Financial Management Test

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Financial Management Test - 11

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Weekly Quiz Competition

Question 1
1 / -0

Financial leverage is

A
The process of using debt capital to increase the rate of return on equity

B
The utilisation of current assets to effect disproportionate changes in income

C
Both (a) and (b)

D
A relationship between preference share capital and securities
Question 2
1 / -0

The concept of valuation is affected by __________.

A
opinion

B
judgement

C
bargaining power

D
all of the above

Solution

The concept of valuation is affected by opinion, judgment and bargaining power. Valuation is the process of determining the current worth of an asset or a company. There are many techniques used for doing a valuation. An analyst placing a value on a company looks at the business's management, the composition of its capital structure, the prospects of future earning and the market value of its assets. Different analyst has a different opinion while valuing which affects the valuation of a certain subject. Further, the judgement also differs from valuer to valuer. During valuation, bargaining power also plays an important role. Better bargaining power can fetch a better valuation of the company or assets. Overall the valuation is affected by many factors including opinion, judgement and bargaining power.
Question 3
1 / -0

Financial leverage is also referred to as _____________.

A
Gearing

B
Trading on equity

C
Fixed changes leverage

D
All the above
Question 4
1 / -0

Capital gearing refers to __________________________.

A
The proportion between net interest and non-fixed interest or dividend bearing funds in the capital employed

B
The proportion between fixed interest or dividend bearing funds and non-fixed interest or dividend bearing funds in the total capital employed in the business

C
Both (A) and (B)

D
None of the above

Solution

Capital gearing is a British word refers to the quantity of debt a corporation has about its equity. In the United States, resources gearing is known as a monetary influence. Companies with high levels of capital gearing will have a generously proportioned amount of debt relative to their equity value. The gearing ratio is a measure of financial risk and expresses the amount of a company's debt in terms of its equity. A company with a gearing ratio of 2.0 would have twice as much debt as equity.
Question 5
1 / -0

Financial leverage depends upon _______.

A
the ratio of debt

B
preferred stock to common stock equity

C
both (a) and (b)

D
None of the above
Question 6
1 / -0

Working capital is the difference between

A
Inflow and outflow of funds

B
Inflow and outflow of savings

C
Internal and external capital sources

D
Gross cash flow and net cash flow
Question 7
1 / -0

The optimum capital structure of a company is planned as per considerations of which of the following?
I. Profitability
II. Solvency
III. Marketability of shares
IV. Control

A
I, II and IV only

B
II, III and IV only

C
I and II only

D
III and IV only

Solution

Capital structure refers to the pattern a firm chooses to finance its assets and investments with the combination of equity, debt, or internal funds.
The optimal ratio of debt to equity reduces the risk of insolvency, and help the company continue to be successful and ultimately remain or to become profitable.
Question 8
1 / -0

ABC Ltd. has declared $$40$$% dividend. Which one of the following does it mean?

A
The company has declared $$40$$% on net profit as dividend

B
The company has declared $$40$$% of profit after tax as dividend

C
The company will provide dividend $$40$$% on issued capital

D
The company will provide dividend $$40$$% on paid-up capital
Solution
- Dividend is that portion of profit which is distributed to shareholders.
- Paid-up capital means the total amount of called up share capital which is actually paid to the company by the members. Dividend is declared on the paid-up form of capital.
- Thus the company will provide dividend of 40% on paid-up capital.
Question 9
1 / -0

Working capital is referred to as _________________.

A
Permanent capital

B
Temporary capital

C
Circulating capital

D
Gross cash inflow
Question 10
1 / -0

Working capital is _______________.

A
net current assets

B
net working capital

C
gross cash inflow

D
Either (a) or (b)

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Re-Attempt Weekly Quiz Competition

Financial Management Test - 11

Result

Financial Management Test - 11

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SHARING IS CARING

Question 1

The process of using debt capital to increase the rate of return on equity

The utilisation of current assets to effect disproportionate changes in income

Both (a) and (b)

A relationship between preference share capital and securities

Question 2

opinion

judgement

bargaining power

all of the above

Solution

Question 3

Gearing

Trading on equity

Fixed changes leverage

All the above

Question 4

The proportion between net interest and non-fixed interest or dividend bearing funds in the capital employed

The proportion between fixed interest or dividend bearing funds and non-fixed interest or dividend bearing funds in the total capital employed in the business

Both (A) and (B)

None of the above

Solution

Question 5

the ratio of debt

preferred stock to common stock equity

both (a) and (b)

None of the above

Question 6

Inflow and outflow of funds

Inflow and outflow of savings

Internal and external capital sources

Gross cash flow and net cash flow

Question 7

I, II and IV only

II, III and IV only

I and II only

III and IV only

Solution

Question 8

The company has declared $$40$$% on net profit as dividend

The company has declared $$40$$% of profit after tax as dividend

The company will provide dividend $$40$$% on issued capital

The company will provide dividend $$40$$% on paid-up capital

Solution

Question 9

Permanent capital

Temporary capital

Circulating capital

Gross cash inflow

Question 10

net current assets

net working capital

gross cash inflow

Either (a) or (b)

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