Buisness Finance Short question

1) Money market: Money Market can be define as as the market for

short term funds, wherein lending and borrowing of funds varies from
overnight to a year.
The money market is an organized exchange market where participants can lend
and borrow short-term, high-quality debt securities with average maturities of one
year or less. It enables governments, banks, and other large institutions to sell
short-term securities.

2) Capital market: A capital market is an organized market in which both

individuals and business entities buy and sell debt and equity securities.

. Examples of highly organized capital markets are the New York Stock Exchange,
American Stock Exchange, London Stock Exchange, and NASDAQ.

3) What is primary economic principal used in finance:

The primary economic principle used in managerial finance is

supply and demand.

liquidity trap. When monetary policy becomes ineffective because, despite
zero/very low-interest rates, people want to hold cash rather than spend or buy illiquid
assets.
4) Define Bonds and securities:
A security is a fungible, negotiable financial instrument that represents some type
of financial value, usually in the form of a stock, bond,

Bonds are debt securities issued by corporations and governments. Bonds are, in fact,
loans that you and other investors make to the issuers in ..

5) What is finance: Finance is defined as the management of money and

includes activities such as investing, borrowing, lending, budgeting, saving,
and forecasting. There are three main types of finance: (1) personal,
(2) corporate, and (3) public/government
An example of finance is a bank loaning someone money to purchase a house. verb.

6) Define Unlimited liability:

Business owners are legally obligated to repay the debt obligations of their companies

The owners' personal assets can be seized to settle the financial obligations of the business

Exists in sole proprietorships and general partnerships

 7) Name legal form of buisness organization: here are 4 main types of
business organization: sole proprietorship, partnership,
corporation, and Limited Liability Company, or LLC
8) What is earning per share (EPS): EPS is a financial ratio, which divides net
earnings available to common shareholders by the average outstanding
shares over a certain period of time

Earnings per Share Formula

There are several ways to calculate earnings per share.

Below are two versions of the earnings per share formula:

EPS = (Net Income – Preferred Dividends) / End of period Shares Outstanding

EPS = (Net Income – Preferred Dividends) / Weighted Average Shares

Outstanding

ABC Ltd has a net income of $1 million in the third quarter. The company
announces dividends of $250,000. Total shares outstanding is at 11,000,000.

The EPS of ABC Ltd. would be:

EPS = ($1,000,000 – $250,000) / 11,000,000

EPS = $0.068

9) What is a letter to stockholder: A stockholder letter is written by the executives of

a company to the shareholders, briefing them on its operations during the year.
The shareholder letter covers the year's financial results, market

conditions, key achievements, challenges, and upcoming plans for the upcoming years.

10) Name the four key financial statement: There are four main financial
statements. They are: (1) balance sheets; (2) income statements; (3) cash
flow statements; and (4) statements of shareholders' equity.
11) Define current assets and Current liabilities :
Current liabilities are a company's short-term financial obligations that are due within
one year or within a normal operating cycle. Example:

• Sales taxes payable. ...

• Payroll taxes payable. ...
• Income taxes payable. ...

Current assets are all the assets of a company that are expected to be sold or used as
a result of standard business operations over the next year. Current assets include cash, cash
equivalents, accounts receivable, stock inventory, marketable securities,

12) Define Blance Sheet: A balance sheet is a financial statement that reports a
company's assets, liabilities and shareholders' equity at a specific point in time.
13) What is Ratio analysis? Describe its types.
Ratio analysis consists of calculating financial performance using five basic types of ratios:
profitability, liquidity, activity, debt, and market.

1. Liquidity Ratios
 This type of ratio helps in measuring the ability of a company to take care of its

short-term debt obligations..

2. Profitability Ratios
This type of ratio helps in measuring the ability of a company in earning
sufficient profits.

3. Solvency Ratios
Solvency ratios can be defined as a type of ratio that is used to evaluate
whether a com

4. Turnover Ratios
Turnover ratios are used to determine how efficiently the financial assets and

liabilities of an organization have been used for the purpose of generating

revenues

5. Earnings Ratios
Earnings ratio is used for the purpose of determining the returns that an

organization generates for its investors.

S. No. RATIOS FORMULAS

1 Gross Profit Ratio Gross Profit/Net Sales X 100

2 Operating Cost Ratio Operating Cost/Net Sales X 100

3 Operating Profit Ratio Operating Profit/Net Sales X 100

4 Net Profit Ratio Net Profit/Net Sales X 100

14) Discuss the intersted parties in ratio analysis:

People in various walks of life are at present interested in

ratio analysis, though in different ways and fashion; each,
however, from his own angle.

Shareholders are interested to know the rates of return on

capital employed, the long-term solvency of the firm, and also
on the rates of divided among others.

15) Discuss basic pattrens of cash flow:

 4-2 Define and differentiate among the three basic patterns of cash flow:
(1) a single amount, (2) an annuity, and (3) a mixed stream.
A single amount cash flow refers to an individual, stand alone, value occurring at one point
in time. An annuity consists of an unbroken series of cash flows of equal dollar amount
occurring over more than one period. It is basically a stream of equal annual cash flows,
either inflows or outflows. There are two basic types of annuities:
1) Ordinary Annuity where the cash flow occurs at the end of each period, and
2) Annual Due Annuity where the cash flow occurs at the beginning of each period.
A mixed stream is a pattern of cash flows over more than one time period and the amount of
cash associated with each period will vary. Basically, a mixed stream of cash flows display
no particular pattern.

