Q1) Explain the concept of net working capital and explain the importance of the working

capital cycle in business. Can companies manage the business with negative working ?

(Net Working capital) •• Current Assets: These are assets that are expected to be converted into cash or
used up within one year. Examples include cash, accounts receivable, inventory, and short-term
investments. •• Current Liabilities: These are obligations or debts that a company is expected to settle
within one year. Examples include accounts payable, short-term loans, and accrued expenses

(Importance of the Working Capital Cycle) •• Liquidity Management: A positive working capital cycle
ensures that a company has enough cash on hand to cover its short-term obligations promptly. This helps
maintain financial stability and prevents liquidity problems. •• Operational Efficiency: A shorter
working capital cycle indicates that a company can efficiently manage its inventory, collect accounts
receivable faster, and delay payments to suppliers when possible.
•• Profitability: An optimized working capital cycle can boost profitability. •• Credibility: Maintaining a
healthy working capital cycle enhances a company's credibility with suppliers, creditors, and investors.

(Negative Working Capital) •• Short-Term Borrowing: They may need to rely on short-term loans or lines
of credit to bridge the gap between their current assets and liabilities. •• Efficiency & Risk Management:
Negative working capital might be acceptable for businesses with highly efficient operations, strong cash
flow, and a history of successfully managing such situations

Q2) What is the role of a financial manager and what are various financial objectives

(financial Manager) •• Financial Planning: Financial managers are responsible for creating a financial
plan that outlines the organization's financial goals and objectives. They work to develop strategies to
achieve these goals efficiently. •• Budgeting: Financial managers create and manage budgets for different
departments and projects within the organization. This involves allocating resources, monitoring
expenses, and ensuring that spending aligns with the company's financial plan. •• Risk Management:
Assessing and mitigating financial risks is a crucial aspect of the role. •• Capital Investment Decisions:
Financial managers evaluate investment opportunities, such as purchasing assets or expanding operations.
•• Tax Planning : Financial managers work to minimize tax liabilities while complying with tax laws and
regulations

(Financial Various) •• Corporate Finance: Involves decisions related to capital structure, financing
options, and investment analysis. •• Risk Management: Focuses on identifying, assessing, and mitigating
various financial risks, including market risk, credit risk, and operational risk. •• Treasury Management:
Involves managing the organization's cash flow, liquidity, and short-term investments. •• Financial
Analysis: Financial managers use financial ratios, data analysis, and modeling to assess the company's
financial performance and make informed decisions. •• Management Accounting: Provides internal
financial information and analysis to support decision-making within the organization.
Q3) Explain the Financial System of India.

1) Regulatory Bodies:-------Reserve Bank of India (RBI): India's central bank, responsible for
monetary policy, currency issuance, & overall financial stability. Securities and Exchange Board of India
(SEBI)-----------------Regulates the securities market, including stock exchanges and securities
transactions. 2) Banking Sector: India has a robust banking system consisting of public sector banks,
private sector banks, foreign banks, & cooperative banks. 3) Capital Markets: India has a well-
established stock market with major exchanges like the National Stock Exchange (NSE) and Bombay
Stock Exchange (BSE). Equities, bonds, and derivatives are traded in these markets, providing avenues
for raising capital and investment. 4) Mutual Funds: India's mutual fund industry manages funds from
retail & institutional investors, offering a variety of investment options. 5) Payment Systems: The
adoption of digital payment systems, including UPI (Unified Payments Interface), has surged, making it
easier for people to transact electronically.

Q4) What are the various Sources of Finance available for a public limited company? -----
1) Equity Shares: These are shares issued to the public or existing shareholders. They represent
ownership in the company and entitle shareholders to a portion of the company's profits and a say in its
management through voting rights. 2) Preference Shares: These shares come with preferential rights, such
as a fixed dividend rate, ahead of common equity shareholders. They provide a more stable source of
financing. 3) Debentures/Bonds: Companies can issue debentures or bonds to raise funds. Debentures are
long-term debt instruments that pay periodic interest, while bonds can have various structures. Both are
typically traded on the bond market. 4) Bank Loans: Public limited companies can secure loans from
banks, which can be short-term or long-term loans, depending on their needs. These loans may be secured
or unsecured, with collateral or without. 5) Trade Credit: This involves delaying payments to suppliers,
effectively obtaining short-term financing through extended credit terms.
6) Corporate Bonds: Issuing corporate bonds is another way to raise debt capital.

