Financial Management

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National Institute of Business Management

Chennai - 020

FIRST SEMESTER EMBA/ MBA

Subject: Financial Management

1. What are the significant factors of Financial Statements? Discuss the various tools of financial Analysis.

Answer : .  Financial analysis supports equity decisions by providing quantified evidence regarding the financial position and performance of the company. Accounting analysis is another component of business analysis.  Accounting analysis is the process of evaluating the extent that a company’s accounting reflects economic reality.  If the accounting information distorts the economic picture of the firm, decisions made using this information can be flawed.  Thus, accounting analysis should be performed before financial analysis.  Prospective analysis is the forecasting of future payoffs.  This analysis draws on accounting analysis, financial analysis, and business environment and strategy analysis.  The output of prospective analysis is a set of expected future payoffs used to estimate intrinsic value such as earnings and cash flows. Another component of business analysis is valuation, which is the process of converting forecasts of future payoffs into an estimate of a company’s intrinsic value.

The financial statements of a company are

2.What is a Fund Flow Statement? Discuss the uses and preparation of Fund Flow Statements.

3.What is financial Forecasting? Explain.

Answer :  Financial Forecasting

Financial Forecasting describes the process by which firms think about and prepare for the future. The forecasting process provides the means for a firm to express its goals and priorities and to ensure that they are internally consistent. It also assists the firm in identifying the asset requirements and needs for external financing.

For example, the principal driver of the forecasting process is generally the sales forecast. Since most Balance Sheet and Income Statement accounts are related to sales, the forecasting process can help the firm assess the increase in Current and Fixed Assets which will be needed to support the forecasted sales level. Similarly, the

4.Examine the various tools of Financial Analysis.

Answer : There are two key methods for analyzing financial statements. The first method is the use of horizontal and vertical analysis. Horizontal analysis is the comparison of financial information over a series of reporting periods, while vertical analysis is the proportional analysis of a financial statement, where each line item on a financial statement is listed as a percentage of another item. Typically, this means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a percentage of total assets. Thus, horizontal analysis is the review of the results of multiple time periods, whiile vertical analysis is the review of the proportion of accounts to each other within a single period. The following links will direct you to more information about

5.What is Zero Base Budgeting? Explain.

Answer : A zero-base budget requires managers to justify all of their budgeted expenditures, rather than the more common approach of only requiring justification for incremental changes to the budget or the actual results from the preceding year. Thus, a manager is theoretically assumed to have an expenditure base line of zero (hence the name of the budgeting method).

In reality, a manager is assumed to have a minimum amount of funding for basic departmental operations, above which additional

6.Describe the various aspects of Zero Based Budgeting with its merits and demerits.

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