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Objective Questions and Answers of Financial Management
1.
State whether each of the following statements is True (T) or
False(F)
(i) Fina
ncial statements are an important source of info
rmatio
n to shareholders and stakeholders.
(ii) Both
the
BS and the I
S shows the financial position of fen at the end of the year.
(ii) BS of
a company must be prepared in the horizontal
format only.
(iv) Prepar
ation of Profit & Loss Appropriation A/c is a
require
ment under the Companies Act, 1956.
(v) Ratio
Analysis is the
only technique of analysis of
financi
al statements.
(vi) Met
hodical presentation of financial statements
helps
in Nation of various ratios.
(vii) In Common
Size Statements, each item is expressed as
a
percentage
of
some common
items
(total).
(viii) Trend
Percentage Analysis helps in Dynamic Analysis.
(ix) Liquidity Ratios help in analysing the cash position of the firm.
(x) In calculation of Acid Test Ratio, Inventory is included in current assets.
(xi) Working Capital Turnover Ratio may be classified as a
n Activity Ratio.
(xii) Debt
-
Equity Ratio is a measure of long
-
term solvency of a firm.
(xiii) GP Ratio and NP Ratio give the profitability of the firm from the point of view of the shareholders.
(xiv) Return on Equity and Earnings
per
Share are one and th
e same thing.
(xv) DU PONT Analysis looks into the elements of profits.
(
xvi) Ratio Analysis provides the solution to the financial problems.
Answers:
(i) T, (ii) F, (
ii
i) F, (iv) F, (v) F, (vi) T, (vii) T, (viii) T, (ix) F, (x) F, (xi) T, (xii) T, (xiii)
F, (xiv) F, (xv) T,
(xvi) F.]
2.
Multiple Choice Questions:
1. Accounting Ratios are important tools used by
(a) Mana
gers,
(b) Re
searchers,
(c)Investors, (d) All of the above
2. Net Profit Ratio S
ignifies:
(a) Ope
rational Profitability,
(b) Liquidity
Positi
on,
(c)
B
i
g
-
t
erm Solvency,
(d)Pro
fit
for Lenders.
3.
Working Capital Turnover measures the relationship of
Working Capital with:
(a)
Fixed Assets,
(b)
Sales,
(c)
Purchases,
(d)
Stock.
4.
In Ratio Analysis, the term Capital Employed refers
to:
(a)
Equity Share Capit
al,
(b)
Net worth,
(c)
Shareholders' Funds,
(d)
None of the above.
5.
Dividend Payout Ratio
is:
(a)
PAT
Capital
,
(b)
DPS
÷
EPS,
(c)
Pref. Dividend
÷
PAT,
(
d
) Pref. Dividend
÷
Equity Dividend.
6.
DU PONT Analysis deals with:
(a)
Analysis of Current Assets,
(b)
Analys
is of Profit,
(c)
Capital Budgeting,
(d)
Analysis of Fixed Assets.
7.
In Net Profit Ratio, the denominator
is:
(a)
Net Purchases,
(b)
Net Sales,
(c)
Credit Sales,
(d)
Cost of goods sold.
8.
Inventory Turnover measures the relationship of inven
tory with:
(a)
Av
erage Sales,
(b)
Cost of Goods Sold,
(c)
Total Purchases,
(d)
Total Assets.
9.
The term 'EVA' is used
for:
(a)
Extra Value Analysis,
(b)
Economic Value Added,
(c)
Expected Value Analysis,
(d)
Engineering Value Analysis.
10.
Return on Investment may be improved
by:
(a)
Increasing Turnover,
(b)
Reducing Expenses,
(c)
Increasing Capital Utilization,
(d)
All of the above.
11.
In Current Ratio, Current Assets are compared
with:
(a)
Current Profit,
(b)
Current Liabilities,
(c)
Fixed Assets,
(d)
Equity Share Capital.
12.
ABC Ltd. ha
s a Current Ratio of
1.5:
1 and Net Current
Assets of Rs. 5,00,000. What are the Current
Assets?
(a)
Rs. 5,00,000
, (b)
Rs. 10,00,000
, (c)
Rs. 15,00,000
, (d)
Rs. 25,00,000
13.
There is
deterioration
in the management of working
capital of XYZ Ltd. What does it
refer
to?
