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CBSE Questions for Class 12 Commerce Business Studies Financial Management Quiz 6 - MCQExams.com
CBSE
Class 12 Commerce Business Studies
Financial Management
Quiz 6
The ________________ refers to the number of times earnings before interest and taxes of a company covers the interest obligations.
Report Question
0%
debt service coverage ratio
0%
interest coverage ratio
0%
return on investment
0%
debt equity ratio
Explanation
The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the company's interest payments due within the same period.
Which of the following is the importance of financial planning?
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0%
It tries to forecast that may happen in future under different business situations.
0%
It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
0%
It provides a link between investment and financing decisions on a continuous basis.
0%
All of the above.
Explanation
Importance of financial planning
Income:
It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.
Cash Flow:
Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.
Capital:
An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.
Family Security:
Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
Investment:
A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.
Standard of Living:
The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.
Financial Understanding:
Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
Assets:
A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.
Savings:
It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.
Ongoing Advice:
Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.
The quantum of ________ assets as well as its break-up is an aspect affected by finance.
Report Question
0%
current
0%
non-current
0%
tangible
0%
intangible
Explanation
The above statement is used to describe the function of financial management. The quantum of current assets and its breakup into cash, inventory and receivables means financial management decisions regarding how much to invest in current assets and its breakup into cash, inventory i.e stock, debtors.
An expansion of business which is a result of capital budgeting decision is likely to affect virtually all items in the __________ account of the business.
Report Question
0%
Balance sheet
0%
Trading
0%
Profit and loss
0%
Trading and profit and loss
Explanation
All items in the Profit and Loss Account, e.g., Interest, Expense, Depreciation, etc. and an expansion of business which is a result of capital budgeting decision is likely to affect virtually all items in the profit and loss account of the business.
Interest Coverage Ratio (ICR) = _________.
Report Question
0%
EBIT/Interest
0%
Interest/EBIT
0%
Debt/Equity
0%
Equity/Debt
Explanation
The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the company's interest payments due within the same period.
________ capital refers to investment in long-term assets, which involves allocation of firm's capital to different projects or assets with long-term implications for the business.
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0%
Working
0%
Fixed
0%
Non-Fluctuating
0%
Fluctuating
Explanation
Fixed capital is capital or money that we invest in fixed assets. In other words, money that we invest in assets of a durable nature. These are assets that we repeatedly use over a long period. We can also use the term ‘fixed investment‘ with the same meaning.
Fixed assets are tangible assets that we cannot convert into cash easily. Property is an example of a fixed asset. So are plant and equipment.
The size as well as the composition of _______ assets of the business is an aspect affected by finance.
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0%
current
0%
fixed
0%
non-current
0%
tangible
Other things remaining the same, an increase in the tax rate on corporate profits will __________________.
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0%
Make debt relatively cheaper
0%
Make debt relatively less cheap home
0%
No impact on the cost of debt
0%
We can't say
Explanation
Where there is an increase in the tax on corporate profit, the debt becomes relatively cheaper. This is because interest rate is to be paid to the debtors is deducted from the total income before calculating the value of tax. Thus, as the valueof tax increases, the debt becomes relatively cheaper.
Which of the following types of budget is prepared to assess the level of inventories, receivables, etc?
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0%
Material Budget
0%
Profitability Budget
0%
Cash Budget
0%
Working Capital Budget
Explanation
Working capital budgeting commonly involves monitoring cash flow, assets, and liabilities through the ratio analysis of key elements of operating expenses, including the working capital ratio, collection ratio, and the inventory turnover ratio. Efficient working capital management helps maintain the smooth operation of the operating cycle (the minimum amount of time required to convert net current assets and liabilities into cash) and can also help to improve the company's earnings and profitability. Management of working capital includes inventory management and management of accounts receivables and accounts payables. The main objectives of working capital management include maintaining the working capital operating cycle and ensuring its ordered operation, minimizing the cost of capital spent on the working capital, and maximizing the return on current asset investments.
Financial planning provides a link between _________ and ________ decisions on a continuous basis.
Report Question
0%
investing, financing
0%
investing, operating
0%
operating, financing
0%
non-capital, capital
Explanation
Financial Planning provides a link between investing and financing decisions on a continuous basis. Financial planning deals with preparation of the financial blueprint of the organisations future operations. It includes the matter relating to investing and financing on a continuous basis.
