Define financial management 

1

(a)

Financial management is the activity concerned with the planning, raising, controlling and administering of funds used in the business

What is the primary objective of 'financial management'?Or State the objective of Financial Management.

1

(a)

The primary objective of financial management is to maximise shareholder's wealth which is also known as wealth maximisation concept.

State the objective of financial management.

1

(a)

The primary objective of financial management is maximisation of shareholders' wealth, which is achieved by increase in value of shares or the market price of shares.

What is business finance?

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(a)

Business finance is money required for carrying out business activities.

How is the overall financial health of a business determined?

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(a)

Financial health of a business is determined by the quality of its financial management.

State the foremost objective of financial management.

1

(a)

The foremost objective of financial management is “maximization of share holder’s wealth

“Ploughing back of profits holds the key to success of a business enterprises”. Do you agree. Give two reasons.

1

(a)

Yes, agree.
This is because (i) the company need not raise finance from other sources hence cost of financing of the Co. is kept at minimum.
ii) When retained earnings are ploughed back business this greatly enhances prestige of Co. in the eyes of shareholder and the general public

When is the dividend decision treated as a residual decision?

1

(a)

A company's net earnings are divided into two parts, i.e.,-rctained earnings and dividends. Ifthe company has profitable investment opportunities, it would like to retain the earnings and reinvest rather than distribute them as dividends. To finance investment projects, the company has two alternatives either to raise external equity or to internally finance from the retained earnings available. Retained earnings are preferred as a source as they do not involve floatation costs and legal formalities. Thus, the company will pay dividends only when it cannot profitably reinvest the earnings. In this case, the dividend decision is treated as a residual or passive decision

What is ‘stock dividend’? How does it affect a company?

1

(a)

When a co. instead of paying dividend in cash issues shares to its shareholders it is known as bonus shares or stock dividend. The effect of issuing bonus shares is that it increases the capital base of the Co.

When is a capital structure said to be optimum? 

1

(a)

A capital structure is said to be optimum when the proportion of debt and equity is such that it results in an increase in the value of the shares.