(a)
That the Capital Employed has reduced,
(b)
That the Profitability has gone up,
(c)
That debtors collection period
has increased,
(d)
That Sales has decreased.
14. Which of the following does not help to increase Curre
nt
Ratio?
(a)
Issue of Debenture
s to buy Stock
, (b)
Issue of Debentures to pay Creditors,
(c)
Sale of Investment to pay
Creditors,
(d)
Avail Bank Overdraft to buy Machine.
75. Debt to Total Assets Ratio can be improved by:
(a)
Borrowing More,
(b)
Issue of Debentures,
(c)
Issue of Equity Shares,
(d
)
Redemption of Debt.
16.
Ratio of Net Income to Number of Equity Shares
known as
:
(a)
Price Earnings Ratio,
(b)
Net Profit Ratio,
(c)
Earnings per Share,
(d)
Dividend per Share.
17.
Trend Analysis helps
comparing performance of a firm
(a)
With other firms,
(b)
O
ver a period of firm,
(c)
With other industries,
(d)
None of the above.
18.
A Current Ratio of Less than One means:
(a)
Current Liabilities < Current Assets,
(b)
Fixed Assets > Current Assets,
(c)
Current Assets < Current Liabilities,
(d)
Share Capital > Current A
ssets.
19.
A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00
,000;
Gross Profit of Rs. 2,00,000 and Expenses of Rs.
1,
00,000.
What is the Net Profit Ratio?
(a)
20%,
(b)
50%,
(c)
10%,
(d)
40%.
20.
XYZ Ltd. has earned 8% Return on Total Asses
ts of
Rs. 50,00
,000 and has a Net Profit Ratio of 5%. Find out
the
Sales of the firm
. (a)
Rs. 4,00,000,
(b)
Rs. 2,
50,000,(c)Rs. 80,00,000,(d)Rs. 83,33,333.
21.
Suppliers and Creditors of a firm are interested in
(a)Profitability Position,(b)Liquidity Position,(c)
Market
Sha
re Position,
(d
) Debt Position.
22. W
hich of the following is a measure of Debt Service
c
apacity of a
firm?
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(a)
Current Ratio,
(b)
Acid Test Ratio,
(c)
Interest Coverage Ratio,
(d)
Debtors Turnover.
23. G
ross Profit Ratio for a firm remains same but the Net
Pr
o
fit
Ratio is decreasing. The reason for such
behavior
could
be:
(a)
Increase in Costs of Goods Sold,
(b)
If Increase in Expense,
(c)
Increase in Dividend,
(d)
Decrease in Sales.
24. Wh
ich of the following statements is correct?
(a)
A Higher Receivable Turnove
r is not desirable,
(b)
Interest Coverage Ratio depends upon Tax Rate,
(c)
Increase in Net Profit Ratio means increase in Sales,
(d)
Lower Debt
-
Equity Ratio means lower Financial Risk.
25. De
bt to Total Assets of a firm is .2. The Debt to Equity boo would
b
e:
(a)
0.80,
(b)
0
.
25,
(c)
1.00,
(d)0.75
26. Whi
ch of the following helps analysing return to equity
Sha
reholders?
(a)
Return on Assets,
(b)
Earnings Per Share,
(c)
Net Profit Ratio,
(d)
Return on Investment.
27.
Return on Assets and Return on Investment Rat
ios be
long to:
(a)
Liquidity Ratios,
(b)
Profitability Ratios,
(c)
Solvency Ratios,
(d)
Turnover.
28.
XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to
1.3 Industry average. It means that the firm
has:
(
a)
Higher Liquidity,
(b)
Higher Financial Risk,
(c)
High
er Profitability,
(d)
Higher Capital Employed.
29.
Ratio Analysis can be used to study liquidity, turnover,
profitability, etc. of a firm. What does Debt
-
Equity
Ratio
help to study?
(a)
Solvency,
(b)
Liquidity,
(c)
Profitability,
(d)
Turnover,
30.
In Inventory Tur
nover calculation, what is taken in the
numerator?
(a)
Sales,
(b)
Cost of Goods Sold,
(c)
Opening Stock,
(d)
Closing Stock.
