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Question
What is meant by Financial Risk?
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Solution
Financial risk refers to the risk that borrowed funds would not be repaid. In other words, it implies the risk that the company would not be able to meet its fixed financial obligations such as interest payment, preference dividend and other repayment obligations.
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RELATED QUESTIONS
Name and state the aspect of financial management that enables to foresee the fund requirements both in terms of 'the quantum' and 'the timings'.
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 the importance of the financial concept, so identified.
Explain the twin objectives of financial planning.
Aval Ltd. is engaged in the business of export of canvas goods and bags. In the past, the performance of the company had been upto the expectations. In line with the latest demand in the market, the company decided to venture into leather goods for which it required specialised machinery. For this, the Finance Manager Prabhu prepared a financial blueprint of the organisation’s future operations to estimate the amount of funds required and the timings with the objective to ensure that enough funds are available at right time. 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 of the business. For the remaining funds, he is trying to find out alternative sources from outside.
a. Identify the financial concept discussed in the above paragraph. Also, state the objectives to be achieved by the use of financial concept so identified. ( Financial Planning).
b. ‘There is no restriction on payment of dividend by a company’. Comment. ( Legal & Contractual Constraints)
Financial planning arrives at :
Detailed plans of action are prepared under financial planning. What benefits does this result in?
Mr. Raghav, Finance manager of Manav InfraTech Pvt. Ltd., prepared a detailed plan of financial needs of the firm in coming six months and the sources from where funds will be acquired to meet out these needs as company is planning to open a new branch in other states of India. Identify the financial concept discussed here:
Assertion (1): Financial planning tries to link the present with the future.
Reason (R): Financial planning is essentially the preparation of a financial blueprint of an organisation's future operations.
What does financial planning ensure about the availability of funds?
What is the focus of financial planning?
What is the usual period for financial planning?
What are plans up to one year called?
What is the starting point in the basic steps of financial planning?
Which capital needs are considered when preparing financial statements?
What can happen when a business has too much debt?
How does lower industry volatility affect the amount of debt a business may carry?
What should business owners use before borrowing to make sound borrowing decisions?
