2025

Explain the concepts of factoring and forfaiting.

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Introduction Factoring and forfaiting are two important financial tools used by businesses to manage their receivables and enhance cash flow. These mechanisms provide working capital by converting outstanding invoices or future receivables into immediate cash. Although both serve similar purposes, they differ significantly in structure, risk, and applicability. Factoring Definition:Factoring is a financial arrangement in […]

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Discuss the conditions under which dividends can’t be declared.

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Introduction Dividends are the portion of profits distributed to shareholders as a return on their investment. However, companies are not always in a position to declare dividends. Legal, financial, and operational constraints may restrict dividend declarations. This article discusses various conditions under which a company cannot declare dividends. 1. Inadequate Profits or Losses A company

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Explain the dual method for the valuation of shares.

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Introduction The valuation of shares is essential in investment decisions, mergers, acquisitions, and financial reporting. Among the different techniques, the dual method combines two approaches to derive a more balanced and accurate valuation. This method is particularly useful when market data is incomplete or when both dividend potential and asset backing are relevant. What is

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What is payback period? Explain the acceptance criteria using payback period method.

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Introduction The payback period is a capital budgeting technique used to evaluate the time it takes for an investment to recover its initial cost from its cash inflows. It is a simple and widely used method to assess the risk and liquidity of investment projects. This article defines the payback period, explains how it is

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Explain future value and present value of money giving examples.

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Introduction The concepts of Future Value (FV) and Present Value (PV) are central to the understanding of the time value of money—a foundational principle in finance. They help in evaluating investments, loans, and financial planning decisions by accounting for the impact of time and interest on money. Future Value (FV) Definition:Future Value refers to the

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Explain the various approaches to calculate cost of equity with help of examples.

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Introduction The cost of equity represents the return that investors expect for investing in a company’s equity. It is a critical component in financial management, particularly in capital budgeting and valuation. Several models are used to estimate the cost of equity, each with its own assumptions and inputs. This article explains the major approaches to

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Discuss with suitable examples various types of risks involved in capital budgeting decisions.

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Introduction Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the goal of the firm’s wealth maximization. However, these decisions involve significant risks due to uncertainties in future cash flows, project life, and external factors. Understanding various types of risks involved in capital budgeting is crucial for effective financial

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Explain different stages involved in operating cycle. Distinguish between gross operating capital and net working capital.

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Introduction The operating cycle, also known as the cash conversion cycle, is a key concept in financial management. It refers to the time taken by a business to convert its investments in inventory and other inputs into cash flows from sales. Understanding its stages and the associated concepts of gross operating capital and net working

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Discuss NPV method for making capital budgeting decisions with suitable examples.

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Introduction The Net Present Value (NPV) method is one of the most widely used techniques for evaluating investment and capital budgeting decisions. It considers the time value of money and provides a clear indication of whether a project will generate value for the firm. This article explains the NPV method, its process, benefits, and includes

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What is capital asset pricing model and arbitrage pricing theory? Differentiate between them.

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Introduction The Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) are two widely used models in financial management for determining the expected return on investments and assessing risks. While both models aim to price assets considering their risk, they are based on different assumptions and methodologies. This article explores the concepts of CAPM

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