#1
Which of the following is NOT a source of business financing?
Financial reports
ExplanationFinancial reports are tools for information disclosure and analysis, not sources of actual financing.
#2
What is the purpose of a cash flow statement?
To assess a company's ability to generate cash
ExplanationA cash flow statement provides insights into a company's cash generation and usage, crucial for assessing financial health.
#3
What does the term 'ROI' stand for in finance?
Return on Investment
ExplanationROI is the ratio of profit to investment, indicating the return earned on an investment relative to its cost.
#4
What is the purpose of the capital budgeting process?
To manage a company's long-term investments
ExplanationCapital budgeting involves planning and evaluating long-term investment projects to align with a company's strategic goals.
#5
Which of the following is an example of an internal source of financing?
Retained earnings
ExplanationRetained earnings represent profits reinvested in the business and serve as an internal source of financing.
#6
What is the purpose of a business plan in relation to financing?
To secure funding from investors
ExplanationA business plan serves as a comprehensive document to attract investors by outlining the company's goals, strategies, and financial projections.
#7
What is the primary purpose of financial leverage?
To increase profitability
ExplanationFinancial leverage aims to amplify returns by using borrowed funds, enhancing profitability.
#8
What is the 'payback period' in investment analysis?
The time taken for an investment to return its original cost
ExplanationPayback period indicates how long it takes for an investment to recoup its initial investment.
#9
Which of the following is a characteristic of debt financing?
Fixed repayment obligations
ExplanationDebt financing involves fixed repayment schedules, creating a predictable obligation for the borrower.
#10
Which of the following is a characteristic of equity financing?
No ownership dilution
ExplanationEquity financing allows raising funds without diluting ownership, as opposed to issuing more shares.
#11
What is the difference between debt and equity financing?
Debt financing involves borrowing money, while equity financing involves selling ownership stakes.
ExplanationDebt involves loans and interest, while equity entails selling ownership shares, both with distinct financial implications.
#12
Which financial ratio measures a company's ability to pay its short-term debts?
Current Ratio
ExplanationThe current ratio assesses a company's short-term liquidity, indicating its capacity to meet immediate financial obligations.
#13
What is the concept of 'weighted average cost of capital' (WACC) used for in finance?
To estimate the cost of raising capital for a firm
ExplanationWACC is a metric to assess the average cost of capital and helps in evaluating the expense of obtaining funds.