Go through the important set of questions & answers of CBSE Class 12th Business Studies chapter 9 (Financial Management). The given NCERT questions are from the second book of Business Studies (Business Finance and Marketing). Students giving CBSE board exam 2020 must practice from the given questions.
Q1- Explain Financial Risk. Why does it rise?
Ans- Financial risk is a situation where a company is not able to meet its financial charges. They can be in the form of preference dividend or interest payment. The financial risk arises in the case when the proportion of debt in the capital structure increases.
Q2- In what way does the production cycle impact working capital?
Ans- Working capital is impacted by the production cycle because working capital requirement increases with a longer production cycle.
Q3- Mention the main objectives of financial management? Explain.
Ans- The objective of financial management is to opt for the kind of financial decisions that will maximize the shareholders' wealth.
Q4- What are current assets? Give at least four examples of such assets.
Ans- Current asset means those assets which the firm can easily convert into cash or cash equivalents in a short period of time (less than a year). The four examples of current assets are:
- Cash Equivalents
- Short term investments
Q5- What is Financial Management?
Ans: Financial Management means directing, planning, organizing, and controlling the financial pursuits such as the utilization of the firm of the capital. It means applying the standards of general management to the financial resources of the firm.
Q6- Mention three broad financial decisions on which Financial management is based. What are these?
Ans- The three broad Financial decisions are:
- Financial Decisions
- Investment Decisions
- Dividend Decisions
Q7- State any four factors which directly affect the working capital requirements of a company.
Ans- The four factors affecting the working capital requirement of a company are:
- Business Cycle
- Seasonal Factors
- Nature of business
- Scale of Operation
Q8- In what way does working capital affect both the liquidity as well as the profitability of a business?
Ans- Working capital of business means an excess of current assets (such as debtors, stock or cash in hand, etc.) over current liabilities. With the increase in the amount of working capital, the liquidity of the business also increases. But, since current assets offer low returns, the profitability of the business falls with the increase in working capital.
Q9- Explain the factors affecting dividend decisions?
Ans- Few of the factors affecting dividend decisions are:
- Growth Prospects
- Stable Dividends
- Preference of the shareholders
- Amount of Earning
- Taxation Policy
- Cash Flow Position
Q10- Explain working capital? Mention five important determinants of working capital requirement?
Ans- All forms of business need to take the decision regarding the investment in current assets i.e. the working capital. The two broad concepts of working capital are namely, Net working capital and Gross working capital.
The five determinants of the working capital requirement are:
- Production cycle
- Fluctuations in the Business Cycle
- Growth Prospects
- Scale of Operations
- Type of Business