CUET Entrepreneurship-Chapter-Financial Planning and Management

(a)

Exp: Financial management is the activity which is concerned with acquisition and conservation of capital funds in meeting financial needs and overall objectives of the business enterprise.

(a)

Exp: Financial planning is an intellectual process which helps in deciding in advance the capitalization and capital structure of the enterprise with the help of predetermined objectives, policies, procedures, programmes and budgets.

(c)

Exp: The capital structure of an enterprise refers to the decisions regarding the type of securities to be issued and proportionate amounts that should make up the capitalization.

(b)

Exp: The entrepreneurs exercise control over the enterprise’s funds through various techniques like ratio analysis, profit planning and control, financial forecasting etc.

(a)

Exp: Financial planning is one of the important areas of financial management for an entrepreneur. One of the main objectives of financial planning is the determination of the amount of capital required by the enterprise.

(a)

Exp: The first and the most important function is the estimation of short term and long term requirements of capital in the enterprise. This is done by the entrepreneurs through a careful study of the nature of business, scale of operation, type of manufacturing process, turnover of working capital etc.

(b)

Exp: Every entrepreneur requires money or funds to run an enterprise.Thus, availability of effective business finance is very crucial for the survival of growth of a business.

(c)

Exp: Oneof the objectives of financial management is profit maximization by procuring the optimum amount of capital amount of capital by minimum liabilities of the company and having the best utilization of all sources of finance available to the enterprise.

(b)

Exp: An objective of financial management is to minimize the risks by anticipating risks and their possible solutions or remedies, which is required for proper functioning of the enterprise.

(a)

Exp: It is not possible for an enterprise to survive if it is not in a position to meet its current or immediate financial commitments. The maintenance of liquid assets is one of the main objective of financial management.

(c)

Exp: In a joint stock company, the promoters, directors with the help of finance managers estimate the capital requirements of the enterprise.

(a)

Exp: The preparation of cash forecasts and cash budgets, as well as, cash flow and funds flow statements are done in order to maintain the liquid assets of an enterprise. For the survival of an enterprise, it is important that it should be able to meet its current or immediate financial commitments.

(c)

Exp: Short term sources of finance of an enterprise are advances from customers, trade credit from suppliers, discounting bills of exchange, bank overdrafts, public deposits for period not exceeding one year etc.

(a)

Exp: Financial planning is an intellectual process which helps in deciding in advance the capitalization and capital structure of the enterprise with the help of predetermined objectives, policies, programmes and budgets.

(b)

Exp: Trading on equity is an arrangement under which the entrepreneur himself or with the help of finance manager raises funds by issuing securities which carry a fixed rate of interest or dividend which is less than the average earnings of the enterprise to increase the return on equity.

(d)

Exp: The cost of capital should be low in a good capital structure. There should be an appropriate mix of debt and equity in a sound capital structure. The debt and equity differ in cost and risk. Thus, the capital structure should be such which increases the value of equity share or maximizes the wealth of equity shareholders.

(b)

Exp: Stability of sales plays a very crucial role in the planning of capital structure. If a company enjoys a growing market and high sales turnover, it will not face any difficulty in meeting its fixed commitments. In such a case, a company is in a position to employ more debts in its capital structure.

(a)

Exp: It has been generally observed that small enterprises use their own funds or sources as well as retained earnings because it is very difficult for them to issue shares or get loans from public, banks, and financial institutions.

(a)

Exp: Stability of sales plays a very important role in the planning of capital structure. So, when a company experiences a situation, where its sales are unstable and fluctuating, more debt in the capital structure is not advisable.

(c)

Exp: It is very necessary for the entrepreneurs of both small and large scale enterprises to study carefully and critically the market conditions and the economy. A large scale enterprise can study the trend of the capital market through the stock exchange.

(b)

Exp: It has been observed that during depression, the investors prefer to invest money in debentures, preference shares or public deposits as the market is unstable and investor’s main objective is security of their investment.

(a)

Exp: An inflationary situation in the economy induces as well as reflects growth thus; investors in order to gain from the situation prefer to invest in equity to earn higher return on their investment.

(c)

Exp: Financial leverage refers to the proportion of debt in the overall capital of an enterprise. Debt is a cheaper source of finance but it is very risky to involve more debt in capital structure.

(a)

Exp: The owners of the company gain or the earning per share is more when debt is involved in the capital structure. It has been proven that when a company with all equity capital, involves more of debt, it increases its earning per share.

(b)

Exp: An ideal financial plan is one in which the objectives and standards are clearly expressed in quantitative terms as far as possible. It should be simple, appropriate, economical and flexible.

(a)

Exp: The capital structure of an enterprise should be such that it is in a position to maintain a proper balance between the inflow and outflow of cash. Cash flow ability of an enterprise plays an important role in determining the composition of capital.

(c)

Exp: Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business referred as the retained earnings, or it can be paid to the shareholders as a dividend.

(a)

Exp: The preferred stockholders get priority when it comes to the payment of dividends. In the event of a company's liquidation, preferred stockholders get paid before those who own common equity. In addition, if a company goes bankrupt, preferred stockholders enjoy priority in distribution of the company's assets; while holders of common equity do not receive corporate assets unless all preferred stockholders have been compensated, thus are called residual in nature.

(a)

Exp: An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.

(b)

Exp: Financial risk is the additional risk a shareholder bears when a company uses debt in addition to equity financing. Companies that issue more debt instruments would have higher financial risk than companies financed mostly or entirely by equity.

(c)

Exp: An enterprise’s management aims at wealth maximization, which refers to maximization of the net wealth of the company’s share holders. Wealth maximization is possible only when the company pursues policies that would increase the market value of shares of the company.