Which of the following consumer organisations and NGO engaged in protecting and promoting consumers' interests?
Report Question
0%
Consumer Coordination Council, Delhi
0%
Common Cause, Delhi
0%
Consumer Education and Research Center (CERC), Ahmedabad
0%
All of the above
Explanation
The organizations that are engaged in protecting consumer's interests are Consumer Coordination Council Delhi, Common Cause Delhi, Consumer Education and Research Center Ahmadabad.
What are the twin objectives of financial planning?
Report Question
0%
To ensure availability of funds whenever require
0%
To see that the firm does not raise resources unnecessarily
0%
Both a and b
0%
None of the above
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.
Avoiding business shocks and surprises and helping the company in preparing for the future is the _________ of financial planning.
Report Question
0%
factor
0%
objective
0%
importance
0%
disadvantage
Explanation
Importance of financial planning
Income:
It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.
Cash Flow:
Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.
Capital:
An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.
Family Security:
Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
Investment:
A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.
Standard of Living:
The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.
Financial Understanding:
Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
Assets:
A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.
Savings:
It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.
Ongoing Advice:
Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.
________ is the activity concerned with planning, raising, controlling and administering of funds used in the business.
Report Question
0%
Strategy
0%
Business function
0%
Financial Management
0%
Transformation process
Explanation
Financial Management is concerned with optimal procurement as well as usage of finance.
For optimal procurement, different available sources of finance are identified and compared in terms of their costs and associated risks.
Thus financial management is the activity concerned with planning, raising, controlling and administering of funds used in the business.
The twin objective to ensure availability of funds whenever required, includes a proper estimation of the funds required for different purposes such as for the purchase of _______ assets or to meet day-today expense of business.
Report Question
0%
short-term
0%
long-term
0%
current
0%
non-current
Explanation
Financial management involves decision about the proportion of long term and short term finance. An organisation wanting to be more liquid would raise relatively more amount of long term bass and vice versa. There is a choice between liquidity and profitability. The underlying assumption here is that the current liability cost less than long term liability.
Financial planning is done for ______ to _______ years.
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0%
One, two
0%
two, three
0%
three, five
0%
five, ten
Explanation
Financial planning is
done for three to five years. For longer
periods it becomes more difficult and
less useful. Plans made for periods of
one year or less are termed as budgets.
Budgets are example of financial
planning exercise in greater details.
They include detailed plan of action
for a period of one year or less.
The process of estimating the fund requirement of a business and specifying the sources of funds is called ____________.
Report Question
0%
working capital
0%
financial planning
0%
capital structure
0%
working structure
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.
Companies with higher growth potential are likely to ______________.
Report Question
0%
pay lower dividends
0%
Pay higher dividends
0%
Dividends are not affected by growth consideration
0%
None of the above
Explanation
Generally a company with higher growth paternal are likely to pay lower dividends. This is because the companies wants to invest that money in earning higher income and growing at a higher rate which is in the benefit for the long term rather than paying dividend which will only benefit the company for a short term.
Financial planning usually begins with the preparation of a _______ forecast.
Report Question
0%
purchase
0%
sales
0%
cash
0%
budget
Explanation
Financial planning usually begins
with the preparation of a sales
forecast.
It starts with an estimate
of the sales which are likely to happen
in the next five years. Based on these,
the financial statements are prepared
keeping in mind the requirement of
funds for investment in the fixed
capital and working capital. Then the
expected profits during the period are
estimated so that an idea can be made
of how much of the fund requirements
can be met internally i.e. through
retained earnings.
This results in an estimation
of the requirement for external funds.
Further, the sources from which the
external funds requirement can be met
are identified and cash budgets are
made, incorporating these factors.
Which of the following is False
Report Question
0%
Financing Decision comprises of Financial Planning Capital Structure Decision
0%
Investment Decision comprises of Fixed Capital Management and Working Capital Management
0%
Dividend Decision includes Dividend Payment Policy Decision
0%
None
Explanation
Financing
Decisions
.
Decisions
concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a
decision
to issue bonds.
The
Investment Decision
relates to the decision made by the investors or the top level management with respect to the number of funds to be deployed in the investment opportunities.
