Understanding Financial Management

What is the primary goal of financial management?

• Increase employee satisfaction

• Maximize shareholder value

• Enhance product quality

• Reduce operational costs

Define capital budgeting.

• Capital budgeting is the process of planning and managing a company's long-term investments.

• A technique for managing daily expenses.

• A method for calculating short-term profits.

• A strategy for increasing employee productivity.

What is the difference between fixed and current assets?

• Fixed assets are long-term, while current assets are short-term.

• Fixed assets can be easily converted to cash, while current assets cannot.

• Fixed assets are always tangible, while current assets are intangible.

• Current assets are used for long-term investments, while fixed assets are for daily operations.

Explain the concept of working capital.

• Working capital is the amount of cash a company has in its bank account.

• Working capital is the total value of all assets owned by a company.

• Working capital refers to the long-term investments made by a company.

• Working capital is the difference between current assets and current liabilities, indicating a company's short-term financial health.

What are the main financial statements used in financial management?

• Profit and Loss Statement

• Equity Statement

• Revenue Report

• Balance Sheet, Income Statement, Cash Flow Statement

What is the purpose of a cash flow statement?

• To summarize a company's total assets and liabilities.

• To provide a detailed analysis of market trends.

• The purpose of a cash flow statement is to provide insight into a company's cash inflows and outflows over a specific period.

• To show the company's profit margins over the year.

Describe the time value of money.

• Money loses value over time due to inflation.

• Future money is always worth more than present money.

• The time value of money only applies to investments in stocks.

• The time value of money is the principle that money available today is worth more than the same amount in the future due to its potential earning capacity.

What is the significance of the break-even analysis?

• It is used to calculate the total expenses of a business.

• It helps in determining the maximum profit a business can achieve.

• It identifies the ideal product pricing strategy.

• The significance of break-even analysis is to identify the sales volume at which a business neither makes a profit nor incurs a loss.

What are the different types of financial ratios?

• Tax Ratios

• Liquidity Ratios, Profitability Ratios, Leverage Ratios, Efficiency Ratios, Market Value Ratios

• Investment Ratios

• Currency Ratios

How do you calculate the return on investment (ROI)?

• ROI = (Initial Investment - Final Value) * 100

• ROI = ((Final Value - Initial Investment) / Initial Investment) * 100

• ROI = (Final Value / Initial Investment) + 100

• ROI = (Final Value + Initial Investment) / Initial Investment