Financial management

1Q: Explain the various functions of financial management.

Ans: Financial Management: Financial Management is concerned with procurement of
funds and its proper utilization with an intention to maximize the wealth of the
owners of a concern. Initially, it was the concept that financial management is
concerned with arranging the short-term or long-term funds for the organization.
According to Solomon, “Financial Management is concerned with the
efficient use of important economic resources, named as capital fund.”
Functions of Financial Management: The functions of Financial Management are
discussed below:
1. Estimating the amount of capital required: This is the foremost function
of the financial manager. Business firms require capital for: i) purchase of
fixed assets, ii) meeting working capital requirements, and iii) modernization
and expansion of business.
2. Determining capital structure: Once the requirement of capital funds has
been determined, a decision regarding the kind and proportion of various
sources of funds has to be taken. For this, the financial manager has to
determine the proper mix of equity and debt and short-term and long-term
debt ratios. This is done to achieve a minimum cost of capital and maximize
shareholders’ wealth.
3. Choice of sources of funds: Before the actual procurement of funds, the
finance manager has to decide the sources from which the funds are to be
raised. The management can raise finance from various sources like equity
shareholders, preference shareholders, debenture holders, banks and other
financial institutions, public deposits, etc.
4. Procurement of funds: The financial manager takes steps to procure the
funds required for the business. It might require negotiation with creditors
and financial institutions, issue of prospectus, etc. The procurement of funds
depends not only on the cost of raising funds but also on other factors like
general market conditions, choice of investors, government policy, etc.
5. Utilization of funds: The funds procured by the financial manager are to be
prudently invested in various assets so as to maximize the return on
investment. While taking an investment decision, management should be
guided by three important principles: safety, profitability, and liquidity.

2Q: “Wealth maximization is dependent on profit maximization” – Discuss.

Or
What is meant by profit maximization of a firm?
Ans: Profit maximization is one of the basic objectives of financial management. Profit
maximization implies that the financial managers have to make their decisions in a
manner such that the wealth is maximized. Profit Maximization can be the sole
objective of a firm in the short run but this objective cannot be carried in long run.
Wealth maximization and profit maximization are two sides of a coin. Without
focusing on the planning of profit maximizing, neither management of a concern
can improve its market value i.e. the value of its wealth. Wealth can be maximize
when the financial performance is closer to financial target i.e. increasing its
profitability, through budgets and other devices of financial control. Hence, it can
also be said that the wealth maximization objective can be attained only by profit
maximization. Higher the profit higher the wealth. Thus wealth maximization is
dependent on profit maximization.
3Q: (a) Operating risk and leverage
(b) Financial risk and leverage
(c) Combined risk and leverage
Ans:
(a) Operating leverage: Operating leverage is a cost accounting formula that
measures the degree to which a firm or project can increase operating income
by increasing revenue. A business that generates sales with a high gross
margin and low variable costs has high operating leverage.
(b) Financial leverage: Financial leverage is the use of debt to acquire
additional assets or funds projects. To create debt, individuals or businesses
borrow money. In return, borrowers promise lenders to pay back the principal
amount and interest on their loans. Financial leverage is also leverage or
trading on equity.
(c) Combined leverage: Combined leverage is a leverage ratio that summarizes
the combined effect that the degree of operating leverage and the degree of
financial leverage has on earnings per share, given a particular change in
sales. This ratio can be used to help determine the most optimal level of
financial and operating leverage to use in any firm.

4Q: write short notes on operating cycle?

Ans: The operating cycle is the average period of time required for a business to make
an initial outlay of cash to produce goods, sell the goods and receive cash from
customers in exchange of the goods. This is useful for a company will need in order to
maintain or grow its business.
A company with an extremely short operating cycle requires less cash to maintain its
operations, and so can still grow while selling at relatively small margins. Conversely, a
business may have fat margins and yet still require additional financing to grow at even
a modest pace, if its operating cycle is unusually long. If a company is a reseller, then
the operating cycle does not include any time for production - it is simply the date from
the initial cash outlay to the date of cash receipt from the customer.

Research methods
1Q: Define Research? What are the features of research ?

Ans: In the broadest sense of the word, the definition of research includes any gathering
of data, information and facts for the advancement of knowledge.

