case study questions on financial management

CBSE Class 12 Case Studies In Business Studies – Financial Management

FINANCIAL MANAGEMENT Financial Management: Definition Financial Management is concerned with optimal procurement as well as usage of finance.

Objective The prime objective of financial management is to maximise shareholder’s wealth by maximising the market price of a company’s shares.

Financial Decisions Involved in Financial Management

• Investment Decision
• Financing Decision
• Dividend Decision

Role of Financial Management

• To determine the capital requirements of business, both long-term and short-term.
• To determine the capital structure of the company and determine the sources from where required capital will be raised keeping in view the risk and return matrix.
• To decide about the allocation of funds into profitable avenues, keeping in view their safety as well.
• To decide about the appropriation of profits.
• To ensure efficient management of cash in order to ensure both liquidity and profitability.
• To exercise overall financial controls in order to promote safety, profitability and conservation of funds.

INVESTMENT DECISION

• It seeks to determine as to how the firm’s funds are invested in different assets
• It helps to evaluate new investment proposals and select the best option on the basis of associated risk and return.
• Investment decision can be long-term or short-term.
• A long-term investment decision is also called a Capital Budgeting decision.

Types of Investment Decision

• It refers to the amount of capital required to meet day- to-day running of business.
• It relates to decisions about cash, inventory and receivables.
• It affects both liquidity and profitability of business.
• It refers to the amount of capital required for investment in fixed assets or long term projects which will yield return and influence the earning capacity of business over a period of time.
• It affects the amount of assets, competitiveness and profitability of business.
• The expected cash flows from the proposed project should be carefully analysed.
• The expected rate of return should be carefully studied in terms of risk associated from the proposed project.
• Different types of ratio analysis should be done to evaluate the feasibility of the proposed project as compared to similar projects in the same industry.

FINANCING DECISION Financing Decision: Definition Financing decision relates to determining the amount of finance to be raised from different sources of finance.This decision determines the overall cost of capital and the financial risk of the enterprise. Types of Sources of Raising Finance

• Equity shares
• Preference shares
• Retained earnings
• Loan from bank or financial institutions
• Public deposit

Considerations Involved in the Issue of Debt

• Interest on borrowed funds has to be paid regardless of whether or not a business has made a profit. Likewise, borrowed funds have to be repaid ata fixed time.
• There is some amount of financial risk in debt financing.
• The cost of debt is less than equity as the degree of risk assumed by the investors is less and the amount of interest paid by the company is tax deductible.

Factors Affecting Financing Decision

• The source of finance which involves the least cost should be chosen.
• The risk involved in raising debt capital is higher than equity.
• The sources involving high flotation cost require special consideration.
• If the cash flow position of a business is good, it should opt for debt else equity.
• If the fixed operating cost ofa business is low, it should opt for debt else equity.
• The issue of equity capital dilutes the control of existing shareholders over business whereas financing through debt does not lead to any such effect
• If there is boom in capital market it is easy for the company to raise equity capital, else it may opt for debt.

Considerations Involved in the Issue of Equity

• Shareholders do not expect any commitment regarding the payment of returns or repayment of capital.
• The floatation cost on raising equity capital is high.
• The shareholders expect higher returns in return for assuming higher risks.

DIVIDEND DECISION Dividend Decision relates to disposal of profit by deciding the proportion of profit which is to be distributed among shareholders and the proportion of profit which is to be retained in the business for meeting the investment requirements.

Factors Affecting Dividend Decision

• If the earnings of the company are high, dividends are paid at a higher rate.
• If the earnings of a company are stable, it is likely to pay higher dividends.
• A company is more likely to maintain a stable dividend rate over a period of time,unless there is a significant change in its earnings.
• A company planning to pursue a growth opportunity is likely to pay lower dividends. The dividends are paid in cash, therefore if the cash flow of the company is good, it is likely to pay higher dividends.
• If the shareholders prefer regular income in form of dividends, the company is likely to maintain a dividend payout rate.
• If the tax rate is high, the company is likely to pay less dividend.
• If a company wants positive reactions at stock market, It Is likely to pay higher dividends.
• A large company can access funds easily from capital market as per its requirements, therefore, it is likely to retain lesser profits and is likely to pay higher dividends.
• The legal constraint should be considered at the time of dividend payment by a company.
• The contractual constraints may also affect the dividend payment by a company.

FINANCIAL PLANNING Financial Planning: Definition The process of estimating the funds requirement of a business and specifying the sources of funds is called financial planning. It basically involves preparation of a financial blueprint of an organisation’s future operations.

Twin Objectives of Financial Planning

• To ensure availability of funds as per the requirements of business.
• To see that the enterprise does not raise resources needlessly.

Importance of Financial Planning

• It ensures smooth running of a business enterprise by ensuring availability of funds at the right time.
• It helps in anticipating future requirements of funds and evading business shocks and surprises.
• It facilitates co-ordination among various departments of an enterprise, like marketing and production functions, through well-defined policies and procedures.
• It increases the efficiency of operations by curbing wastage of funds, duplication of efforts, and gaps in planning. .
• It helps to establish a link between the present and the future.
• It provides a continuous link between investment and financing decisions.
• It facilitates easy performance as evaluation standards are set in clear, specific and measurable terms.

CAPITAL STRUCTURE Capital Structure: Definition It refers to the mix between owners and borrowed funds.

Financial Risk: Definition It refers to a situation when a company is unable to meet its fixed financial charges like payment of interest on debt capital.

Trading on Equity: Definition It refers to the increase in the earnings per share by employing the sources of finance carrying fixed financial charges like debentures (interest is paid at a fixed rate) or preference shares (dividend is paid at fixed rate).

Financial Leverage: Definition The proportion of debt in the overall capital is called financial leverage. It is computed as D/E or D/D+E, where D is the Debt and E is the Equity.

FIXED CAPITAL Fixed Capital: Definition It refers to investment in long-term assets.

Importance of Management of Fixed Capital

• It affects the growth and profitability of busmess m future.
• It involves huge investment outlay in terms of investment in land, building, machinery etc.
• Its influences the overall level of business risk of the organisation.
• If these decisions are reversed they may lead to major losses.

WORKING CAPITAL Working Capital: Definition The funds needed to meet the day-today operations of the business is called working capital.

Factors Affecting the Choice of Capital Structure

13. Regulatory framework: The business will choose the option where it can easily fulfill the norms of the concerned regulator like a bank or SEBI. 14. Capital structure of other companies: The business must know what the industry norms are, whether they are following them or deviating from them and adequate justification must be there.

Factors Affecting the Working Capital Requirements of a Business Enterprise

LATEST CBSE QUESTIONS

Question 1. What is meant by ‘financial management’ ? (CBSE, Delhi 2017) Answer: Financial Management is concerned with optimal procurement as well as usage of finance.

Question 2. Somnath Ltd. is engaged in the business of export of garments. In the past, the performance of the company had been upto the expectations. In line with the latest technology, the company decided to upgrade its machinery. For this, the Finance Manager, Dalmia estimated the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Dalmia therefore, began with the preparation of a sales forecast for the next four years. Fie also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business. For the remaining funds he is trying to find out alternative sources from outside. (CBSE, Delhi 2017) Identify the financial concept discussed in the above para. Also state the objectives to be achieved by the use of financial concept, so identified. Answer: Financial planning is the financial concept discussed in the above paragraph. The process of estimating the fund requirements of a business and specifying the sources of funds is called financial planning. It relates to the preparation of a financial blueprint of an organisation’s future operations. The objectives to be achieved by the use of financial concept are stated below:

• To ensure availability of funds whenever required which involves estimation of the funds required, the time at which these funds are to be made available and the sources of these funds.
• To see that the firm does not raise resources unnecessarily as excess funding is almost as bad as inadequate funding. Financial planning ensures that enough funds are available at right time.

Question 3. Explain briefly any four factors which affect the choice of capital structure of a company. (CBSE, Delhi 2017) Answer: The four factors which affect the choice of capital structure of a company are described below:

• Risk: Financial risk refers to a situation when a company is unable to meet its fixed financial charges. Financial risk of the company increases with the higher use of debt. This is because issue of debt involves fixed commitment in terms of payment of interest and repayment of capital.
• Flexibility: Too much dependence on debt reduces the firm’s ability to raise debt during unexpected situations. Therefore, it should maintain flexibility by not using debt to its full potential.
• Interest Coverage ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a company covers the interest obligation. This may be calculated as follows: ICR = EBIT/Interest. If the ratio is higher, lower is the risk of company failing to meet its interest payment obligations hence debt may be issued or vice versa. But besides interest payment related repayment obligations should also be considered.
• Cash flow position: The issue of debt involves a fixed commitment in the form of payment of interest and repayment of capital. Therefore if the cash flow position of the company is weak it cannot meet the fixed obligations involved in issue of debt it is likely to issue equity or vice versa.

Question 4. Explain briefly any four factors that affect the working capital requirement of a company. (CBSE, Delhi 2017) Answer: The four factors that affect the working capital requirements of a company are explained below:

• Credit availed: In case the suppliers from whom the firm procures the raw material needed for production or finished goods follow a liberal credit policy, the business can be operated on minimum working capital or vice versa.
• Credit allowed: The credit terms may vary from firm to firm. However, if the level of competition is high or credit worthiness of its clients is good the firm is likely to follow a liberal credit policy and grant credit to its clients it results in higher amount of debtors, increasing the requirement of working capital or vice versa.
• Scale of operations: The amount of working capital required by a business varies directly in proportion to its scale of business. For organisations which operate on a higher scale of operation, the quantum of inventory, debtors required is generally high. Such organisations, therefore, require large amount of working capital as compared to the organisations which operate on a lower scale.
• Growth prospects: The business firms who wish to take advantage of a forthcoming business opportunity or plan to expand its operations will require higher amount of working capital so that is able to meet higher production and sales target whenever required or vice versa .

Question 5. Explain briefly any four factors that affect the fixed capital requirements of a company. (CBSE, Delhi 2017) Answer: The four factors that affect the fixed capital requirements of a company are explained below:

• Nature of business: The kind of activities a business is engaged in has an important bearing on its fixed capital requirements. On one hand a trading concern does not require to purchase plant and machinery etc. and needs lower investment in fixed assets. Whereas on the other hand a manufacturing organisation is likely to invest heavily in fixed assets like land, building, machinery and needs more fixed capital.
• Scale of operations: The amount of fixed capital required by a business varies directly in proportion to its scale of businessA larger organisation operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organisation.
• Diversification: If a business enterprise plans to diversify into new product lines, its requirement of fixed capital will increase as compared to an organisation which does not have any such plans.
• Growth prospects: If a business enterprise plans to expand its current business operations in the anticipation of higher demand, its requirement of fixed capital will be more as compared to an organisation which doesn’t plan to persue any such plans.

Question 6. What is meant by ‘Capital Structure’ ? (CBSE, OD 2017) Answer: Capital structure refers to the mix between owned funds and borrowed funds.

Question 7. Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells the items in smaller quantities in attractive packages. Performance of the company has been up to the expectations in the past. Keeping up with the latest packaging technology, the company decided to upgrade its machinery. For this, the Finance Manager of the company, Mr. Vikrant Dhull, estimated the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Therefore, Mr. Vikrant Dhull began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources. For the remaining funds he is trying to find out alternative sources. Identify the financial concept discussed in the above paragraph. Also, state any two points of importance of the financial concept, so identified. (CBSE, OD 2017) Answer:

• Financial planning is the financial concept discussed in the above paragraph. The process of estimating the fund requirements of a business and specifying the sources of funds is called financial planning. It relates to the preparation of a financial blueprint of an organisation’s future operations.
• It helps in anticipating future requirements of a funds and evading business shocks and surprises .

Question 8. When is financial leverage favourable? (CBSE, Sample Paper 2017) Answer: Financial leverage affects the profitability of a business and it is said to be favourable when return on investment ( ROI) is higher than cost of Debt.

Question 9. “A business that doesn’t grow dies”, says Mr. Shah, the owner of Shah Marble Ltd. with glorious 36 months of its grand success having a capital base of RS.80 crores. Within a short span of time, the company could generate cash flow which not only covered fixed cash payment obligations but also create sufficient buffer. The company is on the growth path and a new breed of consumers is eager to buy the Italian marble sold by Shah Marble Ltd. To meet the increasing demand, Mr. Shah decided to expand his business by acquiring a mine. This required an investment of RS.120 crores. To seek advice in this matter, he called his financial advisor Mr. Seth who advised him about the judicious mix of equity (40%) and Debt (60%). Mr. Seth also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Seth, Mr. Shah decided to raise funds from a financial institution.

• Identify and explain the concept of Financial Management as advised by Mr. Seth in the above situation.
• State the four factors affecting the concept as identified in part (1) above which have been discussed between Mr. Shah and Mr. Seth. (CBSE,Sample Paper 2017)
• Capital structure is the concept of Financial Management as advised by Mr. Seth in the above situation. Capital structure refers to the mix between owners funds and borrowed funds.
• Cashflow position: The issue of debt capital involves a fixed burden on the company in the form of payment of interest and repayment of capital. Therefore if the cash flow position of a company is good it may issue debt else equity to raise the required amount of capital.
• Risk Consideration: Financial risk refers to a situation when a company is unable to meet its fixed financial charges. Financial risk of the company increases with the higher use of debt. This is because issue of debt involves fixed commitment in terms of payment of interest and repayment of capital.
• Tax rate: Considering the fact that amount of interest paid is a deductible expense, cost of debt is affected by the tax rate. If for example a firm is borrowing @ 10% and the tax rate is 30%, the after tax cost of debt is only 7%. Therefore, when the tax rate is higher it makes debt relatively cheaper and increases its attraction vis-a-vis equity.
• Control: The issue of debentures doesn’t affect the control of the equity shareholders over the business as the debenture holders do not have the right to participate in the management of the business.

Question 10. Shalini, after acquiring a degree in Hotel Management and Business Administration, took over her family food processing company of manufacturing pickles, jams and squashes. The business had been established by her great grandmother and was doing reasonably well. However, the fixed operating costs of the business were high and the cash flow position was weak. She wanted to undertake modernisation of the existing business to introduce the latest manufacturing processes and diversify into the market of chocolates and candies. She was very enthusiastic and approached a finance consultant, who told her that approximately ? 50 lakh would be required for undertaking the modernisation and expansion programme. He also informed her that the stock market was going through a bullish phase.

• Keeping the above considerations in mind, name the source of finance Shalini should not choose for financing the modernisation and expansion of her food processing business. Give one reason in support of your answer.
• Explain any two other factors, apart from those stated in the above situation, which Shalini should keep in mind while taking this decision. (CBSE, Sample Paper 2016)
• Shalini should not choose debt capital for financing the modernisation and expansion of her food processing business because the fixed operating cost of the company is high. It cannot take the additional burden of fixed commitments in terms of payment of interest and repayment of capital by issuing debt.

Question 11. Radhika and Vani who are young fashion designers, left their job vyith a famous fashion designer chain to set-up a company ‘Fashionate Pvt. Ltd.’ They decided to run a boutique during the day and coaching classes for the entrance examination of National Institute of Fashion Designing in the evening. For the coaching centre, they hired the first floor of a nearby building. Their major expense was the money spent on photocopying of notes for their students. They thought of buying a photocopier knowing fully that their scale of operations was not sufficient to make full use of photocopier. In the basement of the building of Fashionate Pvt. Ltd, Praveen and Ramesh were carrying on a printing and stationery business in the name of ‘Neo Prints Pvt. Ltd.’ Radhika approached Praveen with the proposal to buy a photocopier jointly which could be used by both of them without making separate investment. Praveen agreed to this. Identify the factor affecting the fixed capital requirements of Fashionate Pvt. Ltd. (CBSE, Delhi 2016) Answer: The factor affecting the fixed capital requirement of Fashionable Pvt. Ltd. is the level of collaboration. This kind of arrangement of using the resources jointly helps to reduce the fixed capital requirements of the business firms.

Question 12. Kay Ltd. is a company manufacturing textiles. It has a share capital of ? 60 lakhs. In the previous year, its earning per share was ? 0.50. For diversification, the company requires an additional capital of ? 40 lakhs. The company raised funds by issuing 10% debentures for the same. During the year, the company earned a profit of ? 8 lakhs on the capital employed. It paid tax @ 40%.

