Roles

Question 1

What is finance needed for in a business?

Answer 1

To start a business, keep it operating, and help it expand.

Question 2

Why is finance considered one of the most important business functions?

Answer 2

It supplies necessary funds to each business function to carry out activities effectively.

Question 3

What can lead to business failures?

Answer 3

Poor financial planning.

Question 4

How can proper financial management impact a business?

Answer 4

It can ensure objectives and goals are achieved and facilitate business growth.

Question 5

What does a strategic plan in financial management encompass?

Answer 5

A long-term view of business direction, how to get there, and a monitoring process.

Question 6

What is the long-term role of financial management?

Answer 6

To ensure that a business achieves its goals and objectives through effective finance management.

Question 7

List key components of the strategic role of financial management.

Answer 7

• Setting financial objectives
• Sourcing finance
• Preparing budgets and forecasting
• Preparing financial statements
• Maintaining sufficient cash flow
• Distributing funds

Question 8

What is the first objective of financial management in the PLEGS acronym?

Answer 8

Profitability.

Question 9

Define profitability in the context of financial management.

Answer 9

When sales exceed expenses, resulting in profit.

Question 10

What does growth refer to in a business context?

Answer 10

The ability to expand activities into new areas or increase product range.

Question 11

What is meant by efficiency in financial management?

Answer 11

Using all resources to their best ability to avoid waste.

Question 12

What is liquidity?

Answer 12

The flow of money through the organization to meet short-term commitments.

Question 13

Why is liquidity important for a business?

Answer 13

It ensures the business can pay suppliers on time.

Question 14

What does solvency refer to?

Answer 14

The ability to meet longer-term financial commitments.

Question 15

What can happen if a business cannot meet its solvency obligations?

Answer 15

It may have to sell important assets or face legal action from creditors.

Question 16

True or False: The balance sheet shows a company’s financial position at a specific point in time.

Answer 16

True

Question 17

Fill in the blank: The __________ summarizes a company’s revenues and expenses over a period.

Answer 17

income statement

Question 18

What is liquidity?

Answer 18

The ability of a company to meet its short-term financial obligations.

Question 19

What does ROI stand for?

Answer 19

Return on Investment.

Question 20

Multiple Choice: Which of the following is a long-term financing option? A) Bank overdraft B) Bonds C) Trade credit

Answer 20

B) Bonds

Question 21

What is the purpose of a cash flow statement?

Answer 21

To provide information about the cash inflows and outflows over a period.

Question 22

True or False: Equity financing involves borrowing funds that must be repaid.

Answer 22

False

Question 23

What is a budget?

Answer 23

A financial plan that estimates revenue and expenses over a specified period.

Question 24

Fill in the blank: __________ is the cost of using someone else’s money.

Answer 24

Interest

Question 25

What is the difference between fixed and variable costs?

Answer 25

Fixed costs do not change with production levels, while variable costs do.

Question 26

Multiple Choice: Which of the following is a current asset? A) Equipment B) Inventory C) Land

Answer 26

B) Inventory

Question 27

What is financial leverage?

Answer 27

The use of borrowed funds to increase the potential return on investment.

Question 28

True or False: Depreciation is a method of allocating the cost of a tangible asset over its useful life.

Answer 28

True

Question 29

What does the term 'working capital' refer to?

Answer 29

The difference between current assets and current liabilities.

Question 30

Fill in the blank: The __________ ratio measures a company's ability to pay short-term obligations.

Answer 30

current

Question 31

What is a financial ratio?

Answer 31

A quantitative relationship between two financial statement figures.

Question 32

Multiple Choice: Which financial statement shows a company's profitability? A) Balance Sheet B) Income Statement C) Cash Flow Statement

Answer 32

B) Income Statement

Question 33

What is the purpose of ratio analysis?

Answer 33

To assess a company's financial performance and stability.

Question 34

True or False: A higher debt-to-equity ratio indicates greater financial risk.

Answer 34

True

Question 35

What does 'capital structure' refer to?

Answer 35

The mix of debt and equity used to finance a company.

Question 36

Fill in the blank: __________ is the process of evaluating investment opportunities.

