Top 10 Question of Financial Management. Muhammad Danish | www.knowledgedep.blogspot.com

1. Directorate of Distance Learning
Education
G.C University Faisalabad
FORM FOR ASSESSMENT OF ASSIGNMENT
(This part will be filled by Student)
Name of student: MUHAMMAD DANISH Name of Tutor: Sir Ejaz Ahmed SB
Roll No. 119467 Address of Tutor:
_________________________________
_________________________________
Contact No._______________________
Semester: 2nd
Year: 2015 To 2017
Address:
H # P – 802 G M ABAD NO.1 FSD
Name of course: Financial Management Assignment No. 1st Code No._____
Last date of submission of Assignment: 16-07-2016
Date of submission of Assignment: 14-07-2016
Signature of Student:_M.DANISH
(This part will be filled by Tutors)
Nameof study Center:_____________________ District:___________
Date of receiving Assignment: _______________
Q.No. 1 2 3 4 5 6 7 8 9 10
Cumulative
Obtained
Marks
Marks Obtained
Total Marks
Tutors’ comments:
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Date of Assignment Return: _________ Signature of
Tutor

2. Q: 1. Define FinancialManagement.Discuss in detail the goals of the firm.
Answer:
FinancialManagement:
Defination:
Financial management is concerned with the acquisition, financing, and management of
assets with some overall goal in mind. Thus, the decision function of financial management can
be broken down into three major areas: the investment, financing, and asset management
decisions.
Meanings:
Financial management may be defined as planning, organising, directing and controlling
the financial activities of an organisation. According to Guthman and Dougal, financial
management means, “the activity concerned with the planning, raising, controlling and
administering of funds used in the business.” It is concerned with the procurement and utilisation
of funds in the proper manner.
In order to maximise wealth, financial management must achieve the following specific
objectives:
 To ensure availability of sufficient funds at reasonable cost (liquidity).
 To ensure effective utilisation of funds (financial control).
 To ensure safety of funds by creating reserves, re-investing profits, etc. (minimisation of
risk).
 To ensure adequate return on investment (profitability).
 To generate and build-up surplus for expansion and growth (growth).
 To minimise cost of capital by developing a sound and economical combination of
corporate securities (economy).
 To coordinate the activities of the finance department with the activities of other
departments of the firm (cooperation)
Goals of Firm:
 Value Creation
Value creation is the primary objective of any business entity. It is obvious that
most successful organisations understand that the purpose of any business is to
create valuefor its customers, employees, investors as well as its shareholders. Profit
maximization and increase earning per share is the primary goal of firm.

3.  Agency Problems
In corporate finance, the agency problem usually refers to a conflict of interest
between a company's management and the company's stockholders. The manager, acting
as the agent for the shareholders, or principals, is supposed to make decisions that will
maximize shareholder wealth. the management try to make good relations with
shareholders and make good decisions that maximize shareholder wealth.
 Corporate Socail Responsibility
Corporate social responsibility (CSR) is a business outlook that acknowledges a
firm’s responsibilities to its stakeholders and the natural environment. These stakeholders
include creditors, employees, customers, suppliers, communities in which a company
operates, and others.
“Corporate Social Responsibility (CSR) is the responsibility of an organization
for the impacts of its decisions and activities on society, the environment and its own
prosperity, known as the “triple bottom line” of people, planet, and profit.”
 Long Term Survival:
According to Rothschild, main objective of a firm is to obtain the stage of long-
run survival. A firm having this aim is always reviewed cautiously and all of its decisions
are safety-oriented. Such firms do not like to reap larger profits in short-run but prefer
lower profits in the long run.
 Sale Maximisation Objective:
Sales maximisation as an alternative goal to profit maximisation. The firm offers
several justifications of sales maximisation as a goal of the firm. Here, sales
maximisation means maximisation of the money value of sales. The objective of a firm is
one of constrained maximisation where the firm maximises total revenue subject to a
minimum profit constraints.
 Stakeholder Theory:
Stakeholder theorists believe that people who have legitimate interests in a
business also ought to have voice in how the business is run. However, stakeholder
theorists take contract theory a step further, maintaining that people outside of the
business enterprise ought to have a say in how the business operates. Thus, for example,
consumers, even community members who could be affected by what the business does
(for example, by the pollutants of a factory) ought to have some control over the
business.

