Financial Management Basics Quiz
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Questions and Answers

What is the primary purpose of Financial Management?

  • To manage employee performance
  • To control marketing strategies
  • To create a budget for daily operations
  • To influence the company’s profit and loss account (correct)

Which term best defines the proper allocation of resources for long-term benefits?

  • Working Capital Management
  • Financial Risk Assessment
  • Current Asset Management
  • Capital Budgeting (correct)

What does wealth maximization focus on in Financial Management?

  • Increasing shareholders' wealth through market value (correct)
  • Reducing operational costs
  • Maximizing employee productivity
  • Increasing the firm's earnings per share

Which of the following is NOT considered an objective of Financial Management?

<p>Increasing market share (B)</p> Signup and view all the answers

What is a key aspect of managing long-term financing?

<p>Deciding the right mix of debt and equity (C)</p> Signup and view all the answers

Effective management of which area is crucial for maintaining working capital?

<p>Cash, inventory, and receivables (B)</p> Signup and view all the answers

Which financial decision focuses on raising funds?

<p>Financing Decision (A)</p> Signup and view all the answers

What is a consequence of inefficient financial management?

<p>Poor profitability and sustainability (A)</p> Signup and view all the answers

Which factor is NOT considered in the dividend decision?

<p>Tax compliance (C)</p> Signup and view all the answers

What is the significance of cash flow position in capital structure?

<p>It ensures the company can meet its financial obligations. (C)</p> Signup and view all the answers

Which of the following is a primary objective of financial planning?

<p>Ensure timely availability of funds. (B)</p> Signup and view all the answers

What does the term 'Capital Structure' refer to?

<p>The proportion of debt and equity used to finance operations. (C)</p> Signup and view all the answers

What is an important factor influencing a company's choice between debt and equity?

<p>Interest coverage ratio (B)</p> Signup and view all the answers

Which type of capital involves long-term investments in assets necessary for production?

<p>Fixed Capital (A)</p> Signup and view all the answers

Which of these is a consideration when determining the fixed capital needs of a business?

<p>Nature of Business (C)</p> Signup and view all the answers

What does financial planning help to prepare for?

<p>Uncertain future needs (B)</p> Signup and view all the answers

Flashcards

What is business finance?

The money a business needs to operate, buy assets, and manage finances.

What is financial management?

The process of planning, organizing, directing, and controlling financial activities in a business.

What are long-term investment decisions?

Investing in long-term assets like land, buildings, and machinery. It shapes a company's asset base and future profitability.

What are short-term investment decisions?

Managing short-term assets like cash, inventory, and receivables. This impacts a company's day-to-day operations and its liquidity.

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What is the financing decision?

Choosing how to raise funds, whether through equity (selling shares) or debt (borrowing). It impacts a company's financial structure and risk.

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What is profit maximization?

The traditional objective of financial management, aiming to increase a company's earnings per share.

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What is wealth maximization?

The modern objective of financial management, aiming to increase the market value of a company's shares, benefiting shareholders.

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How does financial management affect the profit and loss statement?

Financial management decisions directly impact all financial statements, including the profit and loss statement, affecting the company's profitability and sustainability.

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Capital Structure

The mix of debt and equity a company uses to finance its operations.

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Debt-Equity Ratio

A critical measure that shows the balance between borrowed funds and owners' equity.

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Interest Coverage Ratio

Reflects the company's ability to pay its interest obligations.

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Dividend Decision

The proportion of profit distributed to shareholders versus the portion retained for the business's future needs.

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Fixed Capital

Long-term investments in assets like land, buildings, and machinery essential for production and operations.

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Financial Planning

Forecasting the future financial needs of a company, ensuring funds are available when needed without excess or shortage.

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Cash Flow Position

The amount of money a company has available to meet its obligations.

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Factors Influencing Financial Decisions

Considerations like cost of funds, risk, control, cash flow, and market conditions.

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