CBSE Important Questions Class 12 Business Studies Chapter 9

Important Questions Class 12 Business Studies Chapter 9

Important Questions for CBSE Class 12 Business Studies Chapter 9 – Financial Management

Have you ever felt as though you have mastered your studies but are still unsure that you are ready to take an exam? There is just one thing that can save the day: Important Questions! Referring to these questions will help you review vital topics and gain familiarity with the type of questions that are expected in exams.

Chapter 9 of Class 12 Business Studies discusses “Financial Management”. The main topics covered under CBSE Class 12 Business Studies Chapter 9 include: 

• Business Finance, 
• Financial Management, 
• Objectives and Financial Decisions, 
• Financial Planning and Importance, 
• Capital Structure and Factors, and
• Fixed and Working Capital.

By using Important Questions Class 12 Business Studies Chapter 9, you can evaluate your exam preparations and get to know where you need to focus more and work harder on those topics to improve your performance.

CBSE Class 12 Business Studies Chapter-9 Important Questions

Extramarks’ Business Studies Class 12 Chapter 9 Important Questions are easily accessible from the website. This set of questions for Class 12 Business Studies is based on the latest  CBSE Syllabus and exam pattern.  Make your preparations foolproof with these Important Questions!

Study Important Questions for Class 12 Business Studies Chapter 9 – Financial Management

Chapter 9 Class 12 Business Studies Important Questions

discuss some of the following short and long-answer types of questions. 

Very Short Answer Questions (1-2 Marks)

Q1. What does the term “financial management” mean?

A1. A company’s financial needs and long-term goals are met through financial management, which includes all business activities as well as the acquisition and preservation of capital money.

Q2. The working capital depends on the production cycle. Explain.

A2. A lengthy production cycle means that capital will be trapped in raw materials and semi-manufactured goods for a longer period. As a result, when the production cycle is long, more working capital will be needed, but when the cycle is short, less working capital will be needed.

Q3. What impact do “Floatation Costs” have on a company’s capital structure decision? 

A3. The flotation cost is the expense of acquiring cash. Since the flotation cost of issuing debt is typically lower than that of issuing equity, businesses may choose to have a bigger proportion of debt in their capital structure in such circumstances.

Q4. What is financial risk?

A4: Financial risk is the likelihood that the corporation may fail to meet its fixed financial obligations, such as interest payments, preference divided, and other such repayment obligations.

Q5. Mention the objectives of financial management.

A5: The following are the goals of financial management:

• Ensuring the survival of the business
• Lowering the capital cost
• Maximising profits
• Proper financial mobilisation
• Preserving effective communication with other departments

Q6. What are current assets?

A6: The term “current assets” refers to assets that, under typical business circumstances, are turned into cash or cash equivalents within a year, such as bills receivables, debtors, inventories, etc.

Short Answer Questions (3-4 Marks)

Q1. List any four factors that influence a company’s working capital requirements.

A1. The following variables affect the need for working capital:

1. Type of Business: The amount of working capital needed by a firm depends on its fundamental nature. For example, a trading company needs less working capital than a manufacturing company.
2. Scale of Operations: A large operation will need more inventory since it needs more working capital than a small operation does.
3. Business Cycle: Manufacturing is high when the economy is thriving, necessitating a greater need for working capital than when the economy is in a depression.
4. Seasonal factors: During the peak season, demand for a product will be higher, requiring more working capital than during the lean season.

Q2. Describe the three key decisions each manager must make while handling the finance function..

A2: A manager must decide on three key issues:

1. Financing Decision: This includes deciding on the amount of funding to be raised, selecting from a variety of long- and short-term sources of funding, as well as selecting the most advantageous source of funding.
2. Investment Decision: The wise distribution of a company’s funds are invested in different assets, with the lowest cost and highest return, is referred to as an investment decision.
3. Dividend Decision: A dividend decision is made while deciding whether to pay earnings as dividends to shareholders or to keep them to fund the company’s long-term initiatives. The overall goal of maximising shareholder wealth should be considered while making the dividend decision.

Long Answer Questions (5-6 Marks)

Q1. What aspects would one take into account while creating a company’s capital structure?

A1: The capital structure of a company is determined by the following factors:

1. Cash Flow Position: The amount of cash the business has on hand at the end of the month is shown as the cash position on the cash flow statement. This cash position demonstrates the company’s financial stability and liquidity, demonstrating its ability to meet its current obligations. Therefore, a company that has strong liquidity and a positive cash flow position can raise debt capital because it will be less likely to face financial risk than a company with weak liquidity.
2. Tax Rate: When the tax rate is higher, debt capital is preferred more in the capital structure since interest on debt capital is tax deductible, which lowers the cost of the debt.
3. Cost of Debt: If the cost of debt is lower, equity investors will prefer debt capital over equity capital.
4. Control: The company may choose more debt over stock in the capital structure if the present owners desire to keep control of the company, as issuing debt will not have an impact on the existing shareholders’ control position.
5. Return on Investment (ROI): It is a performance statistic used to evaluate the profitability or efficacy of an investment and to compare the efficacy of several investments. Companies will choose debt capital over equity since it has cheaper costs and higher returns than equity. While equity would be favoured if ROI were to be less than the rate of interest in this scenario, debt would be more expensive for the organisation.
6. Business Size: Small businesses typically use retained earnings and equity capital rather than debt or borrowed capital because doing so exposes them to a fixed interest cost. The issue of raising debt is less significant for bigger corporations, who may obtain long-term financing at a lower cost than small businesses.

Q2. Describe the numerous options available to a company for raising the necessary funds for an expansion.

A2. The following function allows the company to raise the funds required for expansion.

1. Issue of Shares: The process by which companies distribute more shares to shareholders is referred to as an issue of shares. Shareholders can be either people or companies. The corporation abides by the guidelines outlined by the Companies Act of 2013 while circulating the shares. The distribution of prospectuses, the acceptance of applications, and the distribution of shares are the three main essential steps in the process.
2. Issue of Debentures: When a company “issues debentures,” it means it issues a certificate bearing its stamp as an acknowledgment of its debt. Debentures are issued by a company like how shares are. Applications are accepted, a prospectus is issued, and allotment letters are distributed.
3. Loans from Banks and Financial Institutions: Due to their huge monetary holdings, banks dominate all facets of the financial markets, including credit, cash, securities, foreign exchange, and derivatives. The expansion of the business sector determines the economic development of a nation. A strong financial system helps firms expand by making funds available to them.
4. Retained Earnings: The concept of retained earnings in accounting is essential. The phrase refers to a company’s prior earnings, less any dividends that have previously been paid. The phrase “retained” describes earnings that were maintained by the company rather than being given as dividends to shareholders.

Sound exam preparation is essential to erase any exam fears. As mentioned before, important questions are helpful to test your preparedness for the exam. It will also help you concentrate on important concepts  and key information while preparing for the board  exam. The more you practise these questions, the easier it will be  to overcome your fears and take the board exam confidently.