Research is a Systematic investigative process employed to increase or revise current

knowledge by discovering new facts. It is divided into two general categories:

(1) Basic research is inquiry aimed at increasing scientific knowledge , and

(2) Applied research is effort aimed at using basic research for solving problems or
developing new processes, products, or techniques.

according to Kothari (2002) research is a systematic investigation to find solution to a

problem.
Features of research:

1. Systematic: This implies that the procedure adopted to undertake an

investigation follows a certain logical sequence. The different steps cannot be
taken in a haphazard way. Some procedures must follow others.
2. Valid and verifiable: This concept implies that whatever you conclude on the
basis of your findings is correct and can be verified by you and others.
3. Controlled: All variables except those that are experimented upon are kept
constant.
4. Analytical: There is a critical analysis of all data used to avoid error in their
interpretation.
5. Unbiased & logical: all findings must be logical and impartial.
6. Original work: Must not be copied. It must be an original study.
7. Done by an expert: the researcher must know the techniques and procedure of
research.

2Q: discuss the steps of the research.

Ans: There are practical steps through which you must pass in your research journey in
order to find answers to your research questions. The path to finding answers to your
research questions constitutes research methodology. A general set of sequential
components of research is the following:

1. Selection of a research topic: On what topic shall I carry out research?

2. Definition of research: Exactly what information do I want to collect?
3. Literature survey and reference collection: What research information has
already been collected on this topic?
4. Assessment of the Research Gap: What information has Yet to be found out.
5. Formulation of hypotheses: A primary assumption which needs to be tested.
6. Research design: A detailed plan about how I shall carry out the work.
7. Determining the sample: Sample survey or Census Enquiry.
8. Data collection: Primary/ secondary Data, Questionnaires, Survey
9. Interpretation of result: Finding & analyzing the result.
10. Report writing: Preliminary pages, main text, end of the report.

3Q: what do you mean by primary & secondary Data?

Ans: Primary & secondary Data for research:

Primary Data: primary data are first hand information. These information are collected
directly from the source by means of field studies. Primary data are original and are like
raw materials. It is the crudest from of information. The investigator himself collects
primary data or supervises its collection. It may be collected on a sample or census basis
or from case studies.

Example: Information collected by research for the first time about the likings regarding
laptop brands among students in a management collage.

Secondary Data:

Secondary data are the second hand information. The data which have already been
collected and processed by some agency or persons and are not used for the first time
are termed as secondary data. According to M.M. Blair “ secondary data are those
already in existence and which have been collected for some other purpose.” Secondary
data may be abstracted from existing records, published sources or unpublished sources.

Example: Information collected from Panchayat office regarding the income sources of
individuals in a village. (This information is already available with the panchayat office.)

4Q: Distinguish between Questionnaire and a schedule.

Ans: Difference between questionnaire and schedule:

Sl.no. Questionnaire Schedule

1. Questionnaire is generally sent A schedule is generally filled by the
through mail to informants to be research worker or enumerator, who
answered as specified in a covering can interpret the questions when
letter, but otherwise without further necessary.
assistance from the sender.
2. It is not clear that who replies. Identity of respondent is not known.
3. The questionnaire method is likely Information is collected well in time
tobe very slow since many as they are filled by enumerators.
respondants do not return the
questionnaire.
4. No personal contact is possible in case Direct personal contct is established.
od questionnaqire as the
questionnaires are sent to
respondents by post who also in turn
returns the same by post.
5. This method can be used only when The information can be gathered even
respondants are literate and when the respondents happen to be
cooperative. illiterate.
6. Wider and more representative There remains the difficulty in
distribution of sample is possible. sending enumeerators over a
relatively wider area.
7. The success of questionnaire methods It depends upon the honestly and
lies more on the quality of the competence of enumerators.
questionnaire itself.
8. The physical appearance of This may not be the case as
questionnaire must be quite schedules are to be filled in by
attractive. enumerators and not by respondents.

5Q: discuss about the layout of a research report.

Ans: There is scientific method for the layout of research report. The layout of research
report means as to what the research report should contain. The contents of the
research report are noted below:

1. Preliminary page: these must be title of the research topic and data. There must
be preface of foreword to the research work. It should be followed by table of
contents. The list of tables, maps should be given.
(a) Cover page
(b) Title page
(c) Certificate or statement
(d) Index(brief contents)
(e) Table of contents (detailed index)
(f) Acknowledgement
(g) List of tables and figures used
 (h) Preface/forwarding/ introduction
(i) Summery report
2. Main text: it provides the complete outline of research report along with all
details. The title page is reported in the main text. Details of text are given
continuously as divided in different chapters.
(a) Introduction
(b) Statement of the problem
(c) The analysis of data
(d) The implications drawn from the results
(e) The summary
3. End matter: It covers releyant appendices covering general information, the
concepts and bibliography. The iondex may also be addecd to the report.
(a) Copies of forms used
(b) Tables not includsed in findings
(c) A copy of questionnaire
(d) Detail of sampling and rate of response.
(e) Statement of expenses.
(f) Bibliography-list of books, magazines,journals, and other reports
(g) Any other relevant information