Financial Management

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National Institute of Business Management

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FIRST SEMESTER EMBA/ MBA

Subject : Financial Management

Attend any 4 questions.  Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

1.What is the importance of cost of capital in Financial Decisions? Explain.

Answer : Importance of Cost of Capital in Decision Making

The concept of cost of capital is a very important concept in financial management decision making. The concept, is however, a recent development and has relevance in almost every financial decision making but prior to that development, the problem was ignored or by-passed.

The progressive management always takes notice of the cost of capital while taking a financial decision. The concept is quite relevant in the following managerial decisions.

(1) Capital Budgeting Decision. Cost of capital may be used as the measuring road for adopting an investment proposal. The firm, naturall

2.Explain the factors determining Capital Structure.

Answer :

Meaning of Capital Structure Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance. The capital structure involves two decisions- Type of securities to be issued are equity shares, preference shares and long term borrowings (Debentures). Relative ratio of securities can be determined by process of capital gearing. On this basis, the companies are divided into two- Highly geared companies - Those companies whose proportion of equity capitalization is small. Low geared companies - Those companies whose equity capital dominates total capitalization.

3.What is financial Forecasting? Explain.

Answer : Financial Forecasts

The lack of planning and control of cash resources is the reason often given for the failure of many small businesses in Australia. However, good forecasting can help reduce your business risk.

Much like a map helps you plan a long road trip, a financial forecast (often called a cash budget, cash flow, or financial plan) helps you achieve your goals and get your business to where you want it to be.

A financial forecast is a tool that allows

4.What is a fund flow statement? Explain its uses.

5.Explain financial statement analysis and tools of financial analysis.

Answer : Financial statements are usually the final output of a company accounting operations. These statements contain information relating to the revenues, expenses, assets, liabilities and retained earnings of the business. Business owners often pay close attention to this information since the statements can provide detailed information about the company operational performance. Many business owners and managers use specific analysis tools to closely review their company financial statements for decision-making purposes.

Financial Ratios

A traditional financial statement analysis tool is financial ratios. These ratios take information from the company’s financial statements and calculate economic indicators for comparison to another company or the industry standard. Financial ratios include liquidity, asset turnover, financial leverage and profitability calculations.

6.Explain the steps to improve efficiency of Cash Management.

25 x 4=100 marks