Oral Test • 1What does the term “corporate finance” refer to? Corporate finance is a broad term that is used to identify the various financial dealings undertaken by a corporation • 2What does corporate finance include? Finance is collected from many sources like shares, banks and financial institutions • 3What is one of the main functions of corporate finance? One of the core functions of corporate finance is to make use of financial resources available to the company • 4How is fixed capital used? Fixed capital is used to purchase fixed assets like land, buildings, machinery • 5How is working capital used? Working capital is used to purchase raw material • 6What are the tasks of finance managers in monitoring the finance? The finance manager has to minimize the cost of finance, the wastage and misuse of finance and the risk of investment of finance He also has to get maximum return on the finance • 7What is gearing? The relationship between equity capital invested in the business and long-term debt • 8.What are forms of equity? • What is the disadvantage of owner’s capital? Owner’s capital is the most exposed from of capital since a return is received only after all other calls on a company’s profits have been satisfied • 10 What is the advantage of venture capital? The advantage of venture capital is venture capital company does not interfere in the running of the company • 11 What is the advantage of long-term loans? In times of prosperity, a high gearing will give the owners a much better return • 12 What is the disadvantage of long-term loans? in harder times, the owner’s earnings will drop dramatically as interest payment soaks up most of the company’s profits • 13 For what purpose is permanent working capital used? Permanent working capital is tied of in keeping the business flowing throughout the year • 14 For what purpose is temporary working capital used? Temporary working capital is needed from time to take account of seasonal, cyclical fluctuation in the business • 15 What is the task of financial manager in managing inventories? The task of financial management is to determine the correct amount of working capital spent on inventories at the right place They also have to minimize the quantities of inventories However, over-stringent cost control can lead to disruption in production So the just-in-time philosophy is useful in managing inventories • 16 What is the task of financial manager in managing debtors? It is the task of financial management to see that serious credit terms are negotiated with suppliers, but minimal credit is offered to customers He also has to attract customers, maintain good relationship with suppliers and minimize cash outlay • 17 What are 4Ps of the marketing mix? 4Ps of the marketing mix include price, product, place and promotion • 18 What factors are included in product? Products include quality, features, size, brand name, so on • 19 What factors are included in promotion? Promotion includes advertising, sales promotion, personal selling • 20 What factors are included in price? Price includes the basic list price, discounts, credit terms, etc • 21 What factors are included in place? Place includes distribution channel, transport, inventory size, etc • 22 What are common mistakes in setting the price? The most common mistakes are pricing is too cost oriented, price is not revised often enough to capitalize on market changes, price is set independently of the rest of the marketing mix rather than as an intrinsic element of market-positioning strategy, and price is not varied enough for different product items and market segments • 23 How are prices set in different types of corporation? Company handle pricing in many ways In small companies, prices are often set by top management In large companies, pricing is typically handled by divisional and product-line managers In some industries, a pricing department is established to set prices or assist others in determining suitable prices • 24 What are types of accounting information? They are financial accounting ,management accounting and tax accounting • 25 What does financial accounting refer to? Financial accounting refers to information describing the financial resources, obligations and activities of an economic entity • 26 What does management accounting involve? Management accounting involves the development and interpretation of accounting information intended to assist management in running the business • 27 For what purpose is financial accounting used? Financial accounting is used to assist investors and creditors in deciding where to place their scarce investment resources where to place investment resources, reporting on company condition to managers, making tax return… so it is called general-purpose accounting • 28 For what purpose is management accounting used? Management accounting is used to set the company’s overall goal, evaluate the performance of departments and individuals • 29 How many financial statements companies include in their annual report? Three common financial statements are the balance sheet, the income statement and the statement of changes in financial position (the cash flow statement) • 30 What does income statement/ the profit and loss account show? Income statement gives figures for sales, costs and profits • 31 What does the balance sheet sow? Balance sheet shows a company’s financial situation on a particular date • 32 What does the flow of cash show? Cash flow statement shows the flow of cash in and out of business between balance sheet dates • 33 What is financial analysis? Financial analysis is the selection, evaluation and interpretation of financial data, along with other pertinent information to assist in investment and financial decision-making • 34 For what purpose is financial analysis used internally? Financial analysis may be used internally to evaluate issues such as employee performance, the efficiency of operations and credit policies • 35 For what purpose is financial analysis used externally? Financial analysis may be used externally to evaluate potential investment and thecredit-worthiness of borrowers among other things • 36 What is ratio? A relationship between two quantities, normally expressed asa the quotient of one divided by the other • 37 What is financial ratio? A financial ratio is a comparision between one bit of financial information and another • 38 How many sources of data are available for financial analysis? There are sources of data The primary source is the annual reports including the income statement, the balance sheet, the statement of cash flow and footnotes to these statements • 39 What is auditing? An accounting function that involves the review and evaluation of financial records • 40 What is the advantage of internal audit? They also make suggestions to management for improvements in the standard operating procedures • 41 What is the disadvantage of internal audit? if a report is unfavorable, management will receive the false impression that things are running smoothly • 42 What is dumping? Exporting goods at prices lower than the home-market prices • 43 What is a specific tariff? A specific tariff is a certain amount of tax for each unit of the product • 44 What is the balance of payments? Set of accounts that record a country’s international transactions, and which always balance out with no surplus or deficit shown on the overall basis • 45 What is an ad valorem tariff? • 46 What are trade barriers? Trade barriers are any of a number of gorvernment-placed restrictions on trade between nations • 47 What are the most common used trade barriers? common trade barriers are tariffs, quotas, subsidizes and embargoes Some reasons for imposing these trade barriers are: + Tariffs are simply taxes placed on imports + Quotas are simply a quantity restriction placed on a good, service and activity + Subsidies are often placed to protect domestic industries + Embargoes basically prohibit the import and export of anything with another country • 48 What reasons nations use trade barriers? Nation commonly use trade barriers to + protect domestic employment + protect relatively young domestic industries + prevent unfair trade practices of foreign firms + prevent dumping + Protect firms and industries that produce output vital to the security ans defense of the nation • 49 What does trade surplus mean? A situation in which the value of goods that a country exports is more than the value of goods it imports, or the size of this difference • 50 What does trade balance mean? The difference between a country’s imports and its exports