Q5) What is the primary goal of financial management in a corporation

The primary goal of financial management in a corporation is to maximize shareholder wealth or

shareholder value. This goal is often stated as "shareholder wealth maximization" or financial decisions
that are intended to increase the long-term value of the company for its shareholders.

1) Maximizing Shareholder Wealth, 2) Long-Term Focus, 3) Risk-Return Trade-Off,

4) Consideration of Stakeholders, 5) Alignment of Management and Shareholder Interests:

This goal involves a careful balancing of risk and return and a focus on the company's overall financial
health and sustainability, rather than short-term profit maximization
 Q6) Why Financial Planning & forecasting is essential & various techniques used for financial
forecasting?

( Financial planning)1) Strategic Decision-Making: Financial planning helps businesses make informed
decisions about investments, expansions, and resource allocation. It provides a roadmap for achieving
financial goals.. 2) Risk Management: Forecasting allows companies to identify potential financial risks
and uncertainties, enabling them to develop strategies to mitigate these risks. 3) Budgeting: Financial
planning forms the basis for creating budgets, which are critical for monitoring and controlling expenses
and revenues .

( financial forecasting) :- 1) Historical Data Analysis: Analyzing past financial data to identify trends and
patterns. This can involve using tools like moving averages or time-series analysis. Regression Analysis:2)
This statistical technique assesses the relationship between dependent and independent variables to make
predictions. It's often used for sales forecasting. 3) Market Research: Gathering data on market
conditions, customer behavior, and industry trends to predict future demand and sales.

Q7) (Financial Budgeting Management )

1) Financial Control: Budgeting sets financial targets and benchmarks that allow management to monitor
actual performance against planned performance. It helps identify discrepancies and take corrective
actions. 2) Expense Management: Budgets allocate funds to various departments and cost centers. This
helps control expenses and ensures that spending aligns with strategic priorities. 3) Cash Flow
Management: Cash flow budgets help in managing liquidity by forecasting cash inflows and outflows. 4)
Goal Setting: Budgets serve as a tool for setting specific financial goals and objectives. 5) Decision
Support: Budgets provide a basis for evaluating investment decisions, capital expenditures, and resource
allocation.
6) Profitability Analysis: Budgets can help assess the profitability of various products, services, or
business segments.

Q8) Explain the role of financial ratios in analyzing a company's financial performance.

1) Liquidity Ratios: Current Ratio: Indicates a company's ability to meet its short-term obligations using
its short-term assets. A higher current ratio suggests better liquidity. Quick Ratio : Measures a company's
ability to meet short-term obligations without relying on inventory. It provides a more conservative view
of liquidity.

2) Profitability Ratios: ••Gross Profit Margin: Shows the percentage of revenue that remains after
deducting the cost of goods sold. It assesses a company's ability to manage production costs.
••Operating Profit Margin: Reveals the profitability of a company's core operations by excluding
interest and taxes. 3) Efficiency Ratios: ••Inventory Turnover Ratio: Indicates how efficiently a
company manages its inventory. A higher ratio suggests efficient inventory management.Asset
Turnover: Evaluates how efficiently a company utilizes its assets to generate revenue.
 Q9) Discuss the concept of dividend policy and its impact on shareholder wealth.

1) Retention: When a company retains a significant portion of its earnings, it reinvests these funds back
into the business for growth, research & development, acquisitions, or debt reduction 2) Distribution:
When a company distributes a substantial portion of its earnings as dividends, shareholders receive
immediate income. 3) Stock Price Impact: A company's dividend policy can influence its stock price.
Consistently paying dividends and increasing them over time can attract income-seeking investors and
potentially lead to a higher stock price.
4) Market Conditions: Economic conditions, industry trends, & market sentiment can also influence
dividend policy decisions. During economic downturns, companies may reduce or suspend dividends to
preserve cash, which can impact shareholder income. 5) Tax Implications:
The tax treatment of dividends can affect shareholder wealth Companies and investors consider these tax
implications when making dividend-related decisions. 6) Dividend Yield: Dividend yield is the ratio of
the annual dividend payment per share to the stock's market price per share.

Q10) Describe the factors that influence a company's capital structure decisions.