• State whether the shareholders gained or lost, in respect of earning per share on diversification. Show your calculations clearly.
• Also state any three factors that favour the issue of debentures by the company as part of its capital structure. (CBSE, OD 2016)

OR Vivo Ltd. is a company manufacturing textiles. It has a share capital of Rs. 60 lakhs. The earning per share in the previous year was Rs. 0.50. For diversification, the company requires an additional capital of Rs. 40 lakhs. The company raised funds by issuing 10% debentures for the same. During the current year, the company earned a profit of Rs. 8 lakhs on the capital employed. It paid tax @ 40%.

• State whether the shareholders gained a lost, in respect of earning per share on diversification. Show your calculations clearly.
• Also, state any three factors that favour the issue of debentures by the company as part of its capital structure. (CBSE, Delhi 2016)

*0.50 x 6,00,000 = 3,00,000 Consequently EBT/EBIT in situation 1 = Rs. 5,00,000 Thus, on diversification, the earning per share fell down from Rs. 0.50 to Rs. 0.40.

• Tax deductibility: Debt is considered to be a relatively cheaper source of finance as the amount of interest paid on debt is treated as a tax deductible expense.
• Flotation cost: The money spent by the company on raising capital through debentures is less than that spent on equity.

Question 13. Rizul Bhattacharya, after leaving his job, wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing mobile-phones with some unique features. Rizul Bhattacharya felt that mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore, he convinced his son to start a furniture business. Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya choose the furniture business over mobile phones. (CBSE, OD 2016) Answer: The factor affecting the fixed capital requirements which made Rizul Bhattacharya choose the furniture business over mobile phones is technological upgradation.

Question 14. Tata International Ltd. earned a net profit of Rs. 50 crores. Ankit, the finance manager of Tata International Ltd. wants to decide how to appropriate these profits. Discuss any five factors which will help him in taking this decision. (CBSE, Sample Paper, 2015) Answer: The five factors which will help Ankit, in taking the dividend decision are described below:

• Earnings: Since the dividends are paid out of current and past earnings, there is a direct relationship between the amount of earnings of the company and the rate at which it declares dividend. If the earnings of the company are high, it may declare a higher dividend or vice-versa.
• Cash flow position: Since the dividends are paid in cash, if the cash flow position of the company is good it may declare higher dividend or vice-versa.
• Access to capital market: If the company enjoys an easy access to capital market because of its credit worthiness. It does not feel the need to depend entirely on retained earnings to meet its financial needs. Hence, it may declare higher dividend or vice-versa.
• Growth prospects: If the company has any forthcoming investment opportunities, it may like to retain profits to finance its expansion projects. This is because retained profits is considered to be the cheapest source of finance as it doesn’t involve any explicit costs. Hence, it may declare lower dividend or vice-versa.
• Preferences of the shareholders: The companies paying stable dividends are always preferred by small investors primarily if they want regular income in the form of ‘stable returns’ from their investments. Large shareholders may be willing to forgo their present dividend in pursuit of higher profits in future. Therefore, the preferences of the shareholders must be taken into consideration.

Question 15. ‘Abhishek Ltd’ is manufacturing cotton clothes. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of Rs. 50 lakhs from ICICI Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement. The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company. Quoting the lines from the above discussion, identify and explain any four such factors. (CBSE, 2015) Answer: The five factors which Ankit has to consider before taking dividend decisions are:

• Growth Opportunities: Financial needs of a firm are directly related to the investment opportunities available to it. If a firm has abundant profitable investment opportunities, it will adopt a policy of distributing lower dividends. It would like to retain a large part of its earnings because it can reinvest them at a higher rate.
• Stability of Dividends: Investors always prefer a stable dividend policy. They expect to get a fixed amount as dividends which should increase gradually over the years.
• Legal Restrictions: A firm’s dividend policy has to be formulated within the legal provisions and restrictions of the Indian Companies Act.
• Restrictions in Loan Agreements: Lenders, mostly financial institutions, put certain restrictions on the payment of dividends to safeguard their interests.
• Liquidity: The cash position is a significant factor in determining the size of dividends. Higher the cash and overall liquidity position of a firm, higher will be its ability to pay dividends.

Question 16. Amit is running an ‘advertising agency’ and earning a lot by providing this service to big industries State whether the working capital requirement of the firm will be ‘less’ or ‘more’. Give reason in support of your anser. (CBSE, Sample Paper 2014-15) Answer: The working capital requirements of Amit will be relatively less as he is running an advertising agency, wherein there is no need to maintain inventory.

Question 17. Yogesh, a businessman, is engaged in the purchase and sale of ice-creams. Identify his working capital requirements by giving reasons to support your answer. Now, he is keen to start his own ice-cream factory. Explain any two factors that will affect his fixed capital requirements. (CBSE, OD 2012) Answer:

• The working capital requirements of Yogesh will be less as he is engaged in trading business.
• Level of collaboration: If Yogesh gets an opportunity to set up his factory in collaboration with another enterprise, his fixed capital requirements will reduce considerably else his fixed capital requirements will be more.
• Financial alternatives available: If Yogesh is able to get the place to start the factory and machinery on lease, his fixed capital requirements will reduce considerably. Whereas if he decides to purchase them, his fixed capital requirements will be more.

Question 18. Amar is doing his transport business in Delhi. His buses are generally used for tourists going to Jaipur and Agra. Identify the working capital requirements of Amar. Give reasons to support your answer. Further, Amar wants to expand and diversify his transport business. Explain any two factors that will affect his fixed capital requirements. (CBSE, OD, 2012) Answer:

• The working capital requirements of Amar will be relatively less as he is engaged in prtividing transport services wherein there is no need to maintain inventory.
• Diversification: If a business enterprise plans to diversify into new product lines, its requirement of fixed capital will increase.
• Growth prospects: If a business enterprise plans to expand its current business operations in the anticipation of higher demand, consequently, more fixed capital will be needed by it.

Question 19. Manish is engaged in the business of manufacturing garments. Generally, he used to sell his garments in Delhi. Identify the working capital requirements of Manish giving reason in support of your answer. Further, Manish wants to expand and diversify his garments business. Explain any two factors that will affect his fixed capital requirements. (CBSE, Delhi 2012) Answer:

• The working capital requirements of Manish will be relatively more as he is engaged in the business of manufacturing garments. This is because the length of production cycle is longer i.e. it takes time to convert raw material into finished goods.
• Scale of Operations: The amount of fixed capital required by a business enterprise is directly proportionate to its scale of operations. Therefore, if Manish plans to do business on a large scale, his fixed capital requirements will be more or vice versa.
• Technological Upgradation: If Manish plans to use machines of latest technology in manufacturing garments, his fixed capital requirements will be more as replacement of obsolete machines will require huge financial outlay.

Question 20. Harish is engaged in the warehousing business and his warehouses are generally used by businessmen to store fruits. Identify the working capital requirements of Harish giving reasons in support of your answer. Further, Harish wants to expand and diversify his warehousing business. Explain any two factors that will affect his fixed capital requirements. (CBSE, Delhi 2012) Answer:

• The working capital requirements of Harish will be relatively less as he is engaged in providing warehousing services wherein there is no need to maintain inventory.
• Scale of Operations: The amount of fixed capital required by a business enterprise is directly proportionate to its scale of operations. Therefore, if Harish plans to do business on a large scale his fixed capital requirements will be more or vice versa.

ADDITIONAL QUESTIONS

Question 1. Arun is a successful businessman in the paper industry. During his recent visit to his friend’s place in Mysore, he was fascinated by the exclusive variety of incense sticks available there. His friend tells him that Mysore region is known as a pioneer in the activity of Agarbathi manufacturing because it has a natural reserve of forest products especially Sandalwood to provide for the base material used in production. Moreover, the suppliers of other types of raw material needed for production follow a liberal credit policy and the time required to manufacture incense sticks is relatively less. Considering the various factors, Arun decides to venture into this line of business by setting up a manufacturing unit in Mysore. In context of the above case:

• Identify and explain the type of financial decision taken by Arun.
• Identify the three factors mentioned in the paragraph which are likely to affect the working capital requirements of his business.
• Investment decision has been taken by Arun. Investment decision seeks to determine as to how the firm’s funds are invested in different assets. It helps to evaluate new investment proposals and select the best option on the basis of associated risk and return. Investment decision can be long term or short-term. A long-term investment decision is also called a Capital Budgeting decision
• Availability of raw material: As there is easy availability of Sandalwood which is used as the base material for production, the working capital requirements of his business will be less as there is no need to stock the raw materials.
• Production cycle: The production cycle is shorter and less time is required to manu¬facture incense sticks. Thus, the working capital requirements of his business will be low.
• Credit availed: Due to the fact that the suppliers of other types of raw material needed for production follow a liberal credit policy, the business can be operated on minimum working capital.

Question 2. ‘Adwitiya’ is a company enjoying market leadership in the food brands segment. It’s portfolio includes three categories in the Foods business namely Snack Foods, Juices and Confectionery. Keeping in line with the growing demand for packaged food it now plans to introduce Ready- To-Eat Foods. Therefore, the company has planned to undertake investments of nearly Rs. 450 crores for its new line of business. As per the current financial report, the interest coverage ratio of the company and return on investment is higher. Moreover, the corporate tax rate is high. In context of the above case:

• As a financial manager of the company, which source of finance will you opt for debt or equity, to raise the required amount of capital? Explain by giving any two suitable reasons in support of. your answer.
• Why are the shareholder’s of the company like to gain from the issue of debt by the company?
• Interest coverage ratio: The interest coverage ratio of the company is high so it can easily meet its fixed commitment of payment of interest and repayment of capital.
• Tax rate: The tax rate is high which makes debt relatively cheaper as the amount of interest paid on debt is treated as a tax deductible expense.
• The shareholders of the company are likely to gain from the issue 6f debt by the company because the return on investment is higher. It helpS a company to take advantage of trading on equity to increase the earnings per share.

Question 3. Computer Tech Ltd.,is one of the leading information technology outsourcing services providers in India. The company provides business consultancy and outsourcing services to its clients. Over the past five years the company has been paying dividends at high rate to its shareholders. However, this year, although the earnings of the company are high, its liquidity position is not so good. Moreover, the company plans to undertake new ventures in order to expand its business. In context of the above case: .

• Give any three reasons because of which you think Computer Tech Ltd. has been paying dividends at high rate to its shareholders over the past five years.
• Comment upon the likely dividend policy of the company this year by stating any two reasons in support of your answer.
• Earnings: The earnings of the company have been high. Since the dividends are paid out of current and past earnings, there is a direct relationship between the amount of earnings of the company and the rate at which it declares dividend .
• Cashflow position: The cash flow position of the company must have been good as in order to pay high dividends, more cash is required.
• Access to capital market: Because of its credit worthiness, the company enjoyed an easy access to capital market. Therefore, it did not feel the need to depend entirely on retained earnings to meet its financial needs. Hence, it declared higher dividends in past.
• The cash flow position of the company is not good and dividends are paid in cash.
• The company may like to retain profits to finance its expansion projects. Retained profits do not involve any explicit cost and are considered to be the cheapest source of finance.

Question 4. Bhuvan inherited a very large area of agricultural land in Haryana after the death of his grandfather. He plans to sell this piece of land and use the money to set up a small scale paper factory to manufacture all kinds of stationary items from recycled paper. Being an amateur in business, he decides to consult his friend Subhash who works in a financial consultancy firm. Subhash helps him to prepare a blue print of his future business operations on the basis of sales forecast in next five years. Based on these estimates, he helps Bhuvan to assess the fixed and working capital requirements of business. In context of the above case:

• Identify the type of financial service that Subhash has offered to Bhuvan.
• Briefly state any four points highlighting the importance of the type of financial service identified in part (1).
• Financial planning is the type of financial service that Subhash has offered to Bhuvan.
• It helps in anticipating future requirements of a funds and evading business shocks and surprises.
• It facilitates co-ordination among various departments of an enterprise like marketing and production functions, through well-defined policies and procedures.
• It increases the efficiency of operations by curbing wastage of funds, duplication of efforts, and gaps in planning.

Question 5. ‘Madhur Milan’ is a popular online matrimonial portal. It seeks to provide personalized match making service. The company has 80 offices in India, and is now planning to open offices in Singapore, Dubai and Canada to cater to its customers beyond the country. The company has decided to opt for the sources of equity capital to raise the required amount of capital. In context of the above case:

• Identify and explain the type of risk which increases with the higher use of debt.
• Explain briefly any four factors because of which you think the company has decided to opt for equity capital.
• Financial risk of the company increases with the higher use of debt. This is because issue of debt involves fixed commitment in terms of payment of interest and repayment of capital. Financial risk refers to a situation when a company is unable to meet its fixed financial charges.
• Capital market conditions: The state of capital market is bullish, so people are likely to invest more in equity.
• Fixed operating cost: The fixed operating cost of company is high so it cannot take the further burden fixed commitment in terms of payment of interest and repayment of capital by issuing debt.
• Cashflow position: The cash flow position of the company is weak so it cannot meet the fixed obligations involved in issue of debt.
• Risk: The proportion of debt in its capital structure is already high so it cannot issue further debt, thereby endangering the solvency of the company.

Question 6. Wooden Peripheral Pvt. Ltd. is counted among the top furniture companies in Delhi. It is known for offering innovative designs and high quality furniture at affordable prices. The company deals in a wide product range of home and office furniture through its eight showrooms in Delhi. The company is now planning to open five new showrooms each in Mumbai and Bangalore. In Bangalore it intends to take the space for the showrooms on lease whereas for opening showrooms in Mumbai, it has collaborated with a popular home furnishing brand, ‘Creations.’

• Identify the factors mentioned in the paragraph which are likely to affect the fixed capital requirements of the business for opening new showrooms both in Bangalore and Mumbai separately,
• “With an increase in the investment in fixed assets, there is a commensurate increase in the working capital requirement.” Explain the statement with reference to the case above.
• The fixed capital requirements of Wooden Peripheral Pvt. Ltd. for opening new showrooms in Bangalore will be relatively less as its taking space on lease, so only rentals have to be paid. Similarly, its fixed capital requirement for opening showrooms in Mumbai will be reduced as its going to share the costs with another company through collaboration.
• It’s true that,” With an increase in the investment in fixed assets, there is a commen¬surate increase in the working capital requirement.” Like in the above case, Wooden Peripheral Pvt. Ltd. is planning to invest in new showrooms. Consequently, its requirement of working capital will increase as it will need more money to stock goods, pay electricity bills and salaries to staff. Also, it intends to take the space for the showrooms in Mumbai on lease so it will have to pay rentals.

Question 7. ‘Apparels’ is India’s second largest manufacturer of branded Lifestyle apparel. The company now plans to diversify into personal care segment by launching perfumes, hair care and skin are products. Moreover, it is planning to open ten exclusive retail outlets in various cities across the country in next two years. In context of the above case:

• Identify the two factors affecting the fixed capital needs of the company by quoting lines from the paragraph.
• Why is the management of fixed capital considered to be an important for a business?
• It affects the growth and profitability of business in future.
• It influences the overall level of business risk of the organisation.
• If these decisions are reversed, they may lead to major losses.

Question 8. After persuing a course in event management, Kajal and her brother Kamal promoted an event management company under the name Khushi Entertainment Private Limited. They strive together as dedicated and dynamic professionals managing different kinds of formal and informal events across all major cities in India and abroad. They design the event idea and co-ordinate the different aspects of the event to make it a grand success. As a policy, they take fifty percent of the payment as advance from the client before the start of an event and receive the balance charges after the successful completion of the event. In context of the above case:

• Comment upon the working capital needs of the company keeping in mind its nature of business.
• Identify the other factor mentioned in the paragraph which is likely to affect the working capital requirement of their business.
• The working capital requirements of Khushi Entertainment Private Limited will be relatively less as they are engaged in providing event management services, wherein there is no need to maintain inventory
• The other factor mentioned in the paragraph which is likely to affect the working capital requirement of their business is ‘Credit availed.’ Since as a policy, they take fifty percent of the payment as advance from the client before the start of an event, their requirement of working capital is reduced.

Question 9. Storage Solution Ltd. is a large warehousing network company operating. through a chain of warehouses at 40 different locations across India. The company now intends to undertake computerisation of its owned ware houses as it seeks to provide better value added and cost effective solutions for scientific storage and preservation services to the market participants dealing in agricultural products including farmers, traders, etc. In context of the above case:

• How is the decision to undertake computerisation of owned warehouses likely to affect the fixed capital requirements of its business?
• Name any two sources that company may use to finance the implementation of this plan.
• The decision to undertake computerisation of owned warehouses will increase the fixed capital requirements of its business both in present and future as after sometime, the technology being used will become obsolete and need upgradation.
• The company may use retained earnings and take loans from financial institutions to implement this plan.

