#1
2. What does ROI stand for in financial terms?
Return on Investment
ExplanationMeasure of profitability, indicating the gain or loss from an investment relative to its cost.
#2
1. What is the primary goal of financial management?
Maximizing shareholder wealth
ExplanationFocus on increasing value for shareholders through strategic financial decisions.
#3
3. Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Balance sheet
ExplanationSummary of assets, liabilities, and equity at a given moment, offering a financial snapshot.
#4
5. In financial management, what does the term 'Leverage' refer to?
Increasing debt to finance operations
ExplanationUtilizing borrowed funds to amplify returns, though it involves higher risk.
#5
6. What is the purpose of a budget in financial management?
To plan and control future financial activities
ExplanationFinancial planning tool enabling control and direction of future expenditures.
#6
7. What does the term 'Diversification' mean in the context of investment?
Spreading investments across different assets
ExplanationRisk reduction strategy involving spreading investments across various assets.
#7
10. What does the Debt-to-Equity ratio indicate about a company's financial structure?
The proportion of debt relative to equity
ExplanationMeasure of a company's financial leverage, indicating the balance between debt and equity financing.
#8
11. What is the concept of 'Time Value of Money' in financial management?
The idea that money has different values at different points in time
ExplanationRecognition that money's value changes over time, influencing investment and financial decisions.
#9
4. What is the time value of money?
Money's ability to grow over time
ExplanationRecognition that the value of money changes over time, emphasizing its earning potential.
#10
8. What is the formula for calculating the Net Present Value (NPV) of a project?
NPV = Present Value of Cash Inflows - Initial Investment
ExplanationMethod for assessing the profitability of an investment by comparing present value of inflows to initial cost.
#11
9. What is the significance of the Efficient Market Hypothesis (EMH) in financial markets?
It implies that it is impossible to beat the market consistently
ExplanationTheory suggesting that market prices reflect all available information, making consistent outperformance difficult.
#12
15. What is the significance of the Risk-Return Tradeoff in investment?
Higher risk is always associated with higher returns
ExplanationPrinciple indicating that higher potential returns usually come with higher levels of risk.
#13
16. What is the role of a financial manager in working capital management?
To manage short-term assets and liabilities
ExplanationResponsibility for overseeing short-term assets and liabilities to ensure efficient daily operations.
#14
17. What does the term 'Hedging' refer to in the context of risk management?
Protecting against potential losses by using financial instruments
ExplanationRisk management strategy involving the use of financial instruments to minimize potential losses.
#15
18. What is the concept of 'Opportunity Cost' in financial decision-making?
The value of the best alternative forgone when a decision is made
ExplanationCost of forgoing the next best alternative when making a financial decision.