Q.1. a) What do you understand by capitalization of earning? How is the value of a firm ascertained with the help of its earnings? Explain with an example.
Answer. Capitalization of earning is actually an income-valuation technique which establishes the worth of a business/company/enterprise by exploring the present benefit of realizing a cash-flow now, as opposed to in the future. The capitalization of earnings is extremely helpful when the potential earnings could be forecasted effortlessly and accurately….
b) What do you understand by the ‘net worth’ of a company? I- low is it different from the owners’ equity? What items comprise the net worth? Is dividend policy connected with the net worth in any way? Explain.
Answer. Net worth of a company is the amount by which assets surpass liabilities. Net worth can be described as a notion related to individuals and businesses as an important measure of just how much a business is worth. A uniform rise in net worth signifies excellent financial health; on the other hand, net worth could be reduced by yearly operating losses or a significant reduction in asset values compared to liabilities….
2. Explain the important determinants of the Working Capital needs of a firm. Can two firms with different Working Capital achieve the same amount of sales? If so, explain how?
Answer. Several factors influence working capital needs of a firm. Some of them are:
- Nature of business
- Size of business operation
- Products policy
- Volume of sales
- Term of purchase and sales
- Business Cycle
- Processing technology
- and many more………….
3. What is the importance of preparing cash flow statement for a business organization? Discuss the various sources of cash flows and explain the concept of cash cycle.
4. What do you understand by Capital Structure Planning? Explain the various determinants of the capital structure of a company.
Answer. The capital structure signifies the entire long-term investment in a business firm. It contains money raised by means of ordinary and preference shares, debentures, bonds, term loans from banking institutions, etc. Any kind of earned revenue and capital surpluses are also included. Some determinants of the capital structure of a company are:
- Financial Leverage or Trading on Equity
- Cost of Capital
- Cash Flow
- Flexibility
- Size of the Company
- Marketability
- and many more………….
5. Discuss the concept and significance of ‘Budgetary Control’. Explain briefly different types of budgets that are prepared in a business organization.
Answer. Budgetary control is an approach by which actual results are compared to budgets. In case there are differences (variances) then they are made the responsibility of key people that may either exercise control action or modify the initial budgets. There are different types of budgets like: Master Budget, Operating and Financial Budgets, Cash Budget, Production budget, etc…..
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