Question 10. Visions Ltd. is a renowned multiplex operator in India. Presently, it owns 234 screens in 45 properties at 20 locations in the country. Considering the fact that the there is a growing trend among the people to spend more of their disposable income on entertainment, two years back the company had decided to add more screens to its existing set up and increase facilities to enhance leisure, food chains etc. It had then floated an initial public offer of equity shares in order to raise the desired capital. The issue was fully subscribed and paid. Over the years, the sales and profits of the company have increased tremendously and it has been declaring higher dividend and the market price of its shares has increased manifolds. In context of the above case:

• Name the different kinds of financial decisions taken by the company by quoting lines from the paragraph.
• Do you think the financial management team of the company has been able to achieve its prime objective? Why or why not? Give a reason in support of your answer.
• Investment decision: “Two years back the company had decided to add more screens to its existing set up and increase facilities to enhance leisure, food chains etc.”
• Financing decision: “It had then floated an initial public offer of equity shares in order to raise the desired capital.”
• Dividend decision: “Over the years, the sales and profits of the company have increased tremendously and it has been declaring higher dividend.”
• Yes, the financial management team of the company has been able to achieve its prime objective i.e. wealth maximisation of the shareholders by maximising the market price of the shares of the company.

Question 11. After completing his education in travel and tourism, Arjun started Travel Angels Pvt. Ltd. along with his twin brother Bheem. Their company seeks to provide travel solutions to its clients like ticket booking for airways, railways and road ways, hotel booking, insurance etc. Although the business is doing well both of them have realised that they are not good in managing finance, and feel confused and frustrated sometimes due to financial crises that may suddenly arise. In order to avoid such situations in the future, they hire Nakul and Sehdev as financial managers, who have done a degree certification course in financial management. In context of the above

• Give the meaning of financial management.
• Outline the role of Nakul and Sehdev as the financial management team of the Travel Angels Pvt. Ltd. by giving any four suitable points.
• Financial Management is concerned with optimal procurement as well as usage of finance.
• To determine the capital requirements of business both long-term and short term.
• To exercise overall financial control in order to promote s’afety, profitability and conservation of funds.

Question 12. Wireworks Ltd. is a company manufacturing different kinds of wires. Despite fierce competition in the industry, it has been able to maintain stability in its earnings and as a policy, uses 30% of its profits to distribute dividends. The small investors are very happy with the company as it has been declaring high and stable dividend over past five years. In context of the above case:

• State any one reason because of which the company has been able to declare high dividend by quoting line from the paragraph.
• Why do you think small investors are happy with the company for declaring stable dividend?
• Stability in earnings: The company has been able to declare high dividend because its earnings are stable. “Despite fierce competition in the industry, it has been able to maintain stability in its earnings.”
• The small investors are happy with the company for declaring stable dividend as they enjoy a regular income on their investment.

Question 13. Manoj is a renowned businessman involved in export business of leather goods. As a responsible citizen, he chooses to use jute bags for packaging instead of plastic bags. Moreover, on the advice of his friends, he decides to use jute for manufacturing aesthetic handicrafts, keeping in view the growing demand for natural goods. In order to implement his plan, after conducting a feasibility study, he decides to set up a separate manufacturing unit for producing varied jute products. In context of the above case:

• Identify the type of investment decision taken by Manoj by deciding to set up a separate manufacturing unit for producing jute products.
• State any two factors that he is likely to consider while taking this decision
• Capital budgeting decision has been taken by Manoj.
• Cash inflows: The expected cash inflows from the proposed projects should be carefully analysed and the project indicating higher cash inflows should be selected.
• Rate of return: The expected rate of return should be carefully studied in terms of risk associated from the proposed project. If two projects are likely to offer the same rate of return, the project involving lesser risk should be selected.

Question 14. Khoobsurat Pvt. Ltd. is the largest hair salon chain in the Delhi, with over a franchise of 200 salons. The company is now planning to set up a manufacturing unit in Faribadad for production of various kinds of beauty products under its own brand name. In context of the above case:

• Comment upon the fixed capital needs of the company.
• How will the requirement of fixed capital of the company change when it implements its plan to set up a manufacturing unit?
• The fixed capital needs of the company are low as its salons have been promoted in the form of franchises.
• The requirement of fixed capital of the company will increase when it implements its plan to set up a manufacturing unit because it will have to make investments in buying land, building, machinery etc.

Question 15. Well-being Ltd. is a company engaged in production of organic foods. Presently, it sells its products through indirect channels of distribution. But, considering the sudden surge in the demand for organic products, the company is now inclined to start its online portal for direct marketing. The financial managers of the company are planning to use debt in order to take advantage of trading on equity. In order to finance its expansion plans, it is planning to ‘ raise a debt capital of Rs. 40 lakhs through a loan @ 10% from an industrial bank. The present capital base of the company comprises of Rs. 9 lakh equity shares of Rs. 10 each. The rate of tax is 30%. In the context of the above case:

• What are the two conditions necessary for taking advantage of trading on equity?
• Assuming the expected rate of return on investment to be same as it was for the current year i.e. 15% , do you think the financial managers will be able to meet their goal. Show your workings clearly.
• The rate of return on investment should be more than the rate of interest.
• The amount of interest paid should be tax deductible.

Yes, the financial managers will be able to meet their goal as the projected EPS, with the issue of debt, is higher than the present EPS.

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Case Studies - Financial Management | Business Studies (BST) Class 12 - Commerce PDF Download

As a student of business studies, you are expected to learn about the various aspects of management, such as planning, organizing, staffing, directing, and controlling. Case studies are an essential part of the  Class 12 Business Studies  curriculum as they provide students with an opportunity to apply theoretical knowledge to practical situations. Let's see some  Case Study Questions on Financial Management of Business Studies.  

Q. 1. Arun is a successful businessman in the paper industry.  During his recent visit to his friend’s place in Mysore, he was fascinated by the exclusive variety of incense sticks available there.  His friend tells him that Mysore region in known as a pioneer in the activity of Agarbathi manufacturing because it has a natural reserve of forest products especially Sandalwood to provide for the base material used in production.  Moreover, the suppliers of other types of raw material needed for production follow a liberal credit policy and the time required to manufacture incense sticks is relatively less.  Considering the various factors, Arun decides to venture into this line of business by setting up a manufacturing unit in Mysore.

In context of the above case:

• Identify of the above case:
• Identify the three factors mentioned in the paragraph which are likely to affect the working capital requirements of his business.
• Investment decision has been taken by Arun.  Investment decision seeks to determine as to how the firm’s funds are invested in different assets.  It helps to evaluate new investment proposals and select the best option on the basis of associated risk and return.  Investment decision can be long term or short-term.  A long-term investment decision is also called a Capital Budgeting decision
• The three factors mentioned in the paragraph which are likely to reduce the working capital requirements of his business are as follows:
• Available of raw material:
• Production cycle:
• Credit availed:

Q. 2. ‘Adwitiya’ is a company enjoying market leadership in the food brands segment.  It’s portfolio includes three categories in the Foods business namely Snack Foods, Juices and Confectionery.  Keeping in the with the growing demand for packaged food it now plans to introduce ready-To-Eat Foods.  Therefore, the company has planned to undertake investments of nearly Rs. 450 crores for its new line of business.  As per the current financial report, the interest coverage ratio of the company and return on investment is higher.  Moreover, the corporate tax rate is high.

• As a financial manager of the company, which source of finance will you opt for debt or equity, to raise the required amount of capital?  Explain by giving any two suitable reasons in support of your answer.
• Why are the shareholder’s of the company like to gain from the issue of debt by the company?

1. As a financial manager of the company, I will opt for debt to raise the required amount of capital.

I support my decision by giving the following reasons:

• Interest coverage ratio:

2. The shareholders of the company are likely to gain from the issue of debt by the company because the return on investment is higher.  It helps a company to take advantage of trading on equity to increase the earnings per share.

Q. 3. Computer Tech Ltd., is one of the leading information technology outsourcing services providers in India.  The company provides business consultancy and outsourcing services to its clients.  Over the past five years the company has been paying dividends at high rate to its shareholders.  However, this year, although the earnings of the company are high, its liquidity position is not so good.  Moreover, the company plans to undertake new ventures in order to expand its business.

• Give any three reasons because of which you think Computer Tech Ltd. has been paying dividends at high rate to its shareholders over the past five years.
• Comment upon the likely dividend policy of the company this years by stating any two reasons in support of your answer.
• Cash flow position:
• Access to capital market:
• This year the company is likely to follow a conservative dividend policy because of the following reasons:
• The cash flow position of the company is not god and dividends are paid in cash.
• The company may like to retain profits to finance its expansion projects.  Retained profits do not involve any explicit cost and are considered to be the cheapest source of finance.

Q. 4. Bhuvn inherited a very large area of agricultural land in Haryana after the death of his grandfather.  He plans to sell this piece of land and use the money to set up a small scale paper factory to manufacture all kinds of stationary items from recycled paper.  Being an amateur in business, he decides to consult his friend Subhash who works in a financial consultancy firm.  Subhash helps him to prepare a blue print of his future business operations on the basis of sales forecast in next five years.  Based on these estimates, he helps Bhuvan to assess the fixed and working capital requirements of business.

• Identify the type of financial service that Subhash has offered to Bhuvan.
• Briefly state any four points highlighting the importance of the type of financial service identified in part (a)
• Financial planning is the type of financial service that Subhash has offered to Bhuvan.
• The four points highlighting the importance of financial planning are as follows:
• It ensures smooth running of a business enterprise by ensuring availability of funds at the right time.
• It helps in anticipating future requirements of a funds and evading business shocks and surprises.
• It facilitates co-ordination among various departments of an enterprise like marketing and production function, through well-defined policies and procedures.
• It increases the efficiency of operations by curbing wastage of funds, duplication of efforts, and gaps in planning.

Q. 5. ‘Madhur Milan’ is a popular online matrimonial portal.  It seeks to provide personalized match making service.  The company has 80 offices in India, and is now planning to open offices in Singapore, Dubai and Canada to cater to its customers beyond the country.  The company has decided to opt for the sources of equity capital to raise the required amount of capital.

• Identify and explain the type of risk which increases with the higher use of debt.
• Explain briefly any four factors because of which you think the company has decided to opt for equity capital.
• Financial risk of the company increases with the higher use of debt.  This is because issue of debt involves fixed commitment in terms of payment of interest and repayment of capital.  Financial risk refers to a situation when a company is unable to meet its fixed financial charges.
• The factors because of which the company has decided to opt for equity capital are as follows:
• Capital market conditions:
• Fixed operating cost:

Q. 6. Wooden Peripheral Pvt. Ltd. is counted among the top furniture companies in Delhi.  It is known for offering innovative designs and high quality furniture at affordable prices.  The company deals in a wide product range of home and office furniture through its eight showrooms in Delhi.  The company is now planning to open five new showrooms each in Mumbai and Bangalore.  In Bangalore it intends to take the space for the showrooms on lease whereas for opening showrooms in Mumbai, it has collaborated with a popular home furnishing brand, ‘Creations.’

• Identify the factors mentioned in the paragraph which are likely to affect the fixed capital requirements of the business for opening new showrooms both in Bangalore and Mumbai separately.
• “With an increase in the investment in fixed assets, there is a commensurate increase in the working capital requirement.” Explain the statement with reference to the case above.

1. The fixed capital requirements of Wooden Peripheral Pvt. Ltd. for opening new showrooms in Bangalore will be relatively less as its taking space on lease, so only rentals have to be paid.

Similarly, its fixed capital requirement for opening showrooms in Mumbai will be reduced as its going to share the costs with another company through collaboration.

2. It’s true that, “ With an increase in the investment in fixed assets, there is a commensurate increase in the working capital requirements,”  Like in the above case, Wooden Peripheral Pvt. Ltd. is planning to investment in new showrooms.  Consequently, its requirement of working capital will increase s it will need more money to stock goods, pay electricity bills and salaries to staff.  Also, it intends to take the space for the showrooms I Mumbai on lease so it will have to pay rentals.

Q. 7. Krishna Ltd. is manufacturing steel at its plant at Noida.  Due to economic growth, the demand for steel is also growing.  The company is planning to set up a new steel plant at Gurgaon.  It needs Rs. 800 crore to start the new plant.  It decides to raise Rs. 300 crore through debentures, Rs. 200 crore through long-term loan from banks and Rs. 200 crore by issue of equity share to the public.  It decided to finance the remaining amount by utilizing its reserves and surplus.

• State the importance of financial planning for this company.
• What is the capital structure of this company?  Explain.
• Identify the financial decision involved when the company decides to raise Rs. 800 crore from different sources of funds.
• How will the dividend decision of Krishna Ltd. be affected?  Explain.           (6 marks)
• Financial planning will help the company in avoiding business shocks and surprises.  It will reduce waste and duplication of efforts.
• Capital structure refers to the mix between owners funds and borrowed funds.  It is calculated as debt equity ratio

i.e., Debit.

                  Equity

For Krishna Ltd.

Debt    = Debentures + Long tgerm loans from banks = 300 + 200 = Rs. 500 crore.

Equity  = Share capital + Reserves and surplus (or retained earnings)

= 200 + 100 = Rs. 300 crores.

Therefore, debt equity ratio = 500 = 1.67 : 1

• Financing decision
• Since the company have growth opportunities of setting up a new steel plant at Gurgaon, it retains Rs. 100 crore out of profits to finance the required investment.  So, it is likely to pay less dividend.  However, since the company makes more debt financing than funding through equity, it implies that cash flow position of the company is strong.  Therefore, it can pay higher dividend.

Q. 8. Cost of debt is less than cost of equity.  Still a company cannot go with entire debt.  Why?            (3 marks)

Ans.  Because debt is more risky for a business, since payment of interest and return principal amount is compulsory for the business.  Any default in meeting these commitments may force the business to go into liquidation.  That is, increased use of debt increases financial risk of a business (the chance that a firm would fail to pay interest on debt and the principal amount).

Q. 9. Amar is doing his transport business in Delhi.  His buses are generally used for the tourists going to Jaipur and Agra.  Identify the working capital requirement of Amar giving reason in support of your answer.  Further Amar wants to expand and diversify his Transport business.  Enumerate any four factors that will affect his fixed capital requirements.     (3Marks)

Ans.  Working capital requirements of Amar would be less as it is a SERVICE industry.

Factors which will affects his fixed capital requirements are:

• Scale of operations
• Financing alternatives
• Growth prospects
• Diversification

Q. 10. Yogesh, a business man is engaged in publishing and selling of Ice-creams.  Identify the working capital requirement of Yogesh giving reason in support of your answer.     (1 Mark)

Ans.  Working capital requirements of Yogesh would be less as it is a TRADING business.

Q. 11. Manish is engaged in business of garments manufacturing.  Identify the working capital requirement of Manish giving reason in support of your answer.          (1 Mark)

Ans.  Working capital requirements of Manish would be less as it is a MANUFACTURING business.  So raw material needs to be converted into finished goods before any sales can become possible.

Q. 12. The directors of a manufacturing company are thinking of issuing Rs. 20 crores worth additional debentures for expansion of their production capacity.  This will lead to n increase in debt equity ratio from 2 : 1 to 3 : 1.  What are the risks involved in it?  What factors other than risk do you think the directors should keep in view before taking the decision?  Name any four factors .       (3 Marks)

Ans.  Higher use of debt increases the fixed financial charges of a business because payment of interest and return of principal amount is compulsory.  Any default in meeting these commitments may force the business to go into liquidation.  As a result, increased use of debt increases the financial risk of a business.  Financial risk is the chance that a firm would fail to meet its payment obligations.

Other factors affecting this decision are:

• Cash flow position
• Return on investment (ROI)

Q. 13. Amit is running an ‘Advertising agency’ and earning a lot by providing this service to big industries.  State whether the working capital requirement of the firm will be ‘less’ or ‘more’.  Give reason in support of your answer.      ( 1 Mark)

Ans.  Less working capital is required as service industries which usually do not have to maintain inventory require less working capital.

Q. 14. Tata International Ltd. earned a net profit of Rs. 50 crores.  Ankit the finance manager of Tata International Ltd. wants to decide how to appropriate these profits.  Identify the decision that Ankit will have to take and also discuss any five factors which help him in taking this decision.              (6 Marks)

Ans.     Dividend decision

Factors affecting dividend decision.

