C - Lesson 11 Financial Management

Question 1

means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.

Answer 1

Financial Management

Question 2

Scope/Elements

Answer 2

1. Investment decisions
2. Financial decisions
3. Dividend decision

Question 3

includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions

Answer 3

1. Investment decisions

Question 4

They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.

Answer 4

2. Financial decisions

Question 5

The finance manager has to take decision with regards to the net profit distribution

Answer 5

3. Dividend decision

Question 6

Net profits are generally divided into two:

Answer 6

a. Dividend for shareholders
b. Retained profits

Question 7

Dividend and the rate of it has to be decided.

Answer 7

a. Dividend for shareholders

Question 8

Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.

Answer 8

b. Retained profits

Question 9

The financial management is generally concerned with procurement, allocation and control of financial resources of a concern

Answer 9

Objectives of Financial Management

Question 10

of funds to the concern.

Answer 10

1. To ensure regular and adequate supply

Question 11

which will depend upon the earning capacity, market price of the share, expectations of the shareholders.

Answer 11

2. To ensure adequate returns to the shareholders

Question 12

. Once the funds are procured, they should be utilized in maximum possible way at least cost.

Answer 12

3. To ensure optimum funds utilization

Question 13

, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.

Answer 13

4. To ensure safety on investment

Question 14

-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.

Answer 14

5. To plan a sound capital structure

Question 15

Functions of Financial Management

Answer 15

1. Estimation of capital requirements
2. Determination of capital composition
3. Choice of sources of funds
4. Investment of funds
5. Disposal of surplus
6. Management of cash
7. Financial controls

Question 16

A finance manager has to make estimation with regards to capital requirements of the company.

Answer 16

Estimation of capital requirements

Question 17

This will depend upon expected costs and profits and future programmes and policies of a concern.

Answer 17

Estimation of capital requirements

Question 18

Estimations have to be made in an adequate manner which increases earning capacity of enterprise.

Answer 18

Estimation of capital requirements

Question 19

Once the estimation have been made, the capital structure have to be decided.

Answer 19

Determination of capital composition

Question 20

This involves short- term and long- term debt equity analysis.

Answer 20

Determination of capital composition

Question 21

This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties.

Answer 21

Determination of capital composition

Question 22

For additional funds to be procured, a company has many choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.

Answer 22

Choice of sources of funds

Question 23

: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.

Answer 23

Investment of funds

Question 24

: The net profits decision have to be made by the finance manager.

Answer 24

Disposal of surplus

Question 25

Disposal of surplus can be done in two ways:

Answer 25

a. Dividend declaration
b. Retained profits

Question 26

It includes identifying the rate of dividends and other benefits like bonus.

Answer 26

a. Dividend declaration

Question 27

The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.

Answer 27

b. Retained profits

Question 28

Finance manager has to make decisions with regards to cash management.

Answer 28

Management of cash

Question 29

Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.

Answer 29

Management of cash

Question 30

The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances.

Answer 30

Financial controls

Question 31

This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.

Answer 31

Financial controls