Financial Management Practice Questions

Financial management is the area or function in an organization that is concerned with profitability, expenses, cash and credit, in order to maximize the value of the firm for owners or stockholders.

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The functions of financial management include estimating required capital, determining capital structure, evaluating and selecting sources of funds, allocating and controlling funds, distributing profits or surplus, and monitoring financial activities.

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Financial resources are important for a company to finance ongoing activities, such as purchasing inventory, paying salaries, covering overhead expenses, and making investments. They also enable a company to carry out day-to-day business activities, such as updating machines or technology and purchasing property.

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Deposits are a type of cash inflow, referring to money that is added to an individual or companys accounts. Payouts, on the other hand, are a type of cash outflow, referring to money that is paid out from an individual or companys accounts.

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One-off payments are payments that occur only once or are irregular in nature, such as a large purchase or a bonus payment. Ongoing payments, also known as recurring payments, are payments that occur on a regular basis, such as rent, utilities, or payroll.

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Planning cash inflows and outflows is important in financial management to ensure that a company has the necessary funds to make all necessary payments at the right time. It involves comparing all current and one-off payments made by the company to all current and one-off payments made to the company.

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A financial surplus occurs when, after planning the incoming and outgoing payments, there is a remainder of funds. This means that the company has more money than it needs to cover its upcoming disbursements or expenses.

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A financial deficit occurs when, after calculating the planned incoming and outgoing payments, there is a deficit or shortfall of funds. This means that the company does not have enough money to cover its upcoming disbursements or expenses.

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