• Stability of earnings:
• Stability of dividends:
• Growth opportunities:

Q. 15. Shalini, after acquiring a degree in Hotel Management and Business administration took over her family food processing company of manufacturing pickles, jams and squashes.  The business was established by her great grandmother and was doing reasonably well.  However the fixed operating costs of the business were high and the cash flow position was week.  She wanted to undertake modernization of the existing business to introduce the latest manufacturing processes and diversify into the market of chocolates and candies.  She was very enthusiastic and approached a finance consultant, who told her that approximately Rs. 50 lakh would be required for undertaking the modernization and expansion programme.  He also informed her that her stock market was going through a bullish phase.

• Keeping the above considerations in mind, name the source of finance Shalini should not choose for financing the modernization and expansion of her food processing business.  Give one reason in support of your answer.
• Explain any two other factors, apart from those stated in the above situation, which Shalini should keep in mind while taking this decision.   (6 Marks)

Any one reason

• Due to weak cash flow position, the firm may not be able to honour fixed cash payment obligations.
• Increased fixed operating cost will increase the business risk therefore debt should not be issued as it further increases the financial risk.
• The stock market condition being bullish, the investors will prefer to buy equity shares.
• Return on Investment

Q. 16.  ‘Indian Logistics’ has its own warehousing arrangements at key locations across the country.  Its warehousing services help business firms to reduce their overheads, increase efficiency and cut down distribution time.

State with reason, whether the working capital requirements of ‘India Logistics’ will be high or low.               (1 Mark)

Ans.  Low, as it is a service industry, which usually do not have to maintain inventory.

Q. 17. ‘Sarah Ltd.’ is a company manufacturing cotton yarn.  It has been consistently earning good profits for many years.  This year too, it has been able to generate enough profits.  There’re is availability of enough cash in the company and good prospects for growth in future.  It is a well managed organization and believes in quality, equal employment opportunities and good remuneration practices.  It has many shareholders who prefer to receive a regular income from their investments.

It has taken a loan of Rs. 40 lakhs from IDBI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.

The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company.

Quoting the lines from the above discussion identify and explain and four such factors.         (6 Marks)

Ans.  Factors affecting dividend decision: (Any four)

• Stability of earnings

It has been consistently earning good profits for many years’.

Stability of earnings affects dividend decision as a company having stable earnings is in a position to declare higher dividends.

• Cash Flow position

‘There is available of enough cash in the company’.

A good cash flow positions is necessary for declaration of dividend.

• Growth Prospects

‘Good prospects for growth in the future.’

If a company has good growth opportunities, it pays out less dividend.

• Shareholders’ preference

‘It has many shareholders who prefer to receive regular income from their investments.’

Shareholder’s preference is kept in mind by the management before declaring dividends.

• Contractual constraints

‘It has taken a loan of Rs. Rs. 40 Lakhs from IDBI and … agreement.’

Which taking dividend decision, companies keep in mind the restrictions imposed by the lenders in the loan agreement.

Q. 18. Shubh Ltd. is manufacturing steel at its plant in India.  It is enjoying a buoyant demand for its products as economic growth is about 7%-8% and the demand for steel is growing.  The company has decided to set up a new steel plant to cash on the increased demand.  It is estimated that it will require about Rs. 2000 crore to set up and about Rs. 500 crore of working capital to start the new plant.

• State the objective of financial management for this company.
• Identify and state the decision taken by the finance manager in the above case.
• State any two common factors affecting the fixed and working capital requirements of Shubh Ltd.                               (6 Marks)
• Objectives of financial management of this company are:
• To ensure availability of sufficient funds from different sources at reasonable costs.
• To ensure effective utilization of such funds.
• To ensure safety of funds procured by creating reserves, reinvesting profits, etc.

Value: Maximisation of shareholders’ wealth.

• Investment decision

It relates to how the firm’s funds are invested in different assets – fixed assets and working capital.

• Factors affecting fixed and working capital requirements of Shubh Ltd.:
• Nature of business:
• Scale of operations:

Q. 19. In a company profits are high and in future less scope of expansion exists.  The company has decided to distribute less amount of share of profits to its shareholders.

• Identify of share of profits to its shareholders.
• State any one value which is affected by the company’s decision.        (3 Marks)
• Dividend decision

This decision involves how much of the profit earned by the company (after paying tax) is to be distributed to the shareholder and how much of it should be retained in the business.

• Value affected: Shareholders’ wealth will not be maximized.

Q. 20. Storage Solution Ltd. is a large warehousing network company operating through a chain of warehouses at 40 different locations across India.  The company now intends to undertake computerization of its owned ware houses as it seeks to provide better value added and cost effective solutions for scientific storage and preservation services to the market participants dealing in agricultural products including farmers, traders, etc.

• How is the decision to undertake computerization of owned warehouses likely to affect the fixed capital requirements of its business?
• Name any two sources that company may use to finance the implementation of this plan.
• The decision to undertake computerization of owned warehouses will increase the fixed capital requirements of its business both in present and future as after sometime, the technology being used will become obsolete and need up gradation.
• The company may use retained earnings and take loans from financial institutions to implement this plan.

Q. 21. Visions Ltd. is a renowned multiplex operator in India.  Presently, it owns 234 screens in 45 properties at 20 locations in the country.  Considering the fact that the there is a growing trend among the people to spend more of their disposable income on entertainment, two years back the company had decided to add more screens to its existing set up and increase facilities to enhance leisure, food chains etc.  it had then floated an initial public offer of equity shares in order to raise the desired capital.  The issue was fully subscribed and paid.  Over the year, the sales and profits of the company have increased tremendously and it has been declaring higher dividend and the market price of its shares has increased manifolds.

• Name the different kinds of financial decisions taken by the company by quoting lines from the paragraph.
• Do you think the financial management team of the company has been able to achieve its prime objective?  Why or why not?  Give a reason in support of your answer.
• Investment decision:
• Financing decision:
• Dividend decision:
• Yes, the financial management team of the company has been able to achieve its prime objective i.e. wealth maximization of the shareholders by maximizing the market price of the shares of the company.

Q. 22. Wireworks Ltd. is a company manufacturing different kinds of wires.  Despite fierce competition in the industry, it has been able to maintain stability in its earnings and as a policy, uses 305 of its profits to distribute dividends.  The small investors are very happy with the company as it has been declaring high and stable dividend over past five years.

• State any one reason because of which the company has been able to declare high dividend by quoting line from the paragraph.
• Why do you think small investors are happy with the company for declaring stable dividend?
• Stability in earnings:

“Despite fierce competition in the industry, it has been able to maintain stability in its earnings.”

• The small investors are happy with the company for declaring stable dividend as they enjoy a regular income on their investment.

Q. 23. Manoj is a renowned businessman involved in export business of leather goods.  As a responsible citizen, he chooses to use jute bags for packaging instead of plastic bags.  Moreover, on the advice of his friends, he decides to use jute for manufacturing aesthetic handicrafts, keeping in view the growing demand for natural goods.  In order to implement his plan, after conducting a feasibility study, he decides to set up a separate manufacturing unit for producing varied jute products.

• Identify the type of investment decision taken by Manoj by deciding to set up a separate manufacturing unit for producing jute products.
• State any two factors that he is likely to consider while taking this decision.
• Capital budgeting decision has been taken by Manoj.
• The factors affecting Capital Budgeting Decision are as follows:
• Cash inflows:
• Rate of return:

Q. 24. Well-being Ltd. is a company engaged in production of organic foods.  Presently, it sells its products through indirect channels of distribution.  But, considering the sudden surge in the demand for organic products, the company yis now inclined to start its online portal for direct marketing.  The financial managers of the company area planning to use debt in order to take advantage of trading on equity.  In order to finance its expansion plans, it is planning to raise a debt capital of Rs. 40 lakhs through a loan @ 10% from an industrial bank.  The present capital base of the company comprises of Rs. 9 lakh equity shares of Rs. 10 each.  The rate of tax is 30%.

In the context of the above case:

• What are the two conditions necessary for taking advantage of trading on equity?
• Assuming the expected rate of return on investment to be same as it was for the current year i.e. 15%, do you think the financial managers will be able to meet their goal.  Show your workings clearly.
• The two conditions necessary for taking advantage of trading on equity are:
• The rate of return on investment should be more than the rate of interest.
• The amount of interest paid should be tax deductible.

Yes, the financial managers will be able to meet their goal as the projected EPS, with the issue of debt, is higher than the present EPS.

Q. 25. ‘Ganesh Steel Ltd.’ is a large and credit-worthy company manufacturing steel for the Indian market.  It now wants to cater to the Asian market and decides to invest in new hi-tech machines.  Since the investment is large, it requires long-term finance.  It decides to raise funds by issuing equity shares.  The issue of equity shares involves huge floatation cost.  To meet the expenses of floatation cost the company decides to tap the money-market.

• Name and explain the money-market instrument the company can use for the above purpose.
• What is the duration for which the company can get funds through this instrument?
• State any other purpose for which this instrument can be used.
• Commercial Paper:

It is a unsecured promissory note issued by large and credit-worthy companies to raise short terms funds at lower rates of interest than the prevailing market rates.

• 15 days to one year.
• It can also be used for seasonal and working capital needs.

Get an overview of Business Finance through this  video. Find NCERT Solutions of Financial Management  here .  

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Must-Have Financial Case Study Examples with Samples and Templates

Mayuri Gangwal

Case studies are valuable tools for understanding the real-world applications of financial concepts and strategies. They provide insights into practical scenarios, showcasing the decision-making processes and outcomes in various financial situations. Whether you are a student, professional, entrepreneur, having access to well-crafted financial case study templates can be immensely beneficial in developing a deeper understanding of financial principles and honing your analytical skills.

SlideTeam’s premium PPT templates help you grasp complex financial concepts like investment analysis, financial planning, risk management, etc. Each case study offers a unique scenario, presenting a problem or challenge that requires thoughtful analysis and strategic decision-making.

By using these content-ready slides, you can enhance your problem-solving abilities, learn from real-world success stories and mistakes, and gain valuable insights into the intricacies of financial decision-making. The included samples and templates are practical tools for structuring your case studies, enabling you to apply your knowledge and skills to different financial scenarios.

Whether preparing for exams, a professional seeking to broaden your financial expertise, or an entrepreneur looking to make informed business decisions, these financial case study examples, samples, and templates are indispensable resources to elevate your financial understanding and make well-informed decisions in your personal or professional life.

Financial Case Study Templates

Template 1: financial case study environment business solution problems.

Introducing our ready to use template designed to elevate your content and make you look like a presentation pro. With a wide range of PPT slides covering various topics, this deck encompasses all the core areas of your business needs.

The deck focuses on Financial Case Study Environment Business Solution Problems, offering professionally designed templates that combine suitable graphics and relevant content. With eight slides, thoughtfully crafted to enhance your message and captivate your audience.

Don't miss out on this opportunity to impress your audience with visually stunning slides and compelling content. Click the download button and access our pre-designed PPT presentation and take your presentations to the next level. We also have templates to propose a business case if you aim for a higher company turnover. 

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Template 2:  Case Study for Financial Management PowerPoint Template

Introducing our captivating case study template designed to provide an environment conducive to productive discussions and effective decision-making. This template is perfect for showcasing real-life examples and analyzing financial management scenarios visually engagingly.

With its three-stage process, this template simplifies complex concepts and guides your audience through the essential components of a comprehensive business case study. It enables you to present your findings, solutions, and recommendations.

Whether you are analyzing past financial performances, identifying challenges , or proposing solutions, this template provides a flexible framework for organizing and presenting your ideas. You can also elevate your financial management presentations with our marketing Case Study for Financial Management PowerPoint Template . Download it now and unlock a wealth of possibilities to engage your audience, foster integration, and showcase your expertise in financial management.

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Conclusion 

Financial case studies are invaluable tools for understanding real-world financial scenarios and developing practical solutions. By examining concrete examples, individuals and organizations can gain insights into financial challenges, apply analytical techniques, and make informed decisions. 

This article has highlighted the importance of collecting financial case study examples and accompanying samples and templates as valuable resources for learning and applying financial principles in various contexts. These resources can serve as guides for conducting comprehensive analyses, formulating recommendations, and ultimately achieving financial success.

FAQs on Financial Case Study

What is a case study in finance.

A case study in finance is an in-depth analysis of a specific financial situation, company, investment, or financial strategy. It involves examining real-world scenarios, often based on actual events, to understand and evaluate the financial implications, decision-making processes, and outcomes.

In finance, case studies are commonly used as a teaching and learning tool to assess and explore complex financial issues in academic and professional settings. They provide a practical approach to understanding financial theories, concepts, and practices by applying them to real-life situations.

A finance case study typically involves the following elements:

• Background: The case study begins by presenting relevant information about the company, industry, or financial situation under examination. This includes details about the organization's financial statements, market conditions, competitive landscape, and other pertinent background information.
• Problem or Challenge: The case study outlines the specific financial problem or challenge that needs to be addressed. This could be related to financial analysis, investment decisions, capital budgeting, risk management, financial restructuring, or any other financial aspect of the organization.
• Data Analysis: The case study analyzes financial data, such as income statements, balance sheets, cash flow statements, and key financial ratios. Various financial analysis tools and techniques, such as ratio analysis, discounted cash flow analysis, or valuation models, may be used to evaluate the situation.
• Alternatives and Solutions: Based on the analysis, different alternatives or solutions are identified to address the financial problem or challenge. These could include recommendations for financial strategies, investment decisions, capital allocation, cost reduction measures, or other relevant actions.
• Decision-Making and Implementation: The case study explores the decision-making process, considering risk, return, financial feasibility, and strategic considerations. It also discusses the potential implementation of the recommended solution and the expected outcomes.
• Lessons Learned: The case study concludes by discussing the lessons learned from the financial situation or decision-making process. This may involve reflections on successful strategies, potential pitfalls, and broader implications for financial management and decision-making in similar contexts.

How do you write a financial case study?

Writing a financial case study involves analyzing a real or hypothetical financial situation or problem and presenting a detailed examination of the facts, analysis, and potential solutions. Here is a step-by-step guide on how to write a financial case study:

• Identify the purpose and scope: Clearly define the purpose of the case study and the specific financial issue you want to address. Determine the scope of the study, including the period, entities involved, and relevant financial data.
• Gather information: Collect all relevant financial data and supporting documents related to the case. This may include financial statements, transaction records, market data, industry reports, and any other information necessary for the analysis.
• Describe the background: Provide an overview of the company or individual involved in the case study. Include relevant details such as the company's history, industry , size, key stakeholders, and any recent events or developments that may have a financial impact.
• State the problem or objective: Clearly define the financial problem or objective that needs to be addressed. Identify the key challenges or issues the company or individual faces and explain why they are essential.
• Conduct financial analysis: Analyze the financial data and apply appropriate financial analysis techniques to evaluate the situation. This may involve calculating financial ratios, conducting trend analysis, performing a discounted cash flow analysis, or any other relevant method to gain insights into the financial performance and position of the entity.
• Present findings: Summarize the results of the financial analysis clearly and concisely. Highlight key findings, trends, and any significant financial situation factors. Use graphs, charts, or tables to present data effectively.
• Discuss alternative solutions: Propose different options or strategies to address the financial problem or achieve the objective. Determine the advantages and drawbacks of each solution and provide supporting evidence or calculations to justify your recommendations.
• Make recommendations: Make clear and actionable recommendations based on analyzing and evaluating the alternative solutions. Support your recommendations with logical reasoning and explain how they can improve the financial situation or achieve the desired outcome.
• Provide a conclusion: Summarize the main points of the case study and restate the recommendations. Highlight any potential risks or challenges associated with implementing the proposed solutions.
• Include references and citations: If you have used external sources or references, provide proper citations to give credit to the authors and avoid duplicity or redundancy.
• Edit and proofread: Review the case study for clarity, coherence, and accuracy. Check for any grammatical or spelling errors. Ensure that the document is well-structured and easy to understand.

What is finance study?

Finance study refers to the field of knowledge and an academic discipline that focuses on managing, creating, and allocating financial resources. It involves studying various aspects of financial systems, instruments, markets, and institutions. Finance encompasses the theory and practice of managing money, investments, and financial decision-making.

