SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)

Subject: Financial Management

Sample Questions:
Section I: Subjective Questions

1. What is the difference between the Irrelevance and Relevance approach to dividend
policy?

2. Which are the three main forms of business organizations?

3. What in brief is the liquidity group of ratios, what are its components, and what is its
importance?

4. Why would a business form a limited company if sole proprietorship is more flexible and
free from government regulations?

5. What are the different ways in which ratios can be expressed?

6. If you are planning to run a small business which is the most suitable form of
organization to adopt?

7. Explain in brief the two key theories of capitalization.

8. What are the different types of costs?

Section II: Objective Questions

Multiple Choice Single Response

1. Revenue from sale of products ordinarily is reported as part of the earning in the
period

1] The sale is made

2] The cash is collected

3] The products are manufactured

4] The planning takes place

2. The comparison of ratios of the same organisation for different years is termed as

1] Intra-firm comparison

2] Comparison with standards set

 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management

3] Inter-firm comparison

4] Ideal ratio

3. Net Working capital means

1] Current assets

2] Current assets less current liabilities

3] Current liabilities

4] Capital budgeting

4. Current assets consist of

1] Land

2] Building

3] Investments

4] Receivables

5. The company granting credit may insist on giving the names of those who are
currently dealing with the company. This is termed as

1] Bank reference

2] Trade reference

3] Sales interview and reports

4] Past experience of the customer

6. Profit after tax is also called as

1] Net Profit

2] Retained Profit

3] Operating Profit

4] Real Profit

7. The cost which varies in direct proportion to the sales revenue is termed as

1] Fixed Cost

2] Variable Cost

3] Semi variable cost

 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management

4] Explicit Cost

8. Credit rating symbol for Fixed Deposits of Adequate safety by Investment

Information and Credit rating agency is

1] MC

2] MA

3] MB

4] MD

9. The right to purchase new shares in the same proportion as their current ownership
is available to the existing shareholders under

1] ESOP

2] Bonus Issue

3] Rights Issue

4] Dividend Issue

10. Financing consists of the raising, providing, managing of all the money, capital or
funds of any kind to be used in connection with the business' is defined by

1] Prather and Wert

2] Kenneth Midgley and Ronald Burns

3] Bonneville and Dewey

4] R.C.Osborn

Multiple Choice Multiple Response

11. Fixation of Inventory levels are based on

1] Lead Time
2] Economic Order Quantity
3] Maximum Usage
4] Cost of Capital
12. Transactions that will have effect on the current ratio are

1] Cash payment to creditors

2] Purchasing Computers

3] Cash received from Debtors

4] Making Provision for Outstanding expenses

 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management

13. Transactions that will have no effect on the current ratio are

1] Cash received from Debtors

2] Purchase of raw material on cash basis

3] Depositing cash in Bank Account

4] Purchasing Computers for cash

14. All the liabilities are broadly classified into

1] Net Own Funds

2] Term Liability

3] Current Liability

4] Contingent Liability

15. Objectives of finance function are

1] Profit Maximisation

2] Auditing

3] Wealth Maximisation

4] Reconciliation

16. Identify the Current assets.

1] Accrued Income

2] Debtors

3] Raw materials

4] Computers

17. All the liabilities are broadly classified into

1] Net Own Funds

2] Term Liability

3] Current Liability

4] Contingent Liability

18. The approaches to compute the cost of equity shares are

 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management

1] Dividend/Price

2] Earning/Price

3] D/P + Growth

4] Price/Earnings

Fill in the Blanks

19. ______ is clubbed with Current Assets in the Balance Sheet.

1] Miscellaneous expenditure

2] Loans and advances given

3] Contingent liability

4] Investments

20. Turnover ratios measure how efficiently the ______ are employed by the firm.

1] Capital

2] Assets

3] Debts

4] Profits

21. Debt Equity ratio is alternatively called ______ ratio.

1] Proprietary

2] Turnover

3] Leverage

4] Profitability

22. Debt Service Coverage ratio is calculated as ______ .

1] Profit before interest and taxes / Interest charges

2] (Net Profit after taxes + Depreciation + Interest on term loan) / (Interest +

Instalment on term loans)

3] [(Gross Profit / Sales)] *100

4] [(Net Profit / Sales)] *100

 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management

23. The basic objective of ______ management is to reduce the operating cash
requirement to the minimum possible extent without affecting the routine
transactions.

1] Materials

2] Working Capital

3] Receivables

4] Cash

24. Cost of Debt 10%. Amount of Debt. 100 Lacs. Cost of Equity 12% Amount of
Equity 50 Lacs. Composite cost of capital is ______

1] 10.67%

2] 11.00%

3] 11.67%

4] 10.33%

25. A firm may be required to offer more credit in case of ______ Market .

1] Buyers'

2] Sellers'

3] Monopoly

4] Oligopoly

26. Factoring is a financial as well as ______ function.

1] Administrative

2] Manufacturing

3] Selling

4] Auditing

27. Interest on overdraft is payable on the actual amount drawn and is calculated on
______ product basis.

1] Monthly

2] Daily

3] Quarterly
 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management

4] Yearly

28. The amount of profit earned after deducting the interest on long term sources of
capital is referred to as ______ .

1] Gains after Interest

2] Profit before Interest and Taxes

3] Profit before taxes

4] Net Profit

State True or False

29. Credit rating does not create any legal relationship between the rating agency and
the investor.

30. Depreciation should be charged on a vacant plot.

31. Current assets is in the form of asset receivable after a period of one year.

32. Public deposits are unsecured borrowings for the company.

33. Ordering cost of inventory includes cost incurred for insurance of stock.

34. If Internal rate of return is less than cost of capital it means profit.

35. By issuing the debentures, the controlling position of the existing equity
shareholders is affected.

36. Wealth maximisation theory is an extension of Profit maximisation Theory.

37. A high degree of operating leverage means that the component of fixed cost is too
high in the overall cost structure.

38. Informal method of capital budgeting does not follow any mathematical or
statistical model to consider the risk factor.

Match the Following

39. 1] Techniques available on macro basis 1] Average Collection period calculation

2] Techniques available on micro basis 2] Age wise analysis of receivables
3] Factoring 3] purchases book debts from the client
either with or without recourse
4] Bills Discounting 4] finance against the book debts

5] Credit policy of the company

6] Non fund facility

40. 1] Earnings per share 1] (Profit after tax - Preference

dividend) / Number of Equity shares
 SYMBIOSIS CENTRE FOR DISTANCE LEARNING (SCDL)
Subject: Financial Management
2] Price earning ratio
3] Operating leverage
4] Financial leverage
41. 1] Convertible Preference Shares
2] Non-cumulative Preference shares
3] Registered Debentures
4] Non-Convertible Debentures
42. 1] Solvency Group
2] Liquidity Group
3] Profitability Group
4] Turnover Group
2] Market Price per share / Earnings per
share
3] Contribution / Earnings before
interest and tax
4] Earning before interest and tax /
Earning before tax
5] Earning per Share/Market Price
6] Earning Before Tax/Earning before
Interest and Tax
1] Which can be converted in the equity
shares
2] The arrears of dividend do not
accumulate
3] Holders registered in the company as
debenture holders
4] Which cannot be converted into
equity shares
5] Registered with Registrar of
Companies
6] The arrears of Preference Dividend
accumulate
1] Debt Equity ratio
2] Current Ratio
3] Gross Profit Ratio
4] Debtors Turnover Ratio
5] Price Earnings Ratio
6] Capital gearing Ratio