#1
Which of the following is a key objective of financial management?
Maximizing profits
ExplanationFinancial management aims to maximize profits to ensure the company's financial success and sustainability.
#2
What is the primary goal of financial management?
Maximizing shareholder wealth
ExplanationThe primary goal of financial management is to maximize shareholder wealth, ensuring long-term value creation.
#3
What is the time value of money (TVM) concept in financial management?
The idea that money has more value over time due to interest
ExplanationTVM recognizes the changing value of money over time, accounting for interest and the opportunity cost of delayed cash flows.
#4
What is the concept of 'opportunity cost' in financial decision making?
The cost of forgoing the next best alternative
ExplanationOpportunity cost in financial decision-making refers to the value sacrificed by choosing one option over the next best alternative.
#5
What is the formula to calculate the debt-to-equity ratio?
Total Debt / Total Equity
ExplanationThe debt-to-equity ratio is computed by dividing a company's total debt by its total equity, offering insights into its financial leverage.
#6
What is the formula for calculating return on investment (ROI)?
(Net Income - Dividends) / Shareholders' Equity
ExplanationROI measures the profitability of an investment by assessing the return relative to the shareholders' equity invested.
#7
What does the term 'liquidity' refer to in financial management?
Ability to convert assets into cash quickly without significant loss
ExplanationLiquidity in financial management refers to the ease with which assets can be converted to cash, maintaining value.
#8
Which financial statement provides information about a company's cash flows?
Statement of cash flows
ExplanationThe Statement of Cash Flows details a company's cash inflows and outflows, crucial for assessing its financial health.
#9
Which of the following is a measure of a company's profitability?
Earnings Per Share (EPS)
ExplanationEarnings Per Share (EPS) is a key metric indicating a company's profitability, calculated as net income divided by the number of outstanding shares.
#10
What does the term 'working capital' represent?
The difference between current assets and current liabilities
ExplanationWorking capital is the difference between a company's current assets and liabilities, reflecting its short-term liquidity.
#11
Which financial ratio indicates a company's ability to pay its short-term obligations?
Current ratio
ExplanationThe current ratio assesses a company's ability to meet short-term obligations by comparing current assets to current liabilities.
#12
What does the Weighted Average Cost of Capital (WACC) represent?
The average cost of all capital sources weighted by their proportions in the capital structure
ExplanationWACC reflects the average cost of capital, considering the weight of each funding source in a company's capital structure.
#13
What is the purpose of financial leverage?
To increase the potential return on investment
ExplanationFinancial leverage is employed to amplify returns on investment by using borrowed funds, though it also magnifies risks.
#14
What is the purpose of financial forecasting?
To plan for future financial needs
ExplanationFinancial forecasting is essential for planning and preparing for future financial requirements and potential challenges.
#15
What does the term 'capital structure' refer to?
The mix of debt and equity financing used by a company
ExplanationCapital structure denotes the combination of debt and equity financing utilized by a company to fund its operations and investments.
#16
What is the primary purpose of financial reporting?
To inform shareholders and stakeholders about a company's financial performance
ExplanationFinancial reporting serves the primary purpose of informing shareholders and stakeholders about a company's financial performance, ensuring transparency and accountability.