The study of finance covers a wide range of topics, including:

• Corporate Finance: This area focuses on financial decisions and strategies within corporations. It includes capital budgeting, investment analysis, financial planning, risk management, and corporate valuation.
• Investments: This field examines allocating money to different financial assets including, stocks, mutual funds, real estate, and other derivatives. It involves analyzing risk and return, portfolio management, asset pricing models, and investment strategies.
• Financial Institutions and Markets: This area explores the functioning of financial institutions (such as banks, insurance companies, and investment firms) and financial markets (such as stock markets, bond markets, and foreign exchange markets). It involves studying the role of these institutions and markets in facilitating the flow of funds, managing risks, and pricing financial assets.
• International Finance: This branch focuses on financial transactions and relationships between countries and across borders. It covers foreign exchange rates, international investment, multinational corporations, and global financial markets.
• Personal Finance: This area focuses on individual or household financial management. It involves budgeting, saving, investing, retirement planning, taxation, and managing personal debt.

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47 case interview examples (from McKinsey, BCG, Bain, etc.)

One of the best ways to prepare for   case interviews  at firms like McKinsey, BCG, or Bain, is by studying case interview examples. 

There are a lot of free sample cases out there, but it's really hard to know where to start. So in this article, we have listed all the best free case examples available, in one place.

The below list of resources includes interactive case interview samples provided by consulting firms, video case interview demonstrations, case books, and materials developed by the team here at IGotAnOffer. Let's continue to the list.

• McKinsey examples
• BCG examples
• Bain examples
• Deloitte examples
• Other firms' examples
• Case books from consulting clubs
• Case interview preparation

Click here to practise 1-on-1 with MBB ex-interviewers

1. mckinsey case interview examples.

• Beautify case interview (McKinsey website)
• Diconsa case interview (McKinsey website)
• Electro-light case interview (McKinsey website)
• GlobaPharm case interview (McKinsey website)
• National Education case interview (McKinsey website)
• Talbot Trucks case interview (McKinsey website)
• Shops Corporation case interview (McKinsey website)
• Conservation Forever case interview (McKinsey website)
• McKinsey case interview guide (by IGotAnOffer)
• McKinsey live case interview extract (by IGotAnOffer) - See below

2. BCG case interview examples

• Foods Inc and GenCo case samples  (BCG website)
• Chateau Boomerang written case interview  (BCG website)
• BCG case interview guide (by IGotAnOffer)
• Written cases guide (by IGotAnOffer)
• BCG live case interview with notes (by IGotAnOffer)
• BCG mock case interview with ex-BCG associate director - Public sector case (by IGotAnOffer)
• BCG mock case interview: Revenue problem case (by IGotAnOffer) - See below

3. Bain case interview examples

• CoffeeCo practice case (Bain website)
• FashionCo practice case (Bain website)
• Associate Consultant mock interview video (Bain website)
• Consultant mock interview video (Bain website)
• Written case interview tips (Bain website)
• Bain case interview guide   (by IGotAnOffer)
• Digital transformation case with ex-Bain consultant
• Bain case mock interview with ex-Bain manager (below)

4. Deloitte case interview examples

• Engagement Strategy practice case (Deloitte website)
• Recreation Unlimited practice case (Deloitte website)
• Strategic Vision practice case (Deloitte website)
• Retail Strategy practice case  (Deloitte website)
• Finance Strategy practice case  (Deloitte website)
• Talent Management practice case (Deloitte website)
• Enterprise Resource Management practice case (Deloitte website)
• Footloose written case  (by Deloitte)
• Deloitte case interview guide (by IGotAnOffer)

5. Accenture case interview examples

• Case interview workbook (by Accenture)
• Accenture case interview guide (by IGotAnOffer)

6. OC&C case interview examples

• Leisure Club case example (by OC&C)
• Imported Spirits case example (by OC&C)

7. Oliver Wyman case interview examples

• Wumbleworld case sample (Oliver Wyman website)
• Aqualine case sample (Oliver Wyman website)
• Oliver Wyman case interview guide (by IGotAnOffer)

8. A.T. Kearney case interview examples

• Promotion planning case question (A.T. Kearney website)
• Consulting case book and examples (by A.T. Kearney)
• AT Kearney case interview guide (by IGotAnOffer)

9. Strategy& / PWC case interview examples

• Presentation overview with sample questions (by Strategy& / PWC)
• Strategy& / PWC case interview guide (by IGotAnOffer)

10. L.E.K. Consulting case interview examples

• Case interview example video walkthrough   (L.E.K. website)
• Market sizing case example video walkthrough  (L.E.K. website)

11. Roland Berger case interview examples

• Transit oriented development case webinar part 1  (Roland Berger website)
• Transit oriented development case webinar part 2   (Roland Berger website)
• 3D printed hip implants case webinar part 1   (Roland Berger website)
• 3D printed hip implants case webinar part 2   (Roland Berger website)
• Roland Berger case interview guide   (by IGotAnOffer)

12. Capital One case interview examples

• Case interview example video walkthrough  (Capital One website)
• Capital One case interview guide (by IGotAnOffer)

12. EY Parthenon case interview examples

• Candidate-led case example with feedback (by IGotAnOffer)

14. Consulting clubs case interview examples

• Berkeley case book (2006)
• Columbia case book (2006)
• Darden case book (2012)
• Darden case book (2018)
• Duke case book (2010)
• Duke case book (2014)
• ESADE case book (2011)
• Goizueta case book (2006)
• Illinois case book (2015)
• LBS case book (2006)
• MIT case book (2001)
• Notre Dame case book (2017)
• Ross case book (2010)
• Wharton case book (2010)

Practice with experts

Using case interview examples is a key part of your interview preparation, but it isn’t enough.

At some point you’ll want to practise with friends or family who can give some useful feedback. However, if you really want the best possible preparation for your case interview, you'll also want to work with ex-consultants who have experience running interviews at McKinsey, Bain, BCG, etc.

If you know anyone who fits that description, fantastic! But for most of us, it's tough to find the right connections to make this happen. And it might also be difficult to practice multiple hours with that person unless you know them really well.

Here's the good news. We've already made the connections for you. We’ve created a coaching service where you can do mock case interviews 1-on-1 with ex-interviewers from MBB firms . Start scheduling sessions today!

Related articles:

CBSE NCERT Solutions

NCERT and CBSE Solutions for free

Case Study Chapter 9 Financial Management

Please refer to Chapter 9 Financial Management Case Study Questions with answers provided below. We have provided Case Study Questions for Class 12 Business Studies for all chapters as per CBSE, NCERT and KVS examination guidelines. These case based questions are expected to come in your exams this year. Please practise these case study based Class 12 Business Studies Questions and answers to get more marks in examinations.

Case Study Questions Chapter 9 Financial Management

Read the source given below and answer the following questions : Financial management is concerned with efficient acquisition and allocation of funds. In other words, financial management is concerned with flow of funds and involves decisions related to procurement of funds, investment of funds in long term and short term assets and distribution of earnings to owners. In simple words we can say Financial Management refers to “Efficient acquisition of finance, efficient utilisation of finance and efficient distribution and disposal of surplus for smooth working of company.”

Questions :

Question. Efficient disposal of surplus, indicates which financial decisions ? (a) Financial decision (b) Investment decision (c) Dividend decision (d) None of the above

Question. Every organisation considers Financial management department as (a) Life blood of an organisation (b) Not very important department (c) Controlling department (d) None of the above

Question. ‘Efficient acquisition’ of finance is related to which financial decision ? (a) Financial decision (b) Investment decision (c) Dividend decision (d) None of the above

Question. “Efficient utilisation of finance”, indicates which financial decision ? (a) Financial decision (b) Investment decision (c) Dividend decision (d) None of the above

Read the source given below and answer the following questions : After completing the course of Hotel Management, Rahul plans to start his own Hotel, he plans to hire a team of experts to give his guests a unique and unforgettable experience. Keeping in mind their budgets. Before starting the business he visited his home town to take blessings of his father. His father told him that success of business depends on how well finance is invested in assets and operations and how timely and economically finances are arranged from outside or from with in the business. He guided him that he should always spend time in identifying different available sources of finance and comparing them in terms of their costs and associated risks. The returns from investment should always exceed the cost of investment.

Question. State the decision of financial management which assures the returns from investment should always exceed the cost of investment. (a) Investment decision (b) Financing decision (c) Dividend decision (d) None of the above

Question. Which decision helped him in identifying different available sources of finance and comparing them in terms of cost and risk. (a) Investment decision (b) Financing decision (c) Dividend decision (d) None of the above

Question. Identify the concept discussed above which has direct bearing on the financial health of a business. (a) Financial Management (b) Financial Planning (c) Business objective (d) None of the above

Question. State the key objective of concept identified in above para. (a) Profit maximisation (b) Wealth maximisation (c) Sales maximisation (d) None of the above

Read the source given below and answer the following questions : ‘ Sarah Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of `40 lakhs from IDBI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.

Question. Company is able to generate enough profit, so it should give how much dividend to share holders ? (a) More (b) Less (c) Moderate (d) None of the above

Question. “They have many shareholders, who prefer to receive a regular income from their investment.” This indicates the company should pay : (a) less dividend (b) more dividend (c) moderate dividend (d) none of the above

Question. IDBI restricted the company regarding payment of dividend. This is related to which factor of dividend decision? (a) Legal Restrictions (b) Stock market reaction (c) Access to capital market (d) Contractual constraint

Question. The above para is indicating which decision ? (a) Investment decision (b) Financing decision (c) Dividend decision (d) None of the above

Read the source given below and answer the following questions : Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.

Question. In the above case Mr. Ghosh suggested to raised more fund from debt. Higher debtequity ratio results in: (a) Lower financial risk (b) Higher degree of operating risk (c) Higher degree of financial risk (d) Higher Earning of profit.

Question. Employ more of cheaper debt may enhance the EPS. Such practice is called: (a) Equity Trading (b) Financial Leverage (c) Investment Decision (d) Trading on Equity

Question. “Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)” The proportion of debt in the overall capital is called___________. (a) Working Capital (b) Financial Leverage (c) Total Assets (d) None of these

Question. Identify the concept of Financial Management as advised by Mr. Ghosh in the above situation. (a) Capital Budgeting (b) Capital Structure (c) Dividend Decision (d) Working Capital Decision

Read the source given below and answer the following questions : Sunrises Ltd. dealing in ready made garments, is planning to expand its business operations in order to cater to international market. For this purpose the company needs additional Rs. 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was Rs. 8,00,000 and total capital investment was Rs. 1,00,00,000. Instead of issuing 10% Debenture the Company can issue Equity Shares for raising the fund. The financial manager of the company would normally opt for a source which is the cheapest.

Question. A decision for raising fund of Rs. 80,00,000 either from 10% Debenture or Equity Shares is a: (a) Financing decision (b) Dividend decision (c) Investment decision (d) None of the above

Question. What is the other name of long term decision ? (a) Capital Budgeting (b) Gross working capital (c) Financial management (d) Working Capital

Question. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case? (a) Cash Flow Position of the Company (b) Cost (c) Amount of Earnings (d) Taxation Policy

Question. A decision for replacing machines with modern machinery of higher production capacity is a: (a) Financing decision (b) Working capital decision (c) Investment decision (d) None of the above

Read the source given below and answer the following questions : ‘Monisha Consumer Goods’ is a leading consumer goods chain with a network of 46 stores primarily across Mumbai, Delhi and Pune. It was started by Monisha Gupta in 1987. It has a large market share in Mumbai, Delhi and Pune. Looking for an opportunity to expand, it has decided to open a new branch in Kerala. It has decide on what new resources it will invest in so that it is able to earn the highest possible return for investors. Once the company believes that it will be able to generate higher revenues and profits, it also has to decide on how this project will get funded. The finance manager, Atul was told to have an optimal capital structure by striking a balance between various sources of getting the project funded so as to increase shareholders’ wealth. Atul, after assessing the cash flow position of the company, evaluated the cost of different sources of finance and compared the risk associated with each source as well as the cost of raising funds.

Question. State the two financial decisions discussed in the above situation.

(i) Investment decision/ Capital budgeting decision/ Long term Investment decision (ii) Financing decision

Read the source given below and answer the following questions : Sudha is an enterprising business woman who has been running a poultry farm for the past ten years. She has saved ` 4,00,000 from her business. She shared with her family her desire to utilise this money to expand her business. Her family members gave her different suggestions like buying new machinery to replace the existing one, acquiring altogether new equipments with latest technology, opening a new branch of the poultry farm in another city and so on. Since these decisions are crucial for her business, involve a huge amount of money and are irreversible except at a huge cost, Sudha wants to analyse all aspects of the decisions, before taking any final decision.

Question. Identify and explain the financial decision to be taken by Sudha.

Investment decision/Capital budgeting decision Investment/Capital budgeting decision involves deciding about how the funds are invested in different assets so that they are able to earn the highest possible return for their investors

Question. Also, explain the briefly the factors that will affect this decision

Factors that affect capital budeting decision are: (a) Cash flows of the project (b) Rate of return of the project (c) Investment criteria

Read the source given below and answer the following questions : Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing of Mobile-phones with  some unique features. Rizul Bhattacharya felt that the mobile-phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore he convinced his son to start a furniture business. 

Question. Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya to choose furniture business over mobile-phones.

Technology upgradation

Read the source given below and answer the following questions : ‘Sarah Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of ` 40 lakhs from IDBI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement. The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company. 

Question. Quoting the lines from the above discussion identify and explain any four such factors.

Factors affecting dividend decision:  (i) Stability of earnings – ‘It has been consistently earning good profits for many years’. (ii) Cash Flow position – ‘There is availability of enough cash in the company’. (iii) Growth Prospects – ‘Good prospects for growth in the future.’ (iv) Shareholders’ preference – ‘It has many shareholders who prefer to receive regular income from their investments.’ (v) Contractual constraints – ‘It has taken a loan of ` 40 Lakhs from IDBI and … agreement.’

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Class 12th Business Studies - Financial Management Case Study Questions and Answers 2022 - 2023

By QB365 on 08 Sep, 2022

QB365 provides a detailed and simple solution for every Possible Case Study Questions in Class 12 Business Studies Subject - Financial Management, CBSE. It will help Students to get more practice questions, Students can Practice these question papers in addition to score best marks.

QB365 - Question Bank Software

Financial management case study questions with answer key.

12th Standard CBSE

Final Semester - June 2015

Business Studies

Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution. 1. Identify the concept of Financial Management as advised by Mr. Ghosh in the above situation.

2. In the above case Mr. Ghosh suggested to raised more fund from debt. Higher debt-equity ratio results in:

3. “Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)” The proportion of debt in the overall capital is called___________.

4. Employ more of cheaper debt may enhance the EPS. Such practice is called:

Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose the company needs additional Rs.80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was Rs. 8,00,000 and total capital investment was Rs. 1,00,00,000. Instead of issuing 10% Debenture the Company can issue Equity Shares for raising the fund. The financial manager of the company would normally opt for a source which is the cheapest. 1. What is the other name of long term decision?

2. A decision for replacing machines with modern machinery of higher production capacity is a:

3. A decision for raising fund of Rs. 80,00,000 either from 10% Debenture or Equity Shares is a:

4. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case? Choose the correct option.

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Financial management case study questions with answer key answer keys.

1. (b) Capital Structure 2. (c) Higher degree of financial risk 3. (b) Financial Leverage 4. (d) Trading on Equity

1. (a) Capital Budgeting 2. (c) Investment decision 3. (a) Financing decision 4. (b) Cost

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Finance Case Studies

Featured finance case studies:.

Canary Wharf: Financing and Placemaking

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Nathan Cummings Foundation: Mission-Driven Investing

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Expand the sections below to read more about each case study:, nathan cummings foundation, ellie campion, dwayne edwards, brad wayman, anna williams, william goetzmann, and jean rosenthal.

Asset Management, Investor/Finance, Leadership & Teamwork, Social Enterprise, Sourcing/Managing Funds

The Nathan Cummings Foundation Investment Committee and Board of Trustees had studied the decision to go “all in” on a mission-related investment approach. The Board voted 100% to support this new direction and new goals for financial investments, but many questions remained. How could NCF operationalize and integrate this new strategy? What changes would it need to make to support the investment strategies' long-term success? How could NCF measure and track its progress and success with this new strategy?

William Goetzmann, Jean Rosenthal, Jaan Elias, Edoardo Pasinato, Lukas Cejnar, Ellie Campion

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The renovation of the Fondaco dei Tedeschi in Venice represented a grand experiment. Should an ancient building in the midst of a world heritage site be transformed into a modern mall for luxury goods? How best to achieve the transformation and make it economically sustainable? Would tourists walk to the mall? And would they buy or just look? What could each stakeholder learn from their experiences with the Fondaco dei Tedeschi?

