#1
Which of the following is a primary objective of financial management?
Maximizing shareholder wealth
ExplanationFinancial management aims to maximize the wealth of shareholders by increasing the value of the firm's stock.
#2
What is the concept of 'working capital' in financial management?
The difference between current assets and current liabilities
ExplanationWorking capital represents the difference between a company's current assets and current liabilities, reflecting its short-term financial health.
#3
Which financial statement shows a company's revenues and expenses over a specific period?
Income Statement
ExplanationThe income statement presents a company's financial performance by detailing its revenues, expenses, and profits or losses over a specific period.
#4
What does the term 'financial planning' involve in financial management?
Forecasting a company's future revenues and expenses
ExplanationFinancial planning encompasses estimating future income and expenditures to guide decision-making and resource allocation.
#5
What is the purpose of financial ratios in financial management?
To assess the company's financial performance
ExplanationFinancial ratios help evaluate a company's financial health and performance by comparing different aspects of its operations and finances.
#6
What does the term 'capital budgeting' refer to in financial management?
Making decisions about long-term investments
ExplanationCapital budgeting involves assessing and selecting long-term investment projects that are expected to generate returns over time.
#7
What is the formula for calculating the Net Present Value (NPV) of a project?
NPV = Initial Investment - Present Value of Cash Flows
ExplanationNPV measures the profitability of an investment by calculating the present value of expected cash flows minus the initial investment.
#8
Which financial ratio measures a company's ability to meet short-term obligations with its most liquid assets?
Current Ratio
ExplanationThe current ratio indicates a company's ability to pay off its short-term liabilities with its current assets.
#9
What is the purpose of financial leverage in business?
To increase the potential return on investment
ExplanationFinancial leverage is used to amplify returns and potentially increase profitability by using borrowed funds to finance investments.
#10
What does the term 'cost of capital' refer to in financial management?
The cost of financing through both debt and equity
ExplanationCost of capital represents the expense a company incurs for raising funds from both debt and equity sources.
#11
What is the primary purpose of financial risk management?
To minimize the impact of financial risks on the company's earnings
ExplanationFinancial risk management aims to mitigate potential losses arising from financial uncertainties and adverse market conditions.
#12
Which of the following is a component of the DuPont analysis?
Return on Equity (ROE)
ExplanationROE is a key component of the DuPont analysis, which decomposes ROE into its components to analyze a company's financial performance.
#13
What is the primary objective of financial risk management?
To minimize the impact of financial risks on the company's earnings
ExplanationFinancial risk management aims to minimize potential losses due to financial uncertainties and adverse market conditions, safeguarding the company's earnings and stability.