Financial Management

National Institute of Business Management

Chennai - 020

FIRST SEMESTER EMBA/ MBA

Subject : Financial Management

Attend any 4 questions. Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

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

Answer:

Profitability and Financial soundness are the two significant factors.

The term analysis means methodical classification of the data given in the financial statements. The figures in financial statement by itself, do not give much meaning unless they are put in a simplified form. For example all items relating to “Current Liabilities” are put at another place. Also type of analysis varies according to the specific interests of the parties involved. Trade creditors are interested primarily in the liquidity of a firm. Their claims are short term and anything that shows the liquidity is an indicator of the firm’s ability to pay their claims. The claims of debenture holders are long term and they are more interested in the cash flow ability of the firm to service debt over the long run. Shareholders, on the other hand, are concerned principally with present and expected future earning and stability of these earnings and in variance with the earnings of other companies. They are concerned with the profitability of the firm.

Apart from the above, others who are interested in the information are government regulators. They are concerned with the rate of return the company earns in its assets as well as with the proportion of non equity funds employed in the business.

The required information for the different category of people who are interested with the company differs and thus, the type of financial analysis undertaken various according to the specific interests of the analyst. Financial statement analysis is part of a large information processing system on which informed...