Gardner Denver

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Asset Management, Employee/HR, Investor/Finance, Leadership & Teamwork

As KKR, a private equity firm, prepared to take Gardner-Denver, one of its portfolio companies, public in mid-2017, a discussion arose on the Gardner-Denver board about the implications of granting approximately $110 million in equity to its global employee base as part of its innovative "broad-based employee ownership program." Was the generous equity package that Pete Stavros proposed be allotted to 6,100 employees the wisest move and the right timing for Gardner Denver and its new shareholders?

Home Health Care

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Asset Management, Competitor/Strategy, Healthcare, Investor/Finance

Blue Wolf Capital Partners was making major investments in the home health care sector. The private equity fund had purchased two U.S. regional companies in the space. The plan was to merge the two organizations, creating opportunities for shared expertise and synergies in reducing management costs. Two years later, the management team was considering adding a third company. Projected revenues for the combined organization would top $1 billion annually. What was the likelihood that this opportunity would succeed?

Suwanee Lumber Company

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Asset Management, Investor/Finance, Sustainability

In 2016, Blue Wolf, a private equity firm headquartered in New York City, confronted a number of options when it came to its lumber business. They could put their holdings in the Suwanee Lumber Company (SLC), a sawmill they had purchased in 2013, up for sale. Or they could continue to hold onto SLC and run it as a standalone business. Or they could double down on the lumber business by buying an idle mill in Arkansas to run along with SLC.

Alternative Meat Industry: How Should Beyond Meat be Valued?

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Competitor/Strategy, Customer/Marketing, Investor/Finance, Sourcing/Managing Funds, Sustainability

In 2009, when experienced entrepreneur Ethan Brown decided to build a better veggie burger, he set his sights on an exceptional goal – create a plant-based McDonald’s equally beloved by the American appetite. To do this, he knew he needed to transform the idea of plant-based meat alternatives from the sleepy few veggie burger options in the grocer’s freezer case into a fundamentally different product. Would further investments in research and development help give Beyond Meat an edge? Would Americans continue to embrace meat alternatives, or would the initial fanfare subside below investor expectations?

Hertz Global Holdings (A): Uses of Debt and Equity

Jean rosenthal, geert rouwenhorst, jacob thomas, allen xu.

Asset Management, Financial Regulation, Sourcing/Managing Funds

By 2019, Hertz CEO Kathyrn Marinello and CFO Jamere Jackson had managed to streamline the venerable car rental firm's operations. Their next steps were to consider ways to fine-tune Hertz's capital structure. Would it make sense for Marinello and Jackson to lead Hertz to issue more equity to re-balance the structure? One possibility was a stock rights offering, but an established company issuing equity was not generally well-received by investors. How well would the market respond to an attempt by Hertz management to increase shareholder equity?

Twining-Hadley Incorporated

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Employee/HR, Investor/Finance, Metrics & Data, Sourcing/Managing Funds

Jessica Austin has been asked to compute THI's Weighted Average Cost of Capital, a key measure for making investments and deciding executive compensation. What should she consider in making her calculation?

Shake Shack IPO

Vero bourg-meyer, jaan elias, jake thomas and geert rouwenhorst.

Competitor/Strategy, Innovation & Design, Investor/Finance, Leadership & Teamwork, Sourcing/Managing Funds, Sustainability

Shake Shack's long lines of devoted fans made investors salivate when the company went public in 2015 and shares soared above expectations. Was the enthusiasm justified? Could the company maintain its edge in the long run?

Strategy for Norway's Pension Fund Global

Jean rosenthal, william n. goetzmann, olav sorenson, andrew ang, and jaan elias.

Asset Management, Investor/Finance, Sourcing/Managing Funds

Norway's Pension Fund Global was the largest sovereign wealth fund in the world. With questions in 2014 on policies, ethical investment, and other concerns, what was the appropriate investment strategy for the Fund?

Factor Investing for Retirement

Jean rosenthal, jaan elias and william goetzmann.

Asset Management, Investor/Finance

Should this investor look for a portfolio of factor funds to meet his goals for his 401(k) Retirement Plan?

Bank of Ireland

Jean w. rosenthal, eamonn walsh, matt spiegel, will goetzmann, david bach, damien p. mcloughlin, fernando fernandez, gayle allard, and jaan elias.

Asset Management, Financial Regulation, Investor/Finance, Leadership & Teamwork, Macroeconomics, State & Society

In August 2011, Wilbur Ross, an American investor specializing in distressed and bankrupt companies, purchased 35% of the stock of Bank of Ireland. Even for Ross, investing in an Irish bank seemed risky. Observers wondered if the investment made sense.

Commonfund ESG

Jaan elias, sarah friedman hersh, maggie chau, logan ashcraft, and pamela jao.

Asset Management, Investor/Finance, Metrics & Data, Social Enterprise

ESG (Environmental Social and Governance) investing had become an increasingly hot topic in the financial community. Could Commonfund offer its endowment clients some investment vehicle that would satisfy ESG concerns while producing sufficient returns?

Glory, Glory Man United!

Charles euvhner, jacob thomas, k. geert rouwenhorst, and jaan elias.

Competitor/Strategy, Employee/HR, Investor/Finance, Leadership & Teamwork, Sourcing/Managing Funds

Manchester United might be the greatest English sports dynasty of all time. But valuation poses unique challenges. How much should a team's success on the pitch count toward its net worth?

Walmart de México: Investing in Renewable Energy

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Investor/Finance, Operations, State & Society, Sustainability

Walmart de México y Centroamérica contracted for power from EVM's wind farm, saving energy costs and improving sustainability. What should the company's next steps be to advance its goals?

Voltaire, Casanova, and 18th-Century Lotteries

Jean rosenthal and william n. goetzmann.

Business History, State & Society

Gambling has been a part of human activity since earliest recorded history, and governments have often attempted to turn that impulse to benefit the state.  The development of lotteries in the 18th century helped to develop the study of probabilities and enabled the financial success of some of the leading figures of that era.

Alexander Hamilton and the Origin of American Finance

Andrea nagy smith, william goetzmann, and jeffrey levick.

Business History, Financial Regulation, Investor/Finance

Alexander Hamilton is said to have invented the future. At a time when the young United States of America was disorganized and bankrupt, Hamilton could see that the nation would become a powerful economy.

Kmart Bankruptcy

Jean rosenthal, heather tookes, henry s. miller, and jaan elias.

Asset Management, Financial Regulation, Investor/Finance

Less than 18 months after Kmart entered Chapter 11, the company emerged and its stocked soared. Why had the chain entered Chapter 11 in the first place and how had the bankruptcy process allowed the company to right itself?

Oil, ETFs, and Speculation

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Since the markets' origins, traders sought standardized wares to increase market liquidity. In the 1960s and later, they sought assets uncorrelated to traditional bonds and equities. By late 2004, commodity-based exchange-traded securities emerged.

Newhall Ranch Land Parcel

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Brandeis and the Rose Museum

Arts Management, Asset Management, Investor/Finance, Social Enterprise, Sourcing/Managing Funds

The question of the role museums should play in university life became urgent for Brandeis in early 2009. Standard portfolios of investments had just taken a beating. Given that environment, should Brandeis sell art in order to save its other programs?

Taking EOP Private

Allison mitkowski, william goetzmann, and jaan elias.

Asset Management, Financial Regulation, Investor/Finance, Leadership & Teamwork

With 594 properties nationwide, EOP was the nation’s largest office landlord.  Despite EOP's dominance of the REIT market, analysts had historically undervalued EOP. However, Blackstone saw something in EOP that the analysts didn’t, and in November, Blackstone offered to buy EOP for $48.50 per share. What did Blackstone and Vornado see that the market didn’t?

Subprime Lending Crisis

Jaan elias and william n. goetzmann.

Asset Management, Financial Regulation, Investor/Finance, State & Society

To understand the collapse of the subprime mortgage market, we look at a failing Mortgage Backed Security (MBS) and then drill down to look at a single loan that has gone bad.

William N. Goetzmann, Jean Rosenthal, and Jaan Elias

Asset Management, Business History, Customer/Marketing, Entrepreneurship, Innovation & Design, Investor/Finance, Sourcing/Managing Funds, State & Society

The financial engineering of London's Canary Wharf was as impressive as the structural engineering. However, Brexit and the rise of fintech represented new challenges. Would financial firms leave the U.K.? Would fintech firms seek new kinds of space? How should the Canary Wharf Group respond?

The Future of Malls: Was Decline Inevitable?

Jean rosenthal, anna williams, brandon colon, robert park, william goetzmann, jessica helfand  .

Business History, Customer/Marketing, Innovation & Design, Investor/Finance

Shopping malls became the "Main Street" of US suburbs beginning in the mid-20th century. But will they persist into the 21st?

Hirtle Callaghan & Co

James quinn, jaan elias, and adam blumenthal.

Asset Management, Investor/Finance, Leadership & Teamwork

In August 2019, Stephen Vaccaro, Yale MBA ‘03, became the director of private equity at Hirtle, Callaghan & Co., LLC (HC), a leading investment management firm associated with pioneering the outsourced chief investment office (OCIO) model for college endowments, foundations, and wealthy families. Vaccaro was tasked with spearheading efforts to grow HC’s private equity (PE) market value from $1 billion to a new target of roughly $3 billion in order to contribute to the effort of generating higher long-term returns for clients. Would investment committees overseeing endowments typically in the 10s or 100s of millions embrace this shift, and, more pointedly, was this the best move for client portfolios?

The Federal Reserve Response to 9-11

Jean rosenthal, william b. english, jaan elias.

Financial Regulation, Investor/Finance, Leadership & Teamwork, State & Society

The attacks on New York City and the Pentagon in Washington, DC, on September 11, 2001, shocked the nation and the world. The attacks crippled the nerve center of the U.S. financial system. Information flow among banks, traders in multiple markets, and regulators was interrupted. Under Roger Ferguson's leadership, the Federal Reserve made a series of decisions designed to provide confidence and increase liquidity in a severely damaged financial system. In hindsight, were these the best approaches? Were there other options that could have taken place?

Suwanee Lumber Company (B)

In early 2018, Blue Wolf Capital Management received an offer to sell both its mill in Arkansas (Caddo) and its mill in Florida (Suwanee) to Conifex, an upstart Canadian lumber company. Blue Wolf hadn’t planned to put both mills up for sale yet, but was the deal too good to pass up? Blue Wolf had invested nearly $36.5 million into rehabilitating the Suwanee and Caddo mills. However, neither was fully operational yet. Did the offer price fairly value the prospects of the mills? How should Blue Wolf consider the Conifex stock? Should Blue Wolf conduct a more extensive sales process rather than settle for this somewhat unexpected offer?

Occidental Petroleum's Acquisition of Anadarko

Jaan elias, piyush kabra, jacob thomas, k. geert rouwenhorst.

Asset Management, Competitor/Strategy, Investor/Finance, Sourcing/Managing Funds

In May of 2019, Vicki Hollub, the CEO of Occidental Petroleum (Oxy), pulled off a blockbuster. Bidding against Chevron, one of the world's largest oil firms, she had managed to buy Anadarko, another oil company that was roughly the size of Oxy. Hollub believed that the combination of the two firms brought the possibility for billions of dollars in synergies, more than offsetting the cost of the acquisition. Had Hollub hurt shareholder value with Oxy's ambitious deal, or had she bolstered a mid-size oil firm and made it a major player in the petroleum industry? Why didn't investors see the tremendous synergies in which Hollub fervently believed?

Hertz Global Holdings (B): Uses of Debt and Equity 2020

In 2019, Hertz held a successful rights offering and restructured some of its debt. CEO Kathyrn Marinello and CFO Jamere Jackson were moving the company toward what seemed to be sustainable profitability, having implemented major structural and financial reforms. Analysts predicted a rosy future. Travel, particularly corporate travel, was increasing as the economy grew. With all the creativity that the company had shown in its financial arrangements, did it have any options remaining, even while under the court-led reorganization?

Prodigy Finance

Vero bourg-meyer, javier gimeno, jaan elias, florian ederer.

Competitor/Strategy, Investor/Finance, Social Enterprise, State & Society, Sustainability

Having pioneered a successful financing model for student loans, Prodigy also was considering other financial services that could make use of the company’s risk model. What new products could Prodigy offer to support its student borrowers? What strategy should guide the company’s new product development? Or should the company stick to the educational loans it pioneered and knew best?

tronc: Valuing the Future of Newspapers

Jean rosenthal, heather e. tookes, and jaan elias.

Business History, Competitor/Strategy, Investor/Finance, Leadership & Teamwork

Gannet offered Tribune Publishing an all-cash buyout offer. Tribune then made a strategic pivot: new stock listing, new name "tronc," and a goal of posting 1,000 videos/day. Should the Tribune board take the buyout opportunity? What was the right price?

Role of Hedge Funds in Institutional Portfolios: Florida Retirement System

Jaan elias, william goetzmann and lloyd baskin.

Asset Management, Financial Regulation, Investor/Finance, Metrics & Data, State & Society

The Florida Retirement System, one of the country’s largest state pensions, had been slow to embrace hedge funds, but by 2015, they had 7% of their assets in the category. How should they manage their program?

Social Security 1935

Jean rosenthal, william n. goetzmann, and jaan elias.

Business History, Financial Regulation, Innovation & Design, Investor/Finance, State & Society

Frances Perkins, Franklin Roosevelt's Secretary of Labor, shaped the Social Security Act of 1935, changing America’s pension landscape. What might she have done differently?

Ant Financial: Flourishing Farmer Loans at MYbank

Jingyue xu, jean rosenthal, k. sudhir, hua song, xia zhang, yuanfang song, xiaoxi liu, and jaan elias.

Competitor/Strategy, Customer/Marketing, Entrepreneurship, Innovation & Design, Investor/Finance, Leadership & Teamwork, Operations, State & Society

In 2015 Ant Financial's MYbank (an offshoot of Jack Ma’s Alibaba company) created the Flourishing Farmer Loan program, an all-internet banking service for China's rural areas. Could MYbank use financial technology to create a program with competitive costs and risk management?

Low-Carbon Investing: Commonfund & GPSU

Jaan elias, william goetzmann, and k. geert rouwenhorst.

Asset Management, Ethics & Religion, Investor/Finance, Social Enterprise, State & Society, Sustainability

In August of 2014, the movement to divest fossil fuel investments from endowment portfolios was sweeping campuses across the United States, including Gifford Pinchot State University (GPSU). How should GPSU and its investment partner Commonfund react?

360 State Street: Real Options

Andrea nagy smith and mathew spiegel.

Asset Management, Investor/Finance, Metrics & Data, Sourcing/Managing Funds

360 State Street proved successful, but what could Bruce Becker construct on the 6,000-square-foot vacant lot at the southwest corner of the project? Under what set of circumstances and at what time would it be most advantageous to proceed? Or should he build anything at all?

Centerbridge

Jean rosenthal and olav sorensen.

When Jeffrey Aronson and Mark Gallogly founded Centerbridge, they hoped to grow the firm, but not to a point that it would lose its culture. Having added an office in London, could the firm add more locations and maintain its collegial character?

George Hudson and the 1840s Railway Mania

Andrea nagy smith, james chanos, and james spellman.

Business History, Financial Regulation, Investor/Finance, Metrics & Data

Railways were one of the original disruptive technologies: they transformed England from an island of slow, agricultural villages into a fast, urban, industrialized nation.  George Hudson was the central figure in the mania for railroad shares in England. After the share value crashed, some analysts blamed Hudson, others pointed to irrational investors and still others maintained the crash was due to macroeconomic factors.

Demosthenes and Athenian Finance

Andrea nagy smith and william goetzmann.

Business History, Financial Regulation, Law & Contracts

Demosthenes' Oration 35, "Against Lacritus," contains the only surviving maritime loan contract from the fourth century B.C., proving that the ancient Greeks had devised a commercial code to link the economic lives of people from all over the Greek world.   Athenians and non-Athenians alike came to the port of Piraeus to trade freely.

South Sea Bubble

Frank newman and william goetzmann.

Business History, Financial Regulation

The story of the South Sea Company and its seemingly absurd stock price levels always enters into conversations about modern valuation bubbles.  Because of its modern application, discerning what was at the root of the world's first stock market crash merits considerable attention. What about the South Sea Company and the political, economic and social context in which it operated led to its stunning collapse?

