FINANCIAL Management - Short Question Answer
Below are some of the important Short Questions with Answers which will help students to answer it
correctly in their University Written Exam.
1. Do you follow the stock market? Which stocks in particular?
As a financial analyst, following the stock market proves to be beneficial. always be up-to-date
with the stocks.
2. A company receives a dividend of 500 USD on its investment in other company’s share will it be Cash
inflow from operating or investing activities in case of a. (i) Finance Company. (ii) Non-Finance Company.
It will be operating activities in case of a finance company and investing activities in case of
non-Financing Company.
3. Why is the cash flow statement not a suitable judge of profitability ,?
Cash flow statement is not a judge of profitability.
Cash Flow statement is prepared on cash basis of accounting but profit is calculated on accrual
basis.
4. Under which accounting standard , cash flow statement is prepared ?
Under accounting standard-3(Revised).
5. Why do we add back non cash items to net profit while calculating cash flow from operating activities.
Non cash items reduce the net profit without reducing the cash balance.
6. How will you classify loans given by HDFC while preparing cash flow statement.
As Operating Activities.
7. How will you classify deposits by customers in SBI while preparing cash flow statement.
Operating Activities
8. Where will you show purchase of furniture in cash flow statement ?
As Outflow under Investing Activities.
9. Give examples of non cash transactions.
Give any two examples-
i. Acquisition of fixed asset by issue of debentures or
ii. Conversion of debentures into
, 10. Give four example of movement between cash and cash equivalents.
Cash deposited into bank, Cash withdrawn from bank for office use, purchase of short term
marketable securities, , sale of short term marketable securities
11. Give one example each of an extra ordinary item under operating, investing and financing activity.
Examples of extraordinary items under:-
•
a. Examples of extraordinary items under:-
▪ Operating activity – claim received from insurance company against loss of
▪ Investing activity – amount of compensation received against acquisition of land
belonging to the
▪ Financing activity – payment for buy-back of equity shares of the
12. Cash flow from operating Activities + Cash flow from Investing Activities + Cash flow from Financing
Activities = Net Increase /Decrease in cash and Cash Equivalents.
13. What are the two methods which can be employed to calculate net cash flow from operating activities
?
The two methods which can be employed to calculate net cash flow from operating activities are:
1. Direct Method and
2. Indirect Method
14. What do you understand by the cost of capital?
The cost of capital to a company is the rate of return it must earn in order to satisfy the
expectation of investors who provide long term funds to the firm. Cost of capital is a
concept in financial management linking the investment and financing decisions.
15. Why is the cost of capital important?
It is important for three reasons:
1. For proper analysis of capital expenditure decisions, which are of prime importance to a firm, an
estimate of cost of capital is required. The cost of capital is the discount rate used in NPV
calculations and also the financial yardstick against which rate of return is evaluated.
ADVERTISEMENTS:
2. Several other decisions like leasing, long ten, financing and working capital policy, require
estimates of cost of capital.
3. In order to maximize the value of the firm the costs of all inputs, including capital input, must be
minimum and in this context the should be able to measure the cost of capital.
Below are some of the important Short Questions with Answers which will help students to answer it
correctly in their University Written Exam.
1. Do you follow the stock market? Which stocks in particular?
As a financial analyst, following the stock market proves to be beneficial. always be up-to-date
with the stocks.
2. A company receives a dividend of 500 USD on its investment in other company’s share will it be Cash
inflow from operating or investing activities in case of a. (i) Finance Company. (ii) Non-Finance Company.
It will be operating activities in case of a finance company and investing activities in case of
non-Financing Company.
3. Why is the cash flow statement not a suitable judge of profitability ,?
Cash flow statement is not a judge of profitability.
Cash Flow statement is prepared on cash basis of accounting but profit is calculated on accrual
basis.
4. Under which accounting standard , cash flow statement is prepared ?
Under accounting standard-3(Revised).
5. Why do we add back non cash items to net profit while calculating cash flow from operating activities.
Non cash items reduce the net profit without reducing the cash balance.
6. How will you classify loans given by HDFC while preparing cash flow statement.
As Operating Activities.
7. How will you classify deposits by customers in SBI while preparing cash flow statement.
Operating Activities
8. Where will you show purchase of furniture in cash flow statement ?
As Outflow under Investing Activities.
9. Give examples of non cash transactions.
Give any two examples-
i. Acquisition of fixed asset by issue of debentures or
ii. Conversion of debentures into
, 10. Give four example of movement between cash and cash equivalents.
Cash deposited into bank, Cash withdrawn from bank for office use, purchase of short term
marketable securities, , sale of short term marketable securities
11. Give one example each of an extra ordinary item under operating, investing and financing activity.
Examples of extraordinary items under:-
•
a. Examples of extraordinary items under:-
▪ Operating activity – claim received from insurance company against loss of
▪ Investing activity – amount of compensation received against acquisition of land
belonging to the
▪ Financing activity – payment for buy-back of equity shares of the
12. Cash flow from operating Activities + Cash flow from Investing Activities + Cash flow from Financing
Activities = Net Increase /Decrease in cash and Cash Equivalents.
13. What are the two methods which can be employed to calculate net cash flow from operating activities
?
The two methods which can be employed to calculate net cash flow from operating activities are:
1. Direct Method and
2. Indirect Method
14. What do you understand by the cost of capital?
The cost of capital to a company is the rate of return it must earn in order to satisfy the
expectation of investors who provide long term funds to the firm. Cost of capital is a
concept in financial management linking the investment and financing decisions.
15. Why is the cost of capital important?
It is important for three reasons:
1. For proper analysis of capital expenditure decisions, which are of prime importance to a firm, an
estimate of cost of capital is required. The cost of capital is the discount rate used in NPV
calculations and also the financial yardstick against which rate of return is evaluated.
ADVERTISEMENTS:
2. Several other decisions like leasing, long ten, financing and working capital policy, require
estimates of cost of capital.
3. In order to maximize the value of the firm the costs of all inputs, including capital input, must be
minimum and in this context the should be able to measure the cost of capital.
