FINANCIAL MANAGEMENT

FINAL EXAMINATION

NAME: Eneldas, Joyce D. SCORE_______

SECTION: BEN 31 DATE: 01/15/24

ANSWER THE FOLLOWING QUESTIONS:

1. What does Return On Investment (ROI) mean? Which investment has the highest
return? What is the safest investment with highest return?

Return on investment, or ROI, is a financial indicator that's used to assess how profitable an
investment in comparison to the price. It calculates the financial gains or losses relative to
the first investment, offering information about the venture's efficacy and profitability.
In essence, ROI calculates the financial return that an investment produces above its
original investment, assisting investors in evaluating the profitability and success of their
financial choices.

The best high-yield investment options are mutual funds, which enable several investors to
pool their funds and make diversified investments in a variety of market-linked securities,
including money market funds, debt instruments, and equity. Professional fund managers
oversee them and decide what to invest in on your behalf.

Money market accounts are among the safest investments with the highest yields
certificates of deposit and treasury bonds, but portfolio diversification among other
different investment types can help achieve a balance between profitability and safety.

2. How to calculate return on investment?

- ROI is calculated using the following formula: ROI = net investment gain/cost of
investment x 100. The amount gained from the investment and the amount spent on it
make up the net investment gain. The total amount of money invested in the project is
known as the investment. Evaluating the yield on a range of assets, including stocks,
business endeavors, real estate transactions, and more, is simplified and transparent by
applying the ROI formula. When evaluating the return on their investments, It benefits
businesses and investors. Furthermore, it can be used to assess the profitability of compare
the returns from different investment options and different expenses.

3. How to interpret return on investment?

- A positive return percentage indicates a profitable investment in terms of ROI

interpretation.
In contrast, a negative return indicates a loss. But it's important to take into account ROI's
limitations, as these comprise the need for exact calculation input data and the impossibility
of risk elimination. ROI is most useful in determining when something specific and
quantifiable is being described the financial gains and returns on an investment.

4. What is risk? Explain the different types of risk. What is the riskiest type of
investment?

- You have choices about what to do with your money when you invest. Any uncertainty
about your investments that could have a detrimental effect on your financial well-being is
considered risk. For instance, market conditions may cause the value of your investment to
increase or decrease (market risk).

- The various risk categories are divided into multiple groups. Market risk, credit risk,
operational risk, strategic risk, liquidity risk, and event risk are some of the categories into
which risks are divided. One of the risk categories that every business should prioritize is
financial risk. Market movements are the source of financial risk, and there are many
different factors that can influence market movements. This allows for the classification of
financial risk into a number of different categories, including legal, operational, market,
credit, and liquidity risk.

- Examples of high-risk investments are as follows, though the names and descriptions of
the products are subject to frequent changes: Mini-bonds, sometimes referred to as high
interest return bonds, Cryptoassets, or cryptos

5. How to calculate and avoid risk in investment?

- Calculating the expected value of an investment is a well-liked technique for risk

assessment and calculate the risk using probability after that. The monetary benefit of every
possible result is multiplied by the probability that it will reach the expected value, and the
sum of all of them. The risk-reward computation, which splits the reward (net profit) by the
expense of the greatest risk is yet another frequently employed risk indicator. There are
various methods to reduce the risk associated with your investments by diversifying your
portfolio and spreading your holdings spanning multiple asset classes, such as bonds, stocks,
and short-term assets money market funds, to mitigate the impact of fluctuations in the
market on the overall value of your portfolio. evaluating a person's risk appetite and risk
tolerance capacity, which are determined by one's budgetary goals. Low-risk investments
are the better option for those who are risk averse. More can be invested in high-risk assets
by those who can take on more risk. To mitigate danger and protect the kind of returns you
desire; you should also monitor the market and your assets in its entirety.

6. Define financial statement analysis. Why is financial statement analysis important?

What are the objectives of financial statement analysis?
 - The process of examining a company's financial statements in order to make decisions is
known as financial statement analysis. It is used by external stakeholders to assess financial
performance and business value as well as to comprehend the general well-being of an
organization.

- Knowing the importance of financial statement analysis that help get information on a
company's financial performance, including its profitability, liquidity, solvency, and
efficiency. Businesses can spot trends, assess performance, and make wise decisions by
using financial analysis.

