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प्रश्न
What is ‘Financial Risk?’ Why does it arise?
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उत्तर
Financial risk is a situation when a company is not able to meet its fixed financial charges. The fixed financial charges are the :-
- Interest that is to be paid on borrowed capital and
- Rate of dividend to be paid on preference capital.
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संबंधित प्रश्न
Explain the following as factor affecting 'financing decision'.
Cash flow position of the business
Explain the following as factor affecting 'financing decision'.
State of capital markets
Give the meaning of ‘Investment’ and ‘Dividend’ decisions of financial management.
| Ravi has joined as a finance manager at MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise. |
- Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
|
NB Ltd. is India's largest manufacturer of cement. Its operations are spread throughout the country with 17 modern cement factories. It has a workforce of 9,000 people. Since its inception, the company has been a trendsetter in the cement industry. The company is planning to grow in the long run and wants to double its capacity in the next 3 years. For this, the Finance Manager has to decide about the quantum of finance to be raised from various long-term sources. For this, he needs to identify various available sources of funds and the proportion of funds from each source. |
- Identify the financial decision to be taken by the Finance Manager.
- State any four factors which would affect the decision identified in (i) above.
What must a business determine about its total finance requirement when making a financing decision?
What are retained earnings?
What is the nature of debt in a debt-and-equity comparison?
Which payment is compulsory under the borrowing terms?
Which statement about payment of dividends on equity is correct?
Which comparison of financial risk for debt and equity is correct?
How does debt normally affect ownership control?
What may be the effect of a fresh issue of equity on control?
Why is cheaper debt not automatically the best source of finance?
What generally happens as the proportion of debt in total capital increases?
How is interest treated while determining taxable profit?
How does a higher floatation cost affect a financing source?
Which expenses are examples of floatation costs?
Which financing source is favoured by a desire to retain control?