The
Dividend decision
refers to the policy that the management formulates in regard to earnings for distribution as
dividends
among shareholders.
The decision
, in Corporate finance, is a decision made
by the directors of a company about the amount and timing of any cash payments made to the company's stockholders.
Scope of financial management does not include ?
Report Question
0%
Financial decisions
0%
Investment decisions
0%
Dividend decisions
0%
Note of the above
Explanation
D) None of the above
Financial management includes :
Financial decisions
investment decisions
Dividend decisions.
Which of the following is not a function of budgeting?
Report Question
0%
Planning
0%
Motivating
0%
Decision making
0%
Controlling
Explanation
Following are the functions of budgeting:-
1. Accountability
2. planning
3. Management
4. Control
5.Motivating
What is the break-even point?
Report Question
0%
Cost received is more then revenue.
0%
Cost received is less then revenue.
0%
Gains are more then losses.
0%
The point where there is no gain no loss.
Explanation
In simple words, the break-even point can be defined as a point where total costs (expenses) and total sales (revenue) are equal. Break-even point can be described as a point where there is no net profit or loss. The firm just “breaks even.” Any company which wants to make normal profit, desires to achieve the break-even point. Graphically, it is the point where the total cost and the total revenue curves meet.
When a company feels that it is not easy to survive, then it sells its unit or some of its part to survive. This is a kind of ____________ retrenchment.
Report Question
0%
liquidation
0%
bankruptcy
0%
turnaround
0%
divestment
Explanation
Divestment is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities. Divestment usually involves eliminating a portion of a business. Firms may elect to sell, close, or spin-off a strategic business unit, major operating division, or product line.
"Finance may be defined as that administrative area or set of administrative functions in an organization which relates with the arrangement of each and credit so that the organisation may have the means of carrying out its objectives as satisfactorily as possible."
Report Question
0%
B.O Wheeler
0%
J.F. Brandley
0%
Howard and Upton
0%
William J. Stanton
Explanation
According to Howard and Upton, “finance may be defined as that
administrative area or set of administrative functions in an organization which
relates with the arrangement of each and credit so that the organization may
have the means to carry out the objectives as satisfactorily as possible".
A firm can only issue debt or equity as a source of finance. It cannot issue both at the same time.
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0%
True
0%
False
Explanation
False.
Firm can issue equity and debt at the same time.
Debt financing is capital acquired through the borrowing of funds to be repaid at a later date. Common types of debt are loans. The benefit of debt financing is that it allows a business to leverage a small amount of money into a much larger sum, enabling more rapid growth than might otherwise be possible.
Equity financing refers to funds generated by the sale of stock.
The key word that can be used to describe the basic economic problem that all societies face is:
Report Question
0%
Selfishness
0%
Greed
0%
Inequality
0%
Scarcity
Explanation
Scarcity refers to the basic economic problem, the gap between limited – that is, scarce – resources and theoretically limitless wants.
Scarcity, or limited resources, is one of the most basic economic problems we face. Scarcity arises where resources are limited and where the wants of society are unlimited. Hence it is required that the resources are efficiently allocated.
The basic goal of financial management is ___________.
Report Question
0%
Maximising the profit
0%
Maximising shareholders' wealth in the long run
0%
Maximising the rate of dividend
0%
Minimising the business risk.
Explanation
A company's most important goal is to make money and keep it. Profit-margin ratios are one way to measure how much money a company squeezes from its total revenue or total sales.
'Financial management is the activity concerned with planning, raising, controlling and administering of funds used in the business' are the words of ________.
Report Question
0%
J. F. Brandley
0%
Guthmann and Dougall
0%
Massi
0%
Howard and Upton
Explanation
According to the Guthmann and Dougall, “Business finance can broadly be defined
as the activity concerned with planning, raising, controlling, administering of the funds
used in the business”.
"Business finance includes those business activities which are concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of business enterprise." This definition is given by -
Report Question
0%
B.O. Wheeler
0%
Howard and Upton
0%
ICSI
0%
ICAI
Explanation
According to the Wheeler, “Business finance is that business activity which are concerned with the acquisition and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”.
Finance also is referred as the provision of money at the time when it is needed. Finance function is the procurement of funds and their effective utilization in business concerns.
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