Finance Example Questions
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1. What is the difference between stocks and bonds? Which represents more risk to the organization? Why?
2. Does an organization receive money when its stock is traded in the secondary market? How does the organization affect its stock price? Why is an organization concerned about its stock price in the secondary market?
3. Which intermediary is the primary source of working capital for small business? What obstacles impede it from using other intermediaries? Explain why and how large organizations develop other relationships.
4. What are some agencies in the Department of Commerce? What are some tools they use to regulate their industries? Why is it effective to have agencies that focus on specific industries?
5. Please provide an example of each of the ratios below and explain how a manager might use the ratios to better improve performance.
o Profitability ratios
o Management efficiency ratios
o Leverage ratios
6. What are the 3 main financial statements and how do they work together? What does each statement show managers, investors? How can each statement be manipulated?
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Solution Summary
This solution provides answers with explanations for each of the finance questions attached.
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1. What is the difference between stocks and bonds? Which represents more risk to the organization? Why?
The holders of stocks are owners of the company. However, the holders of the bonds are creditors of the company. The bonds carry fixed rate of interest. However, holders of stocks will be paid dividend depending upon the profitability of the organization. The amount of interest payable in case of bond is charge against profit. However, the amount of dividend in case of stocks is appropriation of profit.
Bonds represents more risk to the organization because, the amount of interest should be paid irrespective of whether the company earns profit. If the company is incurring operating loss, then also the company should pay interest and it will lead the company to bankruptcy. Therefore, bonds are more risky than the stocks.
2. Does an organization receive money when its stock is traded in the secondary market? How does the organization affect its stock price? Why is an organization concerned about its stock price in the secondary market?
When the stock is traded in the secondary market, the organization does not receive any money. The organization can affect its stock price by declaring high amount of dividends; buy back of its shares, declaring stock dividends, acquisition of other firms etc.
The organization is concerned about the stock price at the secondary market because if the share price of the company is high, the investors will be tempted to buy the shares of the company and in that case, it is easy for the company to mobilize the fresh funds by issue of shares or bonds.
3. Which intermediary is the primary source of working capital for small business? What obstacles impede it from using other intermediaries? Explain why and how large organizations develop other relationships.
Small business use banks for its working capital requirements by availing short term loans or cash credits etc., Small business will also use the trade creditors by delaying their ...
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