Answer 36

Capital budgeting

Question 37

What is the time value of money?

Answer 37

The concept that money available now is worth more than the same amount in the future.

Question 38

Multiple Choice: Which of the following is NOT a source of internal financing? A) Retained earnings B) Depreciation C) Loans

Answer 38

C) Loans

Question 39

What is a dividend?

Answer 39

A payment made by a corporation to its shareholders from its profits.

Question 40

True or False: A higher current ratio indicates better liquidity.

Answer 40

True

Question 41

What is the formula for calculating net profit margin?

Answer 41

Net Profit Margin = Net Income / Revenue.

Question 42

Fill in the blank: __________ analysis is used to evaluate the profitability of a project.

Answer 42

Break-even

Question 43

What is the purpose of financial forecasting?

Answer 43

To predict future financial outcomes based on historical data and trends.

Question 44

Multiple Choice: Which of the following is considered a non-current liability? A) Accounts Payable B) Long-term Debt C) Accrued Expenses

Answer 44

B) Long-term Debt

Question 45

What is an investment appraisal?

Answer 45

The evaluation of the profitability or desirability of an investment.

Question 46

True or False: The quick ratio is a more stringent measure of liquidity than the current ratio.

Answer 46

True

Question 47

What does the term 'accounts receivable' refer to?

Answer 47

Money owed to a company by its customers for goods or services delivered.

Question 48

Fill in the blank: __________ is the return that investors expect to earn from an investment.

Answer 48

Required rate of return

Question 49

What is a financial market?

Answer 49

A marketplace where buyers and sellers trade financial securities.

Question 50

Multiple Choice: Which type of market is characterized by rising prices? A) Bear Market B) Bull Market C) Stagnant Market

Answer 50

B) Bull Market

Question 51

What is asset management?

Answer 51

The systematic process of developing, operating, maintaining, and selling assets.

Question 52

True or False: A cash flow deficit occurs when cash outflows exceed cash inflows.

Answer 52

True

Question 53

What is the purpose of a financial audit?

Answer 53

To evaluate the accuracy and completeness of a company's financial statements.

Question 54

Fill in the blank: __________ is the process of managing a company's investments and financial resources.

Answer 54

Financial management

Question 55

What is the difference between primary and secondary markets?

Answer 55

Primary markets deal with the issuance of new securities, while secondary markets involve trading existing securities.

Question 56

Multiple Choice: Which of the following is a characteristic of common stock? A) Fixed dividend B) Voting rights C) Priority in liquidation

Answer 56

B) Voting rights

Question 57

What is a financial derivative?

Answer 57

A financial instrument whose value is derived from the value of an underlying asset.

Question 58

True or False: Risk and return are directly related in finance.

Answer 58

True

Question 59

What is the purpose of diversification in an investment portfolio?

Answer 59

To reduce risk by spreading investments across various assets.

Question 60

Fill in the blank: __________ is the practice of buying and holding securities for a long period.

Answer 60

Buy and hold strategy

Question 61

What is the capital asset pricing model (CAPM)?

Answer 61

A model that describes the relationship between systematic risk and expected return.

Question 62

Multiple Choice: Which of the following is a type of financial risk? A) Market risk B) Operational risk C) Credit risk

Answer 62

A) Market risk

Question 63

What is a financial crisis?

Answer 63

A situation in which the value of financial institutions or assets drops rapidly.

Question 64

True or False: Inflation decreases the purchasing power of money.

Answer 64

True

Question 65

What does the term 'capital gains' refer to?

Answer 65

The profit from the sale of an asset or investment.

Question 66

Fill in the blank: __________ is the rate at which an investment grows over time.

Answer 66

Growth rate

Question 67

What is a liquidity crisis?

Answer 67

A situation in which a company cannot meet its short-term financial obligations.

Question 68

Multiple Choice: Which of the following is a type of bond? A) Treasury Bond B) Common Stock C) Mutual Fund

Answer 68

A) Treasury Bond

Question 69

What is the role of a financial advisor?

Answer 69

To provide guidance on investments, tax strategies, and financial planning.