CBA Financial Management — Questions and Answers
Question 1: What is the primary goal of financial management in a business?
- Increase employee turnover
- Maximize shareholder wealth (Correct answer)
- Expand office space
- Reduce product variety
Correct answer: Maximize shareholder wealth
The main goal of financial management is to maximize shareholder value while ensuring the company remains financially healthy.
Question 2: Which financial statement shows a company’s profitability over time?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Statement of changes in equity
Correct answer: Income statement
The income statement summarizes revenues and expenses to show net profit or loss over a specific period.
Question 3: What does the term 'working capital' refer to?
- Net income from operations
- Total fixed assets
- Long-term investments
- Current assets minus current liabilities (Correct answer)
Correct answer: Current assets minus current liabilities
Working capital represents a company’s short-term financial health, calculated as current assets minus current liabilities.
Question 4: Why is budgeting important in financial management?
- To increase taxes
- To comply with HR policies
- To manage expenses and forecast revenues (Correct answer)
- To reduce customer feedback
Correct answer: To manage expenses and forecast revenues
Budgeting helps plan and control spending, ensuring financial resources are allocated effectively to meet strategic goals.
Question 5: Which ratio measures a company’s ability to meet short-term obligations?
- Debt-to-equity ratio
- Return on equity
- Current ratio (Correct answer)
- Inventory turnover
Correct answer: Current ratio
The current ratio compares current assets to current liabilities to assess short-term liquidity.
Question 6: What is capital budgeting primarily used for?
- Monitoring utility bills
- Approving travel expenses
- Evaluating long-term investment projects (Correct answer)
- Tracking weekly sales
Correct answer: Evaluating long-term investment projects
Capital budgeting involves evaluating and selecting long-term investments that are in line with the firm's strategic objectives.
CBA Financial Management
What is the primary goal of financial management in a business?