- Financial analysis facilitates the evaluation of your company's financial performance,

informed decision-making, the identification of your strengths and weaknesses, future
planning, effective stakeholder communication, and regulatory compliance.

7. What are the tools or techniques of financial statement analysis? Define each tools
and techniques.

- There are five commonplace approaches to financial statement analysis: horizontal

analysis, vertical analysis, ratio analysis, trend analysis and cost-volume profit analysis. With
each technique, a more intricate and sophisticated financial profile can be constructed.

 When performing a horizontal analysis, previous data—such as ratios and line items—
are compared. The results are typically shown as a percentage increase over the same line
item in the base year. This makes it simple for financiers to identify trends, growth
patterns, and project future values. This kind of analysis also makes it simpler to compare
growth rates among competitors in the same industry and provides insight into an
organization's operational outcomes, including whether it is operating profitably and
efficiently.
 A financial statement's vertical analysis is a proportional analysis in which each line item is
expressed as a percentage of another item. Every line item on a balance sheet is expressed
as a percentage of total assets, whereas every line item on an income statement is
expressed as a percentage of gross sales. This provides analysts with a comprehensive
understanding of overall revenue and expense performance.
 Ratio analysis is used to identify a broad upward or downward trend and enables
meaningful comparisons between the various components of a financial statement. It's a
quick way to get a general idea of how financially sound a company is, but it can also reveal
more specific relationships between data points, like debt to equity or price to earnings, as
well as liability areas like employee turnover. Setting performance targets depends on the
ability to compare a ratio's calculated value to the prior period.
 Trend analysis forecasts the long-term direction of market sentiment by utilizing historical
data, such as price movements and trade volume. It is predicated on the notion that past
events will recur in the future, enabling a business to more accurately forecast and get
ready for upward trends and reversals within specific market segments. Trend analysis is a
 helpful strategy because it helps investors make money by following trends rather than
going against them.
 Businesses can gain a better understanding of the relationship between sales, costs, and
business profit by using this analysis technique. In order to assist business leaders in more
effectively planning and projecting profit, it looks at fixed and variable costs as well as the
relationship between sales and variable costs.

8. What are the limitations of financial statement analysis?

- Because financial statements are based on historical data, they may not fully reflect the
situation of the market now or forecast performance in the future. Additionally, because
When inflationary effects are ignored, data between sources might not be comparable.
organizations. A company's financial statements only offer a partial picture of its financial
performance and health, and it might not get all the necessary data. They also not consider
qualitative factors that have the potential to impact a company's performance, like market
trends, brand reputation, or management caliber. That being said, financial statements may
not provide a complete picture or be timely or accurate for a brief period of time depiction
of an organization's financial performance or cash flows.

9. What is meant by financial planning? What are the main purposes of financial
planning and control?

- The process of evaluating a company's present financial status in order to determine

future financial objectives and how to meet them is known as financial planning. The
financial plan itself is a record that acts as a growth strategy for the finances of an
organization.

- It sets significant short- and long-term financial objectives. It makes clear what steps you
need to take in order to fulfill your different financial objectives. A financial plan can help
you concentrate on critical, short-term actions like debt reduction and emergency savings
building.

10. What are the components of financial plan? What are the steps in financial planning
process?

- A financial plan is a thorough summary of your current financial status, your financial goals
and any strategies you may have for achieving them. Details regarding your financial
aspects such as debt, investments, insurance, savings, and cash flow should all be included
in a solid financial plan. Budgeting and cash flow, investments, individual values, and risk
retirement planning, insurance and management, tax planning, debt management, and
estate an effective financial plan must include planning. To assist in achieving financial
objectives, financial planning is an ongoing process that takes into account a person's entire
financial situation.
- The first step in financial planning is goal-setting because it guides both short- and long-
term and long-range plans. Second, assessing revenue, assets, and debts to determine
current state of finances. Third, create a comprehensive plan that accounts for budgeting,
savings, and other financial aspects into consideration. Fourth, implementing the plan by
creating the preparations needed to put it into practice. Fifth, monitoring advancements
and tracking to make sure the objectives are met. Lastly, be prepared to modify your
financial plans as objectives and conditions do.