Question

Please answer the following questions related to the financial principles.

 (a) Kenalpasti empat bidang asas kewangan Identify the four basic areas of finance

 (b) Terangkan dua jenis keputusan pengurusan kewangan Describe the two types of financial management decisions

 (c) Bincangkan tiga bentuk utama organisasi perniagaan Discuss the three major forms of business organization

 (d) Kenalpasti matlamat pengurusan kewangan Identify the goal of financial management

Answer 1

Ans - (i) The four basic areas of finance-

1 International finance - When the companies have an operation in more than one country than they have to deal with the foreign market and various risks come with that such as Foreign exchange risks, political risks, various economic risks, etc the companies have to deal with. That is known as international finance.

2 Corporate finance- understanding the various theories and technical tools in finance while making financial decisions of the company to minimize the risk and maximize the profit is known as corporate finance.

3 Investments- When the company takes a decision regarding investment such as buying of securities, investment in new projects, issuing of shares and bonds, etc. are related to the field of investment.

4 Financial institutions- The companies have to deal with various financial institutions like banks, insurance companies for financing their projects. All these financial institutions are a very important sector of finance.

Ans-(ii) The two types of financial management decisions-

(i) Capital Budgeting Decisions- Capital capital budgeting comes into play when the management has to make decisions regarding long-term investment. It is a process of planning and managing long term investment. There are various tools through which decisions are made like - Net present value, IRR, Payback period, Profitability Index.

(ii) Capital structure decision - Capital structure refers to the mix of equity and debt used by the firm to finance its long term project. Management takes the decision about how much equity and debt should be used for the project which involves minimum risks and maximum profit.

Ans-(c) Major forms of Business organization-

(i) Sole Proprietorship - This is a type of organization where all the decisions are taken by only one person. Therefore all the profits and losses are taken by him. This type of organization is very easy to form.

(ii) Partnership - When the responsibility of the company is taken by two or more than two people then it comes under the partnership organization. They all invest in the company and share their profit according to their investment.

(iii) Corporation- The mechanism of this type of company is complex than the other two. Many people invest in this company and they become the shareholders of the company and they have the power in making decisions of the company. Corporation has to follow many rules and regulations of the government policy.

(iv) Limited Liability Company(LLC) - It is a relatively new type of business structure. This type of companies is similar to corporations. In this type of companies, owners have limited personal liability. This type of organization is very flexible. Owners of the LLC are also known as members and these members can be individuals, corporation, foreign entities, etc.

Ans (d) Various goals of financial management-

(i) Maximizing the profit - The first and foremost goal of financial management is to maximize the company's earning with the minimum risk.

(ii) Maximize shareholders earnings.

(iii) Minimize the operating cost - Financial managers try to minimize the operating cost of the business by making strategies regarding inventory management, cash management, etc through with excessive leakage of money should be brought down.

(iv) Financial crisis - Financial management tries to maintain the good financial health of the company so that the company can deal during the financial crisis without much difficulty.