Jean W. Rosenthal, Jaan Elias, William N. Goetzmann, Stanley Garstka, and Jacob Thomas

Asset Management, Healthcare, Investor/Finance, Sourcing/Managing Funds, State & Society

A centerpiece of the 2007 contract negotiations between the UAW and GM - and later with Chrysler and Ford - was establishing a Voluntary Employee Beneficiary Association (VEBA) to provide for retiree healthcare costs. The implications were substantial.

Northern Pulp: A Private Equity Firm Resurrects a Troubled Paper Company

Heather tookes, peter schott, francesco bova, jaan elias and andrea nagy smith.

Investor/Finance, Macroeconomics, State & Society, Sustainability

In 2008, the lumber industry was in a severe recession, yet Blue Wolf Capital Management was considering investment in a paper mill in Nova Scotia. How should they proceed?

Lahey Clinic: North Shore Expansion

Jaan elias, andrea r. nagy, jessica p. strauss, and william n. goetzmann.

Asset Management, Financial Regulation, Healthcare, Investor/Finance

In early 2007 the Lahey Clinic in Massachusetts believed that expansion of its North Shore facility was not only a smart strategy but also a business necessity.  The two years of turmoil in the Massachusetts health care market prompted observers to question Lahey's 2007 decisions. Did the expansion strategy still make sense?

Carry Trade ETF

K. geert rouwenhorst, jean w. rosenthal, and jaan elias.

Innovation & Design, Investor/Finance, Macroeconomics, Sourcing/Managing Funds

In 2006 Deutsche Bank (DB) brought a new product to market – an exchange traded fund (ETF) based on the carry trade, a strategy of buying and selling currency futures. The offering received the William F. Sharpe Indexing Achievement Award for “Most Innovative Index Fund or ETF” at the 2006 Sharpe Awards. These awards are presented annually by IndexUniverse.com and Information Management Network for innovative advances in the indexing industry. The carry trade ETF shared the award with another DB/PowerShares offering, a Commodity Index Tracking Fund. Jim Wiandt, publisher of IndexUniverse.com, said, "These innovators are shaping the course of the index industry, creating new tools and providing new insights for the benefit of all investors." What was it that made this financial innovation successful?

William Goetzmann and Jaan Elias

Asset Management, Business History

Hawara is the site of the massive pyramid of Amenemhat III, a XII Dynasty [Middle Kingdom, 1204 – 1604 B.C.E.] pharaoh.  The Hawara Labyrinth and Pyramid Complex present a wealth of information about the Middle Kingdom.  Among its treasures are papyri covering property rights and transfers of ownership.

