Business Studies Worksheet Chapter 9 Financial Management

1. Define financial management.

2. Fill in the blanks: 

1. _____ refers to the mix between owners and borrowed funds.

2. _____ is essentially the preparation of a financial blueprint of an organisation’s future operations.

3. _____ refers to investment in long-term assets.

4. Net working capital may be defined as the excess of current assets over _______. 

5. ___________________ refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.

3. What is the primary aim of financial management?

4. State the twin objectives of financial planning.

5. Identify the financial decision involved in each of these lines:

1. Buying a new machine.

2. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business.

3. Opening a new branch.

4. This decision is about the quantum of finance to be raised from various long-term sources

6. There are two projects, A and B (with the same risk involved), with a rate of return of 10 per cent and 12 per cent, respectively. Which project would be chosen by the firm?

7. State, in each of the following cases, whether the firm would choose debt or equity:

1. When the cash flow position of firm is weak.

2. When fixed operating costs of firm are high

3. Companies afraid of a takeover bid. 

4. When capital market is in depressed state. 

8. State, in each of the following cases, whether the firm would pay lower dividend and retain its profits or distribute higher dividends:

1. When the company has easy access to the capital market.

2. If tax on dividend is higher.

3. When earnings of company are high.

4. When earnings of company are stable.

5. When the company is short on cash.

9. State, in each of the following cases, whether the requirement for fixed capital would be high or low.

1. In case of trading concern.

2. When an asset is taken on lease.

3. Organisation using labour intensive techniques.

4. When two or more business organisations share each other’s facilities.

5. In industries where assets become obsolete sooner.

6. When a firm choose to diversify its operations for various reasons. 

10. State, in each of the following cases, whether the requirement for working capital would be high or low.

1. When prices are rising.

2. In case of service organisations.

3. When level of competition is high.

4. When a firm is managing its raw materials efficiently. 

5. During lean season.

6. During period of boom.

7. If the raw materials and other required materials are available freely.

8. When credit is availed by a firm from its suppliers.

9. When the firm adopts liberal credit policy towards its customers.

10. Amrit is running a ‘transport service’. 

11. If a firm has adopted a new policy of purchasing the components on three months credit and selling the complete product in cash.