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Financial Planning: Short, Medium, Long Term

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Financial Planning: Short, Medium, Long Term

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Questions and Answers

What is the consequence of overcapitalization in a company?

Reduction in interest payments

Efficient use of resources

Inefficient use of resources (correct)

Increased return on equity

Which scenario best describes balanced capitalization?

A tech startup obtaining insufficient funding

A company relying entirely on debt for financing

A company securing funding far beyond its needs

A manufacturing company carefully assessing its capital needs (correct)

What is undercapitalization in a company?

Exceeding the actual capital requirements

Achieving the right balance between debt and equity

Insufficient capital to meet operational needs (correct)

Having no need for external funding

Which best describes equity capital?

Raised by issuing shares to shareholders Signup and view all the answers

What is debt capital in a company?

Obtained through loans or bonds Signup and view all the answers

In terms of capital gearing, what does it mean to be highly geared?

Depends significantly on debt for financing Signup and view all the answers

What is the primary issue with overcapitalization?

Reduced return on equity Signup and view all the answers

How does undercapitalization impact a company's operations?

Insufficient funds for operational needs Signup and view all the answers

'Balanced Capitalization' is achieved when:

'The firm maintains a harmonious capitalization with its operational needs' Signup and view all the answers

'Debt-Equity ratio' refers to:

'The capital structure of a company' Signup and view all the answers