Financial Management: Questions and Answers

Topics: Generally Accepted Accounting Principles, Balance sheet, Income statement Pages: 13 (4056 words) Published: February 17, 2015
National Institute of Business Management
Chennai - 020
Subject : Financial Management

Attend any 4 questions. Each question carries 25 marks
(Each answer should be of minimum 2 pages / of 300 words)

1. What are the significant factors of Financial Statements? Discuss the various tools of financial Analysis. (Answered) 2. What is a Fund Flow Statement? Discuss the uses and preparation of Fund Flow Statements. (Answered) 3. What is financial Forecasting? Explain. (Answered)

4. Examine the various tools of Financial Analysis. (Answered) 5. What is Zero Base Budgeting? Explain.
6. Describe the various aspects of Zero Based Budgeting with its merits and demerits.

25 x 4=100 marks

1. What are the significant factors of Financial Statements? Discuss the various tools of financial Analysis. Answer:
Financial statements are one of the most reliable of all publicly available data for financial analysis. Also, financial statements are objective in portraying economic transactions and events, they are concrete, and they quantify important business activities. Moreover, since financial statements express transactions and events in a common monetary unit, they enable users to readily work with the data, to relate them to other data, and to deal with them in different arithmetic ways. These attributes contribute to the usefulness of financial statements, both historical and projected, in business decision-making. Financial statement analysis is one important step in business analysis. Business analysis is the process of evaluating a company’s economic prospects and risks. This includes analyzing a company’s business environment, its strategies, and its financial position and performance. Business analysis is useful in a wide range of business decisions such as investing in equity or debt securities, extending credit through short or long term loans, valuing a business in an initial public offering (IPO), and evaluating restructurings including mergers, acquisitions, and divestitures. Financial statement analysis is the application of analytical tools and techniques to general-purpose financial statements and related data to derive estimates and inferences useful in business analysis. Financial statement analysis reduces one’s reliance on hunches, guesses, and intuition for business decisions. The financial statements of a company are one of the richest sources of information about a company. Financial statement analysis is a collection of analytical processes that are an important part of overall business analysis. These processes are applied to the financial statement information to produce useful information for decision making. The objective of financial statement analysis is to use the information provided in the statements to produce quantified information to support the ultimate equity, credit, or other decision of interest to the analyst.

The four primary financial statements are the balance sheet, the income statement, the statement of shareholders’ (owner’s) equity, and the statement of cash flows.

Balance Sheet. The accounting equation is the basis of the balance sheet: Assets = Liabilities + Equity.

Income Statement. The income statement is designed to measure a company's financial performance between balance sheet dates—hence, it refers to a period of time. An income statement lists revenues, expenses, gains, and losses of a company over a period. The "bottom line" of an income statement, net income, measures the increase (or decrease) in the net assets of a company (i.e., assets less liabilities), before consideration of any distributions to owners. Most contemporary accounting systems, the U.S. included, determine net income using the accrual basis of accounting. Under this method, revenues are recognized when earned, independent of the receipt of cash. Expenses, in turn, are recognized when incurred (or matched with its...
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