[Answers : 1. (d); 2. (a) 3. (a); 4. (d); 5. (b); 6. (b); 7. (b); 8. (b); 9. (b); 10. (d); 11. (b); 12. (c); 13. (c); 14. (d)
; 15. (d);
1
6. (c); 17. (b); 18. (c);19. (a); 20. (c);21. (b);22. (c);23. (b);24. (d);25. (b);26. (b); 27. (b); 28. (b); 29. (a); 30. (b)
].
3. State
whether each of the following statements is True (T) or F
alse(F)
(i)
Financial Planning deals with the preparation of f
inan
cial statements.
(ii)
Cash planning is a part of long
-
term financial planning.
(iii)
Financial
forecasting
is followed by financial planning.
(iv)
Budgeting helps in establishing the responsibilities at different levels.
(v)
A budget is a collation of
forecasts and plans expressed
in
financial
terms.
(vi)
Cash budget is also known as Master Budget.
(vii)
Sales and Production Budgets are Capital Budgets.
(viii)
Rolling Budget System, budget for every
month
is prepared.
(ix)
Cash budget is an important el
ement of profit planning.
(x) Financial planning is incomplete without cash budget.
(xi)
Projected Financial Statements are prepared on the basis of opening financial statements.
(xii)
Projected Financial Statements can be prepared only if several other b
udgets are available.
(xiii) There is no assumption required for the preparation of projected financial statements.
(xiv) Percentage of Sales method can be used to prepare both the PIS and PBS.
[
Answers:
(i) F, (ii) F, (
ii
i) T, (iv) T, (v) T, (vi) F, (vii)
F, (viii) F, (ix) F, (x) T, (xi) F, (xii) T, (xiii) F, (xiv)
T
]
4.
Multiple choice questions
1. Fina
ncial Planning deals with:
(a)
Preparation of Financial Statements,
(b)
Planning for a Capital Issue,
(c)
Preparing Budgets,
(d)
All of the above.
2. Financi
al
planning starts with the preparation of:
(a)
Master Budget,
(b)
Cash Budget,
(c)
Balance Sheet,
(d)
None of the above.
3. Which
of the following is not a part of Master Budget?
(a)
Projected Balance Sheet,
(b)
Capital Expenditure Budget,
(c)
Operating Budgets,
(
d
)
Budget Manual.
4.
Which of the following is not shown in Cash Budget?
(a)
Proposed Issue of Capital,
(b)
Loan Repayment,(c)
Interest on loan,(d)
Depreciation.
5.
During year 1, the sales and Cost of goods sold were Rs. 6,00,000 and Rs. 4,30,000 respecti
vely. Next year, the
sales are expected to increase by 10%. The Cost of goods sold for next year would
be:
(a)
Rs. 4,30,000,(b)
Rs. 4,90,000,(c)
Rs. 4,73,000,(d)
Rs. 4,40,000.
6.
In 'Percentage of Sales' method of preparation of Pro
jected Financial Statem
ents, the Operating Expenses
should be projected on the basis
of:
(a)
% of Profit before tax,
(b)
% of Cost of goods Sold,
(c)
% of Gross Profit,
(d)
% of Sales.
7.
In'% of Sales' method, various items of balance sheet are estimated on the basis of.
(a) %
of Share Capital,
(b)
% of Sales in current year,
(c)
% of Fixed Assets,(d)
% of Sales in preceding year.
8.
In Projected Balance Sheet, a balancing
figure:
(a)
May appear on Assets Side,(b)
May appear on Liabilities Side,(c)
Would never appear,(d)
Any of
(a) or (&).
9.
Procedure for preparation of 'Projected Financial State
ments' should start from:
(a)
Projection of Fixed Assets,(b)
Projection of Capital,(c)
Projection of Sales,(d)
Projection of Profit.
10.
Which of the following is not considered which p
reparing cash
budget?
(a)
Accrual Principle,(b)
Difference in Capital, and Revenue items, (c)
Conservation Principle, (
d
)
All of the
above.
11.
Which of the following may not be apart of proje
cted
Financial
Statements?
(a)
Projected Income Statement,(b)
Pr
ojected Trial Balance,(c)
Projected Cash Flow Statement,(d)
Projected
Balance Sheet.
12.
Process of Financial Planning ends
with: [Show Less]