Financial Management Test

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Financial Management Test - 17

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Weekly Quiz Competition

Question 1
1 / -0

American Depositary Receipts (ADRs) are issued in _______.

A
Canada

B
China

C
India

D
USA

Solution

ADR stands for American Depositary Receipts. American Depositary Receipts are the Depositary receipts issued by banks in USA. It is a certificate which represents a specified number of shares by a foreign stock traded on the USA exchange.
Question 2
1 / -0

Which of the following formulae is related to operating leverage?

A
$$\frac {Contribution} {Operating\, profit}$$

B
$$\frac {Sales-Variable\, Cost} {Earnings\, before\, Interest\, and\, tax}$$

C
$$\frac {Percentage\, change\, in\, EBIT} {Percentage\, change\, in\, sales}$$

D
All of the above
Question 3
1 / -0

The term 'redeemable' is used for _______.

A
Preference share

B
Commercial paper

C
Equity shares

D
Public deposits

Solution

Commercial paper is issued by a firm to raise funds for a short period of time, the time can be ranging from 90 days to 364 days after which it has to be redeemed. Commercial paper is an unsecured promissory note.
Question 4
1 / -0

The term 'capital structure' implies ____________.

A
Share capital+Reserves+Long-Term Debts

B
Share Capital+Long and Short-Term Debts

C
Share Capital+Long-Term Debts

D
Equity and Preference Share Capital

Solution

“Capital structure of a company refers to the composition or makeup of its capitalization and it includes all long-term capital resources viz., loans, reserves, shares and bonds.” The capital structure is made up of debt and equity securities and refers to permanent financing of a firm.
Its composed of long-term debt, preference share capital and shareholders funds. For raising long-term finances, a company can issue three type of securities viz., equity shares, preference shares and debentures. A decision about the proportions among these types of securities refers to the capital structure of an enterprise.
Question 5
1 / -0

Funds required for purchasing current assets is an example of _________.

A
Fixed Capital Requirement

B
Ploughing Back of Profits

C
Working Capital Requirement

D
Lease Financing

Solution

Working capital of an enterprise or a company are the funds which are used for holding current assets such as bills receivables, stock of materials and for meeting current expenses like taxes, wages, salaries and rent.
Question 6
1 / -0

Degree of financial leverage is measured by :

A
$$\frac{EBIT}{EAT}$$

B
$$\frac{EBIT}{EBT}$$

C
$$\frac{EAIT}{EBT}$$

D
$$\frac{C}{EBIT}$$

Solution

Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity. The more debt financing a company uses, the higher its financial leverage. A high degree of financial leverage means high interest payments, which negatively affect the company's bottom-line earnings per share.
The formula for calculating a company's degree of financial leverage$$(DFL)$$ measures the percentage change in earnings per share over the percentage change in $$EBIT$$. $$DFL$$ is the measure of the sensitivity of $$EPS$$ to changes in $$EBIT$$ as a result of changes in debt.

Formula:
$$DFL$$ = $$EBIT$$ /$$EBT$$
Question 7
1 / -0

Internal sources of capital are those which are _______.

A
Generated through outsiders such as suppliers

B
Generated through loans from commercial banks

C
Generated through issue of shares

D
Generated from within the business

Solution

Internal sources of capital are those that are generated from within the business mainly through reinvestment of profits it is also referred as owner's investment.Retained profit, sale of fixed assets, debt collection are some of the internal sources of finance or capital.
Question 8
1 / -0

If the average collection period of a company is higher than the credit period extended by it,the firm is supposed to have a ___________.

A
Satisfactory liquidity position

B
Liquidity crunch

C
High liquidity

D
Collection period has no affect on liquidity

E
Either (A) or (C) above

Solution

If the average collection period is found to be consistently higher than the net credit period extended by the company to its customers, then the firm is supposed to have a liquidity crunch. In such a situation the collection efforts has to be made more effective as cash is locked up for a period more than what is warranted by the credit terms extended.
Question 9
1 / -0

The total risk of company can be broken down into

A
Business risk

B
Financial risk

C
Both

D
None
Question 10
1 / -0

Higher working capital usually results in _____________.

A
Higher Current Ratio, Higher Risk and Higher Profits

B
Lower Current Ratio, Higher Risk and Profits

C
Higher Equity, Lower Risk and Lower Profits.

D
Lower Equity, Lower Risk and Higher Profits.

Solution

Higher working capital usually results in Higher Current Ratio, Higher Risk and Higher Profits.
Working capital should neither be less or more than what is required. The amount of working capital should be optimum , so that neither profitability nor liquidity is affected.

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Financial Management Test - 17

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Financial Management Test - 17

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SHARING IS CARING

Question 1

Canada

China

India

USA

Solution

Question 2

$$\frac {Contribution} {Operating\, profit}$$

$$\frac {Sales-Variable\, Cost} {Earnings\, before\, Interest\, and\, tax}$$

$$\frac {Percentage\, change\, in\, EBIT} {Percentage\, change\, in\, sales}$$

All of the above

Question 3

Preference share

Commercial paper

Equity shares

Public deposits

Solution

Question 4

Share capital+Reserves+Long-Term Debts

Share Capital+Long and Short-Term Debts

Share Capital+Long-Term Debts

Equity and Preference Share Capital

Solution

Question 5

Fixed Capital Requirement

Ploughing Back of Profits

Working Capital Requirement

Lease Financing

Solution

Question 6

$$\frac{EBIT}{EAT}$$

$$\frac{EBIT}{EBT}$$

$$\frac{EAIT}{EBT}$$

$$\frac{C}{EBIT}$$

Solution

Question 7

Generated through outsiders such as suppliers

Generated through loans from commercial banks

Generated through issue of shares

Generated from within the business

Solution

Question 8

Satisfactory liquidity position

Liquidity crunch

High liquidity

Collection period has no affect on liquidity

Either (A) or (C) above

Solution

Question 9

Business risk

Financial risk

Both

None

Question 10

Higher Current Ratio, Higher Risk and Higher Profits

Lower Current Ratio, Higher Risk and Profits

Higher Equity, Lower Risk and Lower Profits.

Lower Equity, Lower Risk and Higher Profits.

Solution

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