1 What is the key goal that guides the decisions of financia

1. What is the key goal that guides the decisions of financial managers? What challenges do financial managers face when they try to find the best sources and uses of funds to meet this goal?

2. List the four basic types of financial ratios used to measure a company’s performance, give an example of each type of ratio and explain its significance.

3. What are the key questions financial planning must answer? What role does the budgeted income statement and budgeted balance sheet play in finding answers to these questions?

Solution

1) The key goal for the financial managers is to maximize the value of the firm and the shareholder’s wealth. The major challenges that financial managers face is to maintain an optimal capital structure for a firm and the projects that the firm undertakes to lower the cost of capital and thus generate a greater amount of discounted present value of cash flows for the firm.

2)

Four basic types of the ratio are:-

3) The key questions financial planning must answer are:-

The budgeted income statement and the balance sheet answers all these questions as it provides an idea of the firm’s operations, its CapEx program, and its borrowing.

Also, the profitability of the firm and the kind of money it generates for shareholders and the amount of fund plowed back to business can be deduced from the budgeted statements.