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Q: 2. Define the Following Terms:
Answer:
1. Finance
Finance is the science that describes the management, creation and study of money,
banking, credit, investments, assets and liabilities.
2. Financial Markets
A financial market is a market in which people tradefinancial securities, commodities,
and other fungible items of value at low transaction costs and at prices that reflect supply and
demand. Securities include stocks and bonds, and commodities include precious metals or
agricultural products.
3. Agency Problem
In corporate finance, the agency problem usually refers to a conflict of interest between a
company's management and the company's stockholders. The manager, acting as
the agent for the shareholders, or principals, is supposed to make decisions that will
maximize shareholder wealth.
4. Double taxation
Double taxation is a taxation principle referring to incometaxes that are paid twice on the
same source of earned income. Double taxation occurs because corporations are considered
separate legal entities from their shareholders.
5. Liquidity
Liquidity describes the degree to which an asset or security can be quickly bought or sold
in the market without affecting the asset's price. Market liquidity refers to the extent to which
a market, such as a country's stock market or a city's real estate market, allows assets to be
bought and sold at stable prices.
6. Liquidity Ratios
Liquidity ratios are a class of financial metrics used to determine a company's ability to
pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the
larger the margin of safety that the company possesses to cover short-term debts.
7. Debt Ratios

5. The debt ratio is defined as the ratio of total – long-term and short-term – debt to total
assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a
company's assets that are financed by debt.
8. Coverage Ratios
The coverage ratio is a measure of a company's ability to meet its financial obligations.
9. Activities Ratios
Activity ratios are accounting ratios that measure a firm's ability to convert different
accounts within its balance sheets into cash or sales. Activity ratios are used to measure the
relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet
items.
10. Profitability Ratios
Profitability ratios are a class of financial metrics that are used to assess a business's
ability to generate earnings as compared to its expenses and other relevant costs incurred
during a specific period of time.
11. Operating Cycle Vs Cash Cycle
The total of inventory holding period and a receivable collection period of a firm is
the operating cycle time of that firm. Operating cycle and cash operating cycle are used
interchangeably but it's a misconception. They are different by a small margin but that makes
a big difference.
12. Time value of money
The time value of money (TVM) is the idea thatmoney available at the present time is
worth more than the same amount in the future due to its potential earning capacity.
13. Compound interest
Compound interest is interest calculated on the initial principal and also on the
accumulated interest of previous periods of a deposit or loan.
14. Annuity and its types
An annuity is a contractual financial product sold by financial institutions that is designed
to accept and grow funds from an individual and then, upon annuitization, pay out a stream
of payments to the individual at a later point in time.
1) Deferred annuity (Fixed, Variable)
2) Income Annuity (Fixed, Variable)
15. Perpetuity

6. A perpetuity is an annuity in which the periodic payments begin on a fixed date and
continue indefinitely. It is sometimes referred to as a perpetual annuity. Fixed coupon
payments on permanently invested (irredeemable) sums of money are prime examples of
perpetuities.
16. Amortization Schedule
A complete table of periodic blended loan payments, showing the amount of principal
and the amount of interest that comprises each payment so that the loan will be paid off at the
end of its term.
17. Bond
A bond is a debt investment in which an investor loans money to an entity (typically
corporate or governmental) which borrows the funds for a defined period of time at a
variable or fixed interest rate.
18. Zero Coupon Bond
A zero-coupon bond, also known as an "accrual bond," is a debt security that doesn't pay
interest (acoupon) but is traded at a deep discount, rendering profit at maturity when
the bond is redeemed for its full face value.
19. Coupon Rate
The stated rate of interest on a bond; the annual interest payment divided by the bond’s
face value.
20. Console
It is a bond that never matures; a perpetuity in the form of a bond.
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7. Note: Other eight (8) Questions of practicles, I will submit by hand.