1) Cost of Capital: The cost of capital is a critical consideration. Companies aim to minimize their
overall cost of capital, which is the weighted average cost of debt and equity
2) Tax Considerations: The tax environment plays a role in capital structure decisions. Companies
may leverage this tax benefit to increase their debt component. 3) Market Conditions: The prevailing
market conditions, including the availability and cost of debt and equity financing, can influence
capital structure choices. 4) Liquidity and Cash Flow: A company's liquidity position and cash flow
stability affect its ability to service debt. 5) Risk Tolerance: The company's tolerance for financial risk
is a crucial determinant of its capital structure. Debt introduces financial risk due to interest payments
and repayment obligations.
6) Regulatory Environment: Industry-specific regulations and legal constraints can limit or influence
capital structure decisions.

Q11) Describe the concept of risk and return in financial management. How are they related?

#Risk in financial management refers to the degree of uncertainty or variability associated with the
potential outcomes of an investment or financial decision. It represents the possibility of losing some or
all of the invested capital or not achieving the expected returns
Types of Risk: • Market Risk, • Credit Risk, •Liquidity Risk, • Country or Political Risk

#Return, in financial management, represents the gain or loss made on an investment over a specific
period. It is typically expressed as a percentage of the original investment, known as the rate of return.
Return can come from various sources, such as capital appreciation, dividends, or interest income. Type
of Return: •Capital Gain, •Dividend Income, •Interest Income. "Generally, the potential for higher returns
is associated with higher levels of risk.
"Conversely, investments perceived as less risky tend to offer lower potential returns.
 Q12) What is the Capital Asset Pricing Model (CAPM) and how is it used in determining the
cost of equity?

The Capital Asset Pricing Model (CAPM) is a financial model that is used to estimate the expected return
on equity for a company or investment based on the inherent risk associated with that equity. It helps in
determining the cost of equity capital, which is a key component in various financial and investment
analyses. Here's an overview of the CAPM and how it's used to calculate the cost of equity • Components
of CAPM: • Risk-Free Rate (Rf), • Market Risk Premium (Rm - Rf), • Beta (β):

How CAPM is Used to Determine the Cost of Equity •Risk Assessment: CAPM helps in quantifying the
risk associated with a specific stock or equity investment. • Cost of Equity Estimation: By plugging the
beta, risk-free rate, and market risk premium into the CAPM formula, you can calculate the expected
return that investors would require for holding the stock given its risk profile. • Capital Budgeting: When
evaluating potential investment projects, the cost of equity is used as the required rate of return to assess
the attractiveness of the investment

Q13) Difference between Equity financing & Debt financing. respective advantages &
disadvantages?

Equity financing involves selling ownership stakes (shares or equity) in the company to investors, such as
shareholders or venture capitalists.

Advantages: Sharing Risk, Long-Term Funding, No Repayment Obligation.

Disadvantages: Sharing Profits, Dilution of Ownership, Loss of Control.

Debt financing involves borrowing money from lenders, such as banks, bondholders, or other creditors,
with a contractual obligation to repay the borrowed amount along with interest.

Advantages: Maintain Ownership Control, Interest Tax Deductions, Predictable Payments

Disadvantages : Interest Payments, Principal Repayment, Risk of Default.

Explain the concept of time value of money & its significance in financial decision-making

The concept of the time value of money (TVM) is a fundamental principle in finance that recognizes the
idea that a sum of money today is worth more than the same sum in the future. This is because money has
the potential to earn returns or interest over time.

• Future Value, •Present Value, •Budgeting and Cash Flow Management, • Savings & Retirement
Planning, • Risk Assessment, • Capital Budgeting.

the time value of money is a foundational concept in finance that underlies a wide range of financial
decisions, including investments, loans, savings, budgeting, and retirement planning.
Q14) Explain the Net Income (NI) Approach and Net Operating Income (NOI) Approach

# Net Income (NI) Approach----------••The NI Approach calculates the property's value by

considering its net income, which is the income generated from the property after deducting all operating
expenses, such as maintenance, property taxes, insurance, and management fees. •• The formula for this
approach is: Property Value = Net Operating Income (NOI) / Capitalization Rate (Cap Rate). ••The Cap
Rate is a crucial factor and represents the rate of return an investor expects from the property. It is
determined based on factors like market conditions, property location, and risk

# Net Operating Income (NOI) Approach----------••The NOI Approach focuses on estimating the
property's Net Operating Income (NOI) separately, without directly factoring in the Cap Rate.
••Net Operating Income (NOI) is calculated as the property's total income (rental income, parking fees,
etc.) minus all operating expenses (property taxes, insurance, Maintenance. Property management). Tax
Implications: While NOI doesn't account for taxes directly, it serves as a starting point for assessing the
property's potential income before considering tax obligations.