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Register for Online tuition on Vedantu.com to score more marks in CBSE board examination. Related Chapters Effective Preparation for Class 12 Business Studies Chapter 9: Important Questions and Answers Very short questions and answers (1 or 2 marks questions). 1. 'Reliable Transport Services Ltd.' specializes in transporting fruits and vegetables. It has a good reputation in the market as it delivers the fruits and vegetables at the right time and at the right place." State with reason whether the working capital requirements of 'Reliable Transport Services" will be high or low.     Ans: Reliable Transport Services Ltd.'s working capital requirements will be minimal. Because fruits and vegetables are perishable by nature, there will be no need to have a big amount of stock on hand. 2. How do 'Floatation costs" affect the choice of capital structure of a company? State. Ans: The cost of obtaining cash is known as the flotation cost. The floatation cost for issuing debt is normally lesser than that of issuing equity, hence in such cases a higher ratio of debt in the capital structure can be preferred by the companies. 3. What is meant by 'financial management'?                                         Ans: Financial management encompasses all business activities including the acquisition and preservation of capital funds in order to achieve a company's financial demands and overall objectives. 4. Besides the investment decision the finance function is concerned with two other broad decisions. Name these decisions.                                                    Ans: The decision other than investment decision are: Financing Decision: This refers to the decision regarding the amount of finance to be raised, choosing from the various long term and short term sources of finance, as well as the decisions regarding choosing the most optimum source of finance. Dividend Decision: A dividend is a portion of a company's profit that is delivered to stockholders. The stockholders receive current income as a result of this. The financial choice concerns the distribution of profits to investors who provided cash to the company. The amount of earnings to be distributed among the  shareholders is the subject of the dividend decision. It must be decided that,  If all profits are to be dispersed,  Whether all earnings will be retained in the business, or  Whether a portion of profits will be retained in the business and the remainder distributed among shareholders. 5. A textile company is diversifying and starting a steel manufacturing plant. State with reason the effect of diversification on the fixed capital requirements of the company. Ans: Due to diversification, the investment will increase thus leading to increased fixed capital requirements. 6. Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing Mobile-phones with some unique features. Rizul Bhattacharya felt that the mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore, he convinced his son to start a furniture business.  Identify the factor affecting fixed capital requirements, which made Rizul Bhattacharya choose furniture business over mobile phones. Ans: "Technology Upgrade” because mobile phones are more prone to get obsolete due to technology upgradation. 7. The size of assets, the profitability and competitiveness are affected by one of the financial decisions. Name and state the decision.  Ans: Capital budgeting/investment decisions have an impact on asset size, profitability, and competitiveness. 8. Why does financial risk arise? Ans: Regardless of whether the company makes a profit, interest on borrowed funds must be paid. Furthermore, borrowed funds must be repaid after a defined period of time, and they are subject to a charge on assets. This gives rise to financial risk. 9. How does the production cycle affect working capital? Ans: The longer the production cycle, the longer the capital will be stuck in raw materials and semi-manufactured products. As a result, more working capital will be required when the production cycle is long, whereas less working capital will be required when the cycle is short. 10. Enumerate two objectives of financial management? Ans: The two objectives of financial management are: Profit Maximization: The primary objective is concerned with the increasing earning per share (EPS) of the company. It is also the traditional objectives of the financial management that focuses on the fact that all the financial efforts should be made to increase the overall profit of the company, Wealth Maximization : This objective focuses on increasing the overall shareholder wealth of the company, by directing the financing efforts on increasing the share price of the company. Higher the share price, higher the wealth. The goal of financial management in this is to optimize the current value of the company's equity shares. Other Objectives: There can be other objectives such as optimum utilisation of financial resources, choosing the most appropriate source, ensuring easy availability of funds at reasonable costs etc. 11. Radhika and Vani who are young fashion designers left their job with a famous fashion designer chain to set-up a company "Fashionate Pvt. Ltd.' They decided to run a boutique during the day and coaching classes for entrance examinations of National Institute of Fashion Designing in the evening. For the coaching centre they hired the first floor of a nearby building. Their major expense was money spent on photocopying of notes for their students. They thought of buying a photocopier knowing fully that their scale of operations was not sufficient to make full use of the photocopier. In the basement of the building of 'Fashionate Pvt. Ltd.' Praveen and Ramesh were carrying on a printing and stationery business in the name of 'Neo Prints Pvt. Ltd.' Radhika approached Praveen with the proposal to buy a photocopier jointly which could be used by both of them without making separate investment, Praveen agreed to this. Identify the factors affecting fixed capital requirements of 'Fashionate Put. Ltd." Ans: The level of collaboration has an impact on "Fashionate Pvt. Ltd. fixed capital requirements. Occasionally, business organizations would collaborate and develop certain facilities together. In such cases, an individual organization's requirement for fixed capital reduces. 12. What is meant by 'Capital Structure'?                                                 Ans: The term "capital structure" refers to a company's prudent use of debt and equity. One of the most essential considerations in financial management is the financing pattern, or the proportion of funds raised from various sources. 13. Name & state the aspect of financial management that provides a link between investment and financing decisions.                                                         Ans: Financial Planning provides a link between investment and financing decisions. Financial Planning involves designing the blueprint of the financial operations of a firm. 14. Name and state the aspect of financial management that enables to foresee the fund requirements both in terms of "the quantum' and 'in terms of the timings". Ans: "Financial Planning" is the component of financial management that provides foresight of fund requirements both in terms of "quantity" and "timings." Financial planning is creating a blueprint for a company's entire financial operations so that the appropriate quantity of funds are available for various operations at the appropriate time. Short Questions and Answers (3 or 4 Marks Questions) 15. State any four factors which affect the requirements of working capital requirements of a company. Ans: Working capital requirements are influenced by the following factors: Nature of Business: A company's basic nature has an impact on the quantity of working capital it requires. A trading firm, for example, requires less working capital than a manufacturing organization. Scale of Operations: A large-scale operation will require more inventory since its working capital requirements are higher than a small-scale operation. Business Cycle: When the economy is booming, more manufacturing is undertaken, and thus more working capital is required, as opposed to when the economy is in a slump. Seasonal Factors: Demand for a product will be greater during peak season, necessitating more working capital than during lean season. 16. 'Best Bulbs Pvt. Ltd. was manufacturing good quality LED bulbs and catering to the local market. The current production of the company is 800 bulbs a day. Sumit, the marketing manager of the company surveyed the market and decided to supply the bulbs to five-star-hotels also. He anticipated the higher demand in future and decided to buy a sophisticated machine to further improve the quality and quantity of the bulbs produced. Identify the factors affecting fixed capital requirements of the company. Ans: The factor determining a company's fixed capital requirements is 'Growth Prospects’. Higher output, more sales, more inputs, and so on are all related to a company's expansion and growth. This necessitates the use of more advanced machinery. As a result, organizations with strong growth potential require more fixed capital, and vice versa. High growth prospects lead to Large fixed capital requirements, whereas low growth prospects lead to low fixed capital requirements. 17. Every manager has to take three major decisions while performing the finance function. Explain them. Ans: A management must make three main decisions: Investment Decision: Investment decision refers to the prudent allocation of a firm's resources among various alternative offers, with the minimum cost, maximum return. Dividend Decision: Dividend decision is whether to distribute earnings to shareholders as dividends or to retain earnings to finance long-term projects of the firm. Long Questions and Answers (5 or 6 Marks Questions) 18. Sakshi Ltd. is a company manufacturing electronic goods. It has a share capital of Rs. 120 lakhs. The earning per share in the previous years was Rs 0.5. For diversification the company requires additional capital of Rs 80 lakhs. The company raised funds by issuing 10 % debentures for the same. During the current year the company earned profit of Rs 16 lakhs on capital employed, It paid tax of 40%. (a) State whether the shareholders gained or lost in respect of earning per share on diversification. Show your calculations clearly. Ans: (a) Profit before Interest $\& \operatorname{Tax}=R_{s} 16,00,000$ (Given)  Interest on $10 \%$ debenture $=\operatorname{Rs} 8,00,000$  Profit before Tax $=$ Profit before Interest and Tax Interest $=16,00,000-8,00,000=\operatorname{Rs} 8,00,000 .$ $\operatorname{Tax}(a) 40 \%=\operatorname{Rs} 3,20,000\left\{8,00,000 \times \frac{40}{100}\right\}$ Profit after Tax =  Profit before tax - Tax=8,00,000-3,20,000=4,80,000 $\mathrm{EPS}=\frac{\text { profit after tax }}{\text { Number of equity shares }}=\dfrac{4,80,000}{12,00,000}=0.4$ Note: Equity shares are considered to have a face value of Rs 10 each. Hence, the number of equity shares is 12,00,000. (b) Also state any three factors that favour the issue of debentures by the company as part of its capital structure.  Ans: The following are three characteristics that favour the corporation issuing debentures as part of its capital structure. Tax Deductibility: The company's interest payments on its debentures are tax deductible. In the above scenario, the company is paying tax 40 %. Thus, it is beneficial for the company to issue debentures. Say in Management : Issuing more shares will dilute management's control. Thus, companies who aren’t willing to dilute the control may opt for more debt and less equity. Relatively Low Cost: For a company, the cost of raising capital through debentures is relatively lower than that through equity. Debenture investors require a lower rate of return due to the assurance (of rate of return) and guaranteed repayment (of debenture amount at maturity). Aside from that, interest paid to debenture holders is a tax-deductible expense. This means that after deducting interest from the company's earnings, the net amount is utilised to calculate tax liabilities. As a result, corporations prefer debentures since a higher usage of debt decreases the overall cost of capital while leaving the cost of equity the same. 19. Explain briefly any four factors that affect the working capital requirement of a company. Ans: The different factors that influence a company's working capital requirements are outlined below. The effective interest rate that a firm pays on its debts, such as bonds and loans, is known as the cost of debt. Business Type: Companies that provide services or trade (and have a short operational cycle) require less working capital than companies that manufacture goods. The raw materials are generally the same as the final outputs and the sales transaction takes place immediately in service and trading organization, thus leading to low working capital requirements.. A manufacturing firm, on the other hand, has a long operational cycle, and raw resources must be turned into completed goods before they can be sold, thus leading to large working capital needs. Small working capital needs are for service or trading businesses, while manufacturing companies have a high need for working capital. Credit Extends to the Firm's Ability: When a corporation has a generous credit policy, the number of borrowers grows. This, in turn, raises the company's working capital requirements. A strict credit strategy, on the other hand, decreases the need for working capital. Large working capital is required with a company having a liberal credit policy. Whereas, a strict credit policy leads to low working capital needs. Extent of Availability of Raw Material: If the raw materials required by the company can be availed easily, then the firm need not maintain a large stock of inventories of raw material. In such circumstances, the company's working capital requirements are reduced. If on the other hand, raw materials aren't readily available or their supply isn't consistent, the company will need to keep a significant stock of raw materials on hand to assure uninterrupted operations, necessitating a substantial amount of working capital. Hence if raw materials are readily available, then working capital requirements are minimal. But if obtaining raw materials is difficult then it will result in a high working capital demand. Scale of Operations: Companies operating on a large scale require large working capital. This is due to the fact that such businesses must keep a large stock of merchandise and debtors. When the scope of operations is limited, however, the amount of working capital required is lower. Hence, large-scale operations necessitate a large amount of working capital. Operating on a small scale necessitates a low level of working capital. 20. The board of Directors has asked you to design the capital structure of the company. Explain the factors that you would consider while doing so. Ans: The following seven elements are used to establish a company's capital structure:- Cash Flow Position: The cash position at the end of the month on a cash flow statement represents the amount of cash the company has in hand at that point in time. This cash position reflects the company's financial strength and liquidity, indicating the company's capacity to satisfy its existing obligations. Hence, a company with high liquidity and a good cash flow position can issue debt capital, as the company will have less chances of facing financial risk than the company with a low cash position. Tax Rate: Higher the tax rate, more preference for debt capital in the capital structure, as interest on debt capital  being a tax deductible expense makes the debt cheaper. Cost of Debt: Lower the cost of debt, higher will be the preference for debt capital in the equity share as against equity capital. Control: If the existing shareholders want to maintain the control in the firm, the company may prefer more debt over equity in the capital structure, as issuing debt will not affect the control stake of existing shareholders. Stock Market Situations: If the stock market is flourishing, and there is a condition of boom then the companies may prefer more equity over debt in the capital structure. However, in the case of a bear market, to avoid any more risks, the companies will prefer more debt over equity in the capital structure. Return on Investment (ROI): It is a performance metric used to assess an investment's efficiency or profitability, as well as to compare the efficiency of many investments. A higher ROI over the rate of interest will make the companies prefer debt capital because of lower cost and higher returns. While in the case of ROI being less than rate of interest, equity would be preferred, as in this case debt would be more costly affair for the company Size of Business: Small businesses generally go for retained earnings, and equity capital, as if they go for debt or borrowed capital, the company has to face a fixed interest burden. However in the case of large companies, issuing debt is not a big issue, and they can raise long term finance from borrowed sources cheaper than that of small firms. 21. The directors of a company have decided to expand their business activities by increasing the stock of raw materials and finished goods at an estimated cost of Rs. 50 lakhs. Describe the various ways open to the company to raise necessary finance for the purpose. Ans: The company can raise necessary finance for the purpose of expansion through the following function. Issue of Shares: The technique through which businesses distribute additional shares to shareholders is known as the issue of shares. Individuals or corporations can be shareholders. While circulating the shares, the company adheres to the rules set forth by the Companies Act of 2013. The three major fundamental steps in the process of issuing shares are the distribution of prospectuses, the receipt of applications, and the allocation of shares. Issue of Debentures: The term "issuing debentures" refers to the company's issuance of a certificate under its seal that serves as an acknowledgement of the company's debt. The process of a firm issuing debentures is similar to that of issuing shares. A prospectus is published, applications are accepted, and allotment letters are sent out. Loans from Banks and Financial Institutions: Banks are the main actors in all areas of the financial markets, including credit, cash, securities, foreign exchange, and derivatives, due to their vast monetary holdings. The growth of the business sector determines a country's economic development. By making funds available to businesses, a well-developed financial system aids their growth. Retained Earnings: Accounting's idea of retained earnings is crucial. The word refers to a company's previous profits, less whatever dividends it has paid in the past. The term "retained" refers to the fact that the earnings were not distributed to shareholders as dividends, but rather were kept by the corporation. 22. Explain briefly any four factors affecting the fixed capital requirements of an organization. Ans: Factors affecting an organization's fixed capital requirements include: Nature of Business: the type of business is a factor in determining the fixed capital requirements. The type of fixed asset used in manufacturing business (namely plant machinery etc., whereas in trading its merely sale and purchase. For e.g. manufacturing businesses necessitate a large capital investment in fixed assets such as plant and machinery etc., whereas trade concerns necessitate a smaller capital investment in fixed assets. Scale of Operations: A larger organization operating on a large scale requires more fixed capital investment as compared to an organization operating on a small scale. Large firm has more people, more products to produce, more land space, thus fixed expenses increase in terms of salaries, rent, etc. Choice of Technique: An organization using capital-intensive techniques requires more investment in fixed assets as compared to an organization using labour intensive techniques. on the other hand the capital intensive as it uses machinery etc .,which is costly. Technology Upgrade: When compared to other businesses, a company with obsolete techniques and assets needs to revamp their assets and techniques time and again. Growth Prospects: In order to expand their production capacity, companies with stronger growth prospects require larger fixed capital investments. Diversification: If a corporation diversifies, it will need to invest more fixed capital in plant and machinery, among other things. Alternatives to Outright Buying: A well-developed financial sector might offer leasing options as an alternative to outright purchase and more of the alternatives available, lesser the fixed capital required. Collaboration Level: If companies are collaborating, forming a joint venture, and so forth, then they need less fixed capital as they share plants and machinery with their collaborators. 23. Silkiya Ltd." is a company manufacturing silk cloth. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well-managed organization and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of more than 60 lakhs from SBI Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement. The above discussion about the company leads to various factors which decide how much profit should be retained and how much has to be distributed by the company.  Quoting the lines from the above discussion, identify and explain any four such factors. Ans: The choice on dividends has been considered in the question.  The following factors affect the dividend decision, along with their quotations: Stable Earnings:   A company's earnings are used to determine the amount of dividends it will pay out. A company with stable and smooth earnings can pay higher dividends to shareholders than a company which has unstable and uneven earnings. Quotation: “It has been consistently earning good profits for many years”.  Future Growth Prospects: Companies with better future growth prospects tend to save more of their earnings for future reinvestment. As a result, they pay lower dividends. Quotation : “There is availability of enough cash in the company and good prospects for growth in future”. Shareholder Preferences: When deciding on dividends, shareholders' preferences must be taken into account. If shareholders, for example, want a specified minimum amount of dividends paid, the corporation can proclaim that. Quotation: “It has many shareholders who prefer to receive a regular income from their investments. ” Legal Restrictions: The extent of dividend payment also depends on the legal restrictions a company faces from the external environment. The company has to provide a dividend in accordance with the restrictions and rules and regulations it is bound in. Quotation: “I t has taken a loan of more than 60 lakhs from SBI Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement.” Chapter-Wise Important Questions Chapter 1 - Nature and Significance of Management Chapter 2 - Principles of Management Chapter 3 - Business Environment Chapter 4 - Planning Chapter 5 - Organising Chapter 6 - Staffing Chapter 7 - Directing Chapter 8 - Controlling Chapter 10 - Financial Markets Chapter 11 - Marketing Chapter 12 - Consumer Protection Chapter-Wise Revision Notes on Class 12 Business Studies   Chapter 1 - Nature and Significance of Management Notes Chapter 2 - Principles of Management Notes Chapter 3 - Business Environment Notes Chapter 4 - Planning Notes Chapter 5 - Organising Notes Chapter 6 - Staffing Notes Chapter 7 - Directing Notes Chapter 8 - Controlling Notes Chapter 9 - Financial Management Notes Chapter 10 - Financial Markets Notes Chapter 11 - Marketing Notes Chapter 12 - Consumer Protection Notes Chapter 13 - Entrepreneurship Development Notes FAQs on CBSE Important Questions on Class 12 Business Studies Chapter 9 - Financial Management 1. While performing the financial function every manager makes three decisions. Explain those decisions in accordance with Chapter 9 Financial Management of Class 12 Business Studies. While performing the financial role, management must make the three decisions listed below - Financing Choice - This decision involves selecting the lowest source of funding from a pool of short and long-term options. Investment Decision - This is the process of selecting the lowest proposal from among all the alternatives that provide the best potential return to investors. Dividend Choice - This decision involves deciding whether earnings should be paid as a dividend to stockholders or retained to fund the company's long-term objectives. 2. State the four factors which affect the working capital requirements of a company. Four factors which affect the working capital requirements of a company are: The principal nature of business has an impact on the quantity of the type of business that is necessary. In comparison to a larger organization, a trading firm requires a modest quantity of operating capital. The size of the operation - A large firm requires more inventory as a source of working capital than a small one. When the economy is growing, a company's output grows, and more working capital is necessary, but when the economy is in crisis, less working capital is required. Seasonal Factors - Demand will be strong during the peak season, thus working capital will be higher than during the offseason. 3. State any three points of importance of financial planning. Financial planning aids you in identifying your short- and long-term financial goals, as well as designing a well-balanced strategy to meet them. The following factors demonstrate its significance: It is critical to ensure that sufficient funds are available. By maintaining a proper balance between cash output and inflow, financial planning contributes to preserving stability. Financial planning ensures that fund providers can invest easily in companies that adhere to financial planning criteria. To know more about  Chapter 9 Financial Management of Class 12 Business Studies refer to the notes provided by Vedantu . They are available on the website of Vedantu and their App and that too free of cost. 4. How does working capital affect both the liquidity as well as the profitability of a business? A company's working capital is critical to the efficient running of its day-to-day activities. Working capital has an impact on a company's liquidity as well as its profitability. An increase in working capital will boost the company's liquidity. For example, as the amount of cash in hand or at the bank grows, so does the ability to make day-to-day payments. A reduction in working capital decreases a company's liquidity and profitability since it is unable to pay off day-to-day expenditures and must thus use capital to do so, further reducing the company's profitability. As a result, working capital should be managed in such a way that profitability and liquidity are maintained. 5. Explain briefly any four factors affecting the fixed capital requirements of an organization. Four factors affecting the fixed capital requirements of an organization are: The nature of the business in which Co. is involved is the first element that influences the amount of fixed capital required. A manufacturing firm requires more fixed capital than a trading firm, which does not require plant, machinery, or other fixed assets. The scale of Operations: Large-scale businesses require more fixed capital since they require more machinery and other assets, whereas small-scale businesses require less fixed capital. The capital-intensive procedures rely on plant and machinery, and firms require more fixed capital to purchase plants and machinery. Technology Development: Industries with rapid technological advancements require more fixed capital because old machines become obsolete as new technology is developed, necessitating the purchase of new plants and machinery, whereas companies with slower technological advancements require less fixed capital because they can manage with older machines. CBSE Class 12 Business Studies Important Questions Cbse study materials. Asking the better questions that unlock new answers to the working world's most complex issues. Trending topics AI insights EY Center for board matters EY podcasts EY webcasts Operations leaders Technology leaders EY helps clients create long-term value for all stakeholders. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. 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To regain access, please make sure that cookies and JavaScript are enabled before reloading the page. Norwegian Bokmål You are using Internet Explorer and will not be able to use our website properly. Please change to an up-to-date browser for ideal presentation of the website. 3 questions food and beverage manufacturers should ask automation suppliers By automating key supply chain processes, food and beverage manufacturers can delay or eliminate the need to open new facilities and reduce their exposure to labor uncertainty, helping future proof the food and beverage supply chain while potentially reducing operating costs.  Automated storage and retrieval systems (ASRS), for example, enable manufacturers to significantly increase storage density and throughput for inbound packaging materials and outbound pallets, which is particularly valuable as real estate and warehouse development costs continue to escalate. Automated or semi-automated palletizing systems provide similar benefits—reducing the space and labor required to create mixed-SKU pallets—to help manufacturers adapt to changing order profiles.  So, the business case for automation has never been stronger and the challenge shifts to choosing among the multitude of automation suppliers to ensure you get a solution that meets current needs while delivering high value over a long life. Here are three questions to help separate the contenders from the pretenders. 1. "What’s your track record in our industry?" Automation has a long history in the food and beverage supply chain so it’s not unreasonable to expect an automation provider to have a track record in the industry that stretches back several decades. Swisslog, for example, has automation systems  that have been in continuous operation for more than 30 years at multiple food and beverage manufacturing sites. That experience does more than demonstrate equipment quality and reliability. It ensures a supplier is well-grounded in the industry and understands requirements and how they have changed over time. It also serves as the foundation for building deep organizational expertise. From solution design through lifecycle support, a supplier’s industry experience adds value to every phase of a manufacturer’s automation journey.  The impact can be especially noticeable in installation and commissioning where experience can make the difference between going live on time and on budget and missed deadlines and expensive delays. Customer references are essential to the vendor selection process, but it can also be worth the time to look beyond the references provided to get a sense of a company’s depth of experience and reputation in the industry . 2. "How well does your automation software support process efficiency, inventory management, and traceability?" The software that controls automation is at least as important to the success of a project as the automation technology itself and that importance should be reflected in the supplier selection process.  Key software requirements for food and beverage manufacturers tend to center on inventory management, traceability and process efficiency . Can the automation software manage inventory based on batch, expiry date, best-by date or any other factors important to your customers? Can it support detailed tracking of movements within the warehouse, both in terms of stock changes and physical location, to ensure traceability? How does it enable efficiency across manual and automated processes, and does it allow you to access and control all aspects of the operation from a single interface ?   A mature, modular software platform that includes WMS, WES and ACS functionality, such as the Swisslog SynQ platform , will have all of these capabilities included in the standard offering.   Beyond functionality, take the time to learn how software is developed and managed as these “behind-the-scenes” processes can have a direct impact on operations. Software is continually evolving so be sure your provider has a multi-year product roadmap, integrates security into design and implementation processes, and has a well-defined plan for technical upgrades. Also, find out if the same platform is used in all regions. A global platform enables software standardization across locations and also allows the provider to focus resources on advancing and supporting one platform rather than allocating resources and expertise across multiple systems. 3. "How are solutions supported across their lifecycle?" Every automation system requires regular maintenance and ongoing software support. But it’s easy to overlook the importance of these capabilities until a site is down for days while you’re waiting for a technician to travel in from another region or hours because of slow response from software support specialists. At minimum, food and beverage manufacturers should ensure that local hardware support is available and compare average response times and first-time resolution rates for the suppliers they are considering working with. The other factor that should be considered in lifecycle planning is how automation deployed today will adapt to future product and market changes , which may be unknown at the time the system is installed. Can the system be scaled to provide more storage or higher throughputs; can it be easily integrated with complementary automation systems, such as those used in automated or semi-automated mixed-SKU palletizing; and does the supplier have standardized modernization programs that can extend solution life as technology advances? With today’s automation technologies, solutions can be designed to meet current requirements cost effectively while maintaining the flexibility to continue to deliver value as supply chain requirements change. Automation that works for food and beverage manufacturers Swisslog has decades of experience providing automation solutions for the food and beverage industry with hundreds of solutions in operation. Our mature and proven portfolio of technologies is designed to meet the needs of food and beverage manufacturers through standardized solutions that simplify operation, management and maintenance. And our modular hardware and software enables configurability, scalability and operating flexibility, backed by industry-leading lifecycle support. To learn more, visit our website  or contact us . Sales Consultant, Swisslog ANZ Warehouse operators in Canada are being squeezed from multiple directions. With vacancy rates low in key markets & real estate costs rising, many are facing higher costs for warehouse development. Related Posts Revolutionize store replenishment with automated mixed case palletizing Transitioning from a semi- to fully automated warehouse Achieving high availability when automating food and beverage storage and distribution Smart technologies and robotics in cold storage facilities How the right food and beverage automation protects food safety How Automation is Enabling Customer Excellence for Omnichannel Grocers Using Automation to Adapt to Changing Food and Beverage Supply Chain Requirements Service Helpdesks Pallet Technology Light Goods Technology For Integration Partners Job Vacancies Smart Working Graduate Trainee Programs How to apply Facts & history News & Events Customer Portal © Swisslog Holding AG 2024 Legal Statements Privacy & Policies Cookie settings Contact us, or share our site. 135 IMAGES Case Study In Financial Management With Solution MCQ on Financial Management 9+ Financial Management Questionnaire Templates in PDF Quiz 3 Financial Management Case Study Financial Management Financial Case Study 1 COMMENTS CBSE Class 12 Business Studies Case Studies Financial Management. Financial Management is the process of acquiring funds optimally (at minimum cost possible keeping the risk factor also low) and utilising them in the best possible manner to maximise shareholders' wealth. Objectives of Financial Management. The objective of financial management is maximisation of shareholders' wealth. PDF A Handbook of Case Studies in Finance Tarika Sikarwar. A Handbook of Case Studies in Finance. By Tarika Sikarwar. This book first published 2017. Cambridge Scholars Publishing. Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK. British Library Cataloguing in Publication Data. A catalogue record for this book is available from the British Library. Top 40 Most Popular Case Studies of 2021 Two cases on the uses of debt and equity at Hertz claimed top spots in the CRDT's (Case Research and Development Team) 2021 top 40 review of cases. Hertz (A) took the top spot. The case details the financial structure of the rental car company through the end of 2019. 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In other words, financial management is concerned with flow of funds and involves decisions related to procurement of funds, investment of ... 12th Business Studies Financial Management Case Study Questions 1. Identify the concept of Financial Management as advised by Mr. Ghosh in the above situation. (a) Capital Budgeting. (b) Capital Structure. (c) Dividend Decision. (d) Working Capital Decision. 2. In the above case Mr. Ghosh suggested to raised more fund from debt. Higher debt-equity ratio results in: Case Library A case library of 600+ case study examples to get you ready for your case interview! McKinsey, BCG, Bain & 20+ other firm styles represented! ... Welcome to the Case Library, Management Consulted's repository of over 600 cases, organized by firm, difficulty, and subject matter. ... Market Study - Growth: N: 2: Financial Services: Tech: Y: N ... 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Asset Management, Investor/Finance, Leadership & Teamwork, Social Enterprise, Sourcing/Managing Funds. The Nathan Cummings Foundation Investment ... Financial Markets: Articles, Research, & Case Studies on Financial by Carolin E. Pflueger, Emil Siriwardane, and Adi Sunderam. This paper sheds new light on connections between financial markets and the macroeconomy. It shows that investors' appetite for risk—revealed by common movements in the pricing of volatile securities—helps determine economic outcomes and real interest rates. Finance Articles, Research Topics, & Case Studies Forgiving Medical Debt Won't Make Everyone Happier. by Rachel Layne. Medical debt not only hurts credit access, it can also harm one's mental health. But a study by Raymond Kluender finds that forgiving people's bills—even $170 million of debt—doesn't necessarily reduce stress, financial or otherwise. 16 Jul 2024. Financial Management Case Studies 15. per page. 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Financial Management- Case Study 1 FINANCIAL MANAGEMENT (MBA104) CASE STUDY # 1. In your role as a consultant at a wealth management firm, you have been assigned a very powerful client who holds one million shares of Cisco Systems, Inc. purchased on February 28, 2019. In researching Cisco, you discovered that they are holding a large amount of cash. ... Important CBSE Questions on Class 12 Chapter 9 FAQs on CBSE Important Questions on Class 12 Business Studies Chapter 9 - Financial Management. 1. While performing the financial function every manager makes three decisions. Explain those decisions in accordance with Chapter 9 Financial Management of Class 12 Business Studies. While performing the financial role, management must make the ... 332427235-Case-Study (pdf) Management document from Morehead State University, 4 pages, Case 19 Assignment Assignment Questions: 1. ... 332427235-Case-Study.pdf. School. Morehead State University * *We aren't endorsed by this school. Course. 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What kind of lifestyle do you pla 3 questions food and beverage manufacturers should ask automation suppliers But before moving forward with supply chain automation, ask the suppliers you're considering these three questions. By automating key supply chain processes, food and beverage manufacturers can delay or eliminate the need to open new facilities and reduce their exposure to labor uncertainty, helping future proof the food and beverage supply ... assignment essay homework paper phd report resume review speech thesis