16) Diffrence between future value and present value:

Present value is the sum of money that must be invested in order to achieve a

specific future goal.

Future value is the dollar amount that will accrue over time when that
sum is invested.

NPV = F / [ (1 + r)^n ] where, PV = Present Value, F = Future payment (cash flow), r =

Discount rate, n = the number of periods in the future.

Future value is what a sum of money invested today will become over time, at a rate of
interest. For example, If you invest $1,000 in a savings account today at a 2% annual interest rate, it
will be worth $1,020 at the end of one year. Therefore, its future value is $1,020.

future value = present value x (1 + interest rate)n. To calculate future value with
simple interest, use this formula: future value = present value x [1 + (interest rate x time)].

Present value is the value right now of some amount of money in the future. For example, if
you are promised $110 in one year, the present value is the current value of that $110 today

17) What is annuity deine its types:

Annuities are contracts sold by insurance companies that promise the buyer a
future payout in regular installments, usually monthly and often for life. ...

1. Immediate Annuity
In this type of annuity plan, there is no accumulation phase offered by the policy. The
immediate annuity plan starts offering the benefits right from the vesting age. In the immediate
annuity plan, the policyholder needs to pay a lump-sum amount to the insurer
and the payment of annuity starts immediately entire for a lifetime or a limited tenure .
2. Deferred Annuity
These retirement plans are pension plan that offers annuity after the completion of the
accumulation period. Deferred annuity plans are divided into two sections i.e.
• Accumulation Phase- This is the period when the policyholder starts investing in the plan by
paying premium from the date of policy initiation to accumulate a retirement fund for the
future.

• Vesting Period- It is the period from which the insurance holder starts receiving the policy
benefits as regular annuity or pension.

3. Periodic Annuity
Well periodic annuity essentially provides the funds to the annuitant at the regular point in
time. This is more similar to the system of a pension plan wherein the intervals could be based
on every month. Besides, the payments could also be done in a phased manner from time to
time towards the end of 5 th , 10 th and 15 th years even though payments of the premiums have
been earlier done or not.
4. Lumpsum Annuity:
Even though the most widely recognized kind of retirement plan highlights standard payments
after a predetermined period, some annuity plans do give the alternative of giving a single
amount payout. Such a singular amount payout is normally discretionary and accessible just at
a specific period. In any case, by and large, the whole retirement advantage can't be gotten as a
single amount. For instance, on account of NPS 40% of the aggregate sum accumulated should
be compulsorily used for annuity buy and can't be pulled back as a single amount.
5. Variable Annuity:
The variable annuity likewise named as taking interest plans include varieties in the annuity
payments between one payout and the following. This variety is in significant part connected
to the market execution of the speculations made by the benefits store or annuity plan that the
individual has put resources into. If great returns are gotten by the organization dealing with
the plan, payments will be higher in any case the annuity payments will be lower. Because of
being market-connected, such plans can't give ensured results which makes them a similarly
hazardous suggestion for a few retired people or planned supporters. At present, perhaps the
best case of a variable annuity venture is the NPS conspire, which is market -connected
speculation, doesn't give guaranteed returns or payouts, not at all like the previous frameworks
of focal and state government benefits, which are gradually being eliminated.
6. Fixed Annuity:
On the off chance that individual pursues a fixed annuity plan, the payments will stay
consistent over the whole time frame during which the payments happen. In like manner
practice, the fixed plan is a moderate preservationist choice as they ar e generally put resources
into fixed pay instruments. Thus there is possibly little development of the chief sum
contributed over the amassing period of the annuity plan. In any case, from numerous points of
view, a fixed annuity is ideal as a benefits payout because this framework ensures pay to the
person during the years of post-retirement.

18) What is average collection period? How is it arrived?

The average collection period is calculated by dividing the average balance of

accounts receivable by total net credit sales for the period and multiplying the quotient by the number
of days in the period.

ACP= Account receivable balance *365 ( Farmoula)

Total net sale

19) What is financial leverage?

Financial leverage refers to the utilization of borrowed funds to

acquire new assets which are assumed to generate a higher capital gain or
income as compared to the cost of borrowing.

1) Discuss the realtionship of finace to accounting.

Accounting and finance both are different subjects or field; however they both are closely
related to each other. While accounting is concerned with recording of business transaction of a
company and presenting it in the form of profit and loss account to show the profit or loss of the
company during a year and also it involves preparation of balance sheet which reflects the financial
position of the company at a particular date.
Finance is a broader concept and it makes use of all the data which is presented in the accounting like
profit and loss, balance sheet, cash flow statement to make finance related decision like how to raise
money for future projects of the company, how to utilize the resources of the company in order to
efficiently and effectively produce the good so that company makes profit. Finance therefore is a
future looking concept which makes use of past data in accounting to make decision related to future.
Without accounting data finance will find it difficult to make above decisions and also accounting will
not be effective if it is not used along with finance.

Finance apart from using accounting data also uses data from other fields like economics,
statistics, costing, taxation and other such fields.

2) 2nd long

Present Value=(1+r)nFV
where:FV=Future Valuer=Rate of returnn=Number of periods