyDelete