UGC - NET DECEMBER 2012 ANSWER KEYS (PAPER I)

Q.No.   W         X          Y          Z

Q01        A             A             D             A

Q02        A             D             C             B

Q03        A             D             A             D

Q04        A             C             C             B

Q05        D             A             B             A

Q06        B             D             A             A

Q07        D             B             C             A

Q08        B             C             D             C

Q09        C             D             A             D

Q10        A             B             D             A

Q11        A             A             B             A

Q12        D             D             D             A

Q13        B             D             C             A

Q14        A             C             C             D

Q15        D             D             C             B

Q16        D             C             A             D

Q17        C             D             B             B

Q18        A             A             D             C

Q19        D             B             A             A

Q20        B             A             B             A

Q21        C             D             D             D

Q22        D             C             B             B

Q23        B             A             A             D

Q24        A             C             A             B

Q25        D             B             A             C

Q26        D             A             C             D

Q27        C             C             D             B

Q28        D             D             A             A

Q29        C             A             A             D

Q30        D             D             A             D

Q31        A             B             A             C

Q32        B             D             D             D

Q33        A             C             B             C

Q34        D             C             D             D

Q35        C             C             B             A

Q36        A             A             C             B

Q37        C             B             A             A

Q38        B             D             A             D

Q39        A             A             D             C

Q40        C             B             B             A

Q41        D             D             A             C

Q42        A             B             D             B

Q43        D             A             D             A

Q44        B             A             C             C

Q45        D             A             A             D

Q46        C             C             D             A

Q47        C             D             D             D

Q48        C             A             C             B

Q49        A             A             D             D

Q50        B             A             C             C

Q51        D             A             D             C

Q52        A             D             A             C

Q53        B             B             B             A

Q54        D             D             A             B

Q55        B             B             D             D

Q56        A             C             B             A

Q57        A             A             C             D

Q58        A             A             D             D

Q59        C             D             B             C

Q60        D             B             A             A

UGC - NET DECEMBER 2012 ANSWER KEYS (PAPER III)( 17 ) MANAGEMENT

Q.No. SC17

Q01 D

Q02 A

Q03 D

Q04 A

Q05 B

Q06 A

Q07 D

Q08 B

Q09 C

Q10 B

Q11 C

Q12 B

Q13 B

Q14 B

Q15 D

Q16 B

Q17 D

Q18 C

Q19 D

Q20 B

Q21 D

Q22 C

Q23 C

Q24 D

Q25 C

Q26 B

Q27 A

Q28 B

Q29 C

Q30 A

Q31 C

Q32 D

Q33 C

Q34 A

Q35 D

Q36 B

Q37 D

Q38 D

Q39 C

Q40 A

Q41 C

Q42 D

Q43 A

Q44 B

Q45 A

Q46 D

Q47 B

Q48 D

Q49 D

Q50 B

Q51 C

Q52 C

Q53 C

Q54 A

Q55 A

Q56 C

Q57 D

Q58 C

Q59 D

Q60 C

Q61 D

Q62 B

Q63 B

Q64 D

Q65 D

Q66 B

Q67 A

Q68 B

Q69 D

Q70 C

Q71 A

Q72 B

Q73 C

Q74 A

Q75 A

UGC - NET DECEMBER 2012 ANSWER KEYS (PAPER II) ( 17 ) MANAGEMENT

Q.No. SC17

Q01 C

Q02 D

Q03 A

Q04 A

Q05 A

Q06 D

Q07 B

Q08 C

Q09 D

Q10 B

Q11 C

Q12 D

Q13 C

Q14 C

Q15 C

Q16 C

Q17 C

Q18 A

Q19 B

Q20 C

Q21 C

Q22 A

Q23 C

Q24 D

Q25 C

Q26 C

Q27 A

Q28 B

Q29 C

Q30 B

Q31 C

Q32 C

Q33 B

Q34 B

Q35 C

Q36 D

Q37 D

Q38 D

Q39 B

Q40 D

Q41 C

Q42 D

Q43 C

Q44 B

Q45 C

Q46 A

Q47 D

Q48 D

Q49 C

Q50 D

TOOLS USED FOR FINANCIAL ANALYSIS

The various tools used for financial analysis are:

• Fund flow Statement
• Ratio Analysis
• Common Size Statements
• Comparative Financial Statements
• Trend Analysis
• Cash Budget
• Working Capital
• Leverages

Fund Flow Statement

Fund flow statement also referred to as statement of “source and application of funds” provides insight into the movement of funds and helps to understand the changes in the structure of assets, liabilities and equity capital. The information required for the preparation of funds flow statement is drawn from the basic financial statements such as the Balance Sheet and Profit and loss account. “Funds Flow Statement” can be prepared on total resource basis, working capital basis and cash basis. The most commonly accepted form of fund flow is the one prepared on working capital basis.

Ratio Analysis

Ratio analysis is the method or process by which the relationship of items or groups of items in the financial statements are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measures or guides concerning the financial health and profitability of the business enterprise. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of the analyst but the group of ratios he would prefer depends on the purpose and the objectives of the analysis.

Accounting ratios are effective tools of analysis. They are indicators of managerial and overall operational efficiency. Ratios, when properly used are capable of providing useful information. Ratio analysis is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined the term ratio refers to the numerical or quantitative relationship between items/ variables. This relationship can be expressed as:

1.      Fraction

2.      Percentages

3.      Proportion of numbers

These alternative methods of expressing items which are related to each other are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that computing the ratio does not add any information in the figures of profit or sales. What the ratios do is that they reveal the relationship in a more meaningful way so as to enable us to draw conclusions from them.

Common Size Statements

It facilitates the comparison of two or more business entities with a common base. In case of balance sheet, Total assets or liabilities or capital can be taken as a common base. These statements are called “Common Measurement” or “Component Percentage” or “100 percent” statements. Since each statement is reduced to the total of 100 and each individual component of the statement is represented as a % of the total of 100 which invariably serves as the base.

Thus the statement prepared to bring out the ratio of each asset of liability to the total of the balance sheet and the ratio of each item of expense or revenues to net sales known as the Common Size statements.

Comparative Financial Statements

Comparative financial statements is statement of the financial position of a business so designed as to facilitate comparison of different accounting variables for drawing useful inferences. Financial statements of two or more business enterprises may be compared over period of years. This is known as “inter-firm comparison” Financial statements of particular business enterprise maybe compared over two periods of years. This is known as “inter-period comparison”.

Trend Analysis

Trend analysis is employed when it is required to analyze the trend of data shown in a series of financial statements of several successive years. The trend obtained by such an analysis is expressed as percentages. Trend percentage analysis moves in one direction either upwards or downwards, progression or regression. This method involves the calculation of percentages relationship that each statement bears to the same item in the base year. The base year maybe any one of the periods involved in the analysis but the earliest period id mostly taken as the base year. The trend percentage statement is an “analytical device for condensing the absolutely rupee data” by comparative statements.

Cash Budget

Cash budget is a forecast or expected cash receipts and payments for a future period. It consists of estimates of cash receipts, estimate of cash disbursements and cash balance over various time intervals. Seasonal factors must be taken into account while preparing cash budget. It is generally prepared for 1 year and then divided into monthly cash budgets.

Working Capital

Working capital is the amount of funds held in the business or incurring day to day expenses. It is also termed as short term funds held in the business. It is ascertained by finding out the differences between total current assets and total current liabilities. Working capital is a must for every organization. It is like a life blood in the body. It must be of sufficient amount and should be kept circulated in the different forms of current assets and current liabilities. The success of organization depends upon how successfully the circulation of short term fund is maintained smoothly and speedily. Working capital is also compared with the water flowing in the river as the water is always flowing it is pure water similarly working capital should be kept circulated in different short term assets.

Leverages

The employment of an asset or source of funds for which the first firm has to pay a fixed cost or fixed return may be termed as leverage.

Operating leverages: is determined by the relationship between firms, sales revenue and its earnings before interest and taxes (EBIT) which are generally called as Operating profits. Operating leverage results from the existence of fixed operating expenses in the firm’s income stream. the operating leverage may be defined as the firm’s ability to use fixed operating cost to magnify the affects of charges In sales on its earnings before interest and taxes.

Financial leverages: it relates to the financing activities of a firm. Financial leverage results from the presence of fixed financial charges in the firm’s income stream. Financial leverages concerned with the effects or changes in the EBIT in the earnings available to equity shareholders. It is defined as the ability of a firm to use fixed financial charges to magnify the effects or changes in EBIT on the earnings per share.

LEVERAGES

The employment of an asset or source of funds for which the firm has to pay a fixed cost or fixed return maybe termed as leverage.

OPERATING LEVERAGE – Operating Leverage may be defined as the firm’s ability to use fixed operating costs to magnify the effects of changes in sales on its earnings before interest and taxes.

FINANCIAL LEVERAGE – Financial Leverage can be defined as the ability of a firm to use fixed financial charges to magnify the effects of changes in EBIT on the earnings per share.

i). Operating Leverage results from the existence of fixed operating expenses in the firm’s income stream whereas Financial Leverage results from the presence of fixed financial charges in the firm’s income stream.

ii). Operating Leverage is determined by the relationship between a firm’s sales revenues and its earnings before interest and taxes. (EBIT)Financial Leverage is determined by the relationship between a firm’s earnings before interest and tax and after subtracting the interest component.

iii). Operating Leverage = Contribution / EBIT

Financial Leverage = EBIT / EBT

iv). Operational Leverage relates to the Assets side of the Balance Sheet, whereas Financial Leverage relates to the Liability side of the Balance Sheet. v). Operational Leverage affects profit before interest and tax, whereas Financial Leverage affects profit after interest and tax.

vi). Operational Leverage involves operating risk of being unable to cover fixed operating cost, whereas Financial Leverage involves financial risk of being unable to cover fixed financial cost.

vii). Operational Leverage is concerned with investment decisions, whereas Financial Leverage is concerned with financing decisions.

viii). Operating Leverage is described as a first stage leverage, whereas Financial Leverage is described as a second stage leverage.

CASH BUDGETING

a)      Cash Budget shows the policy and programme of cash inflows and outflows to be followed in a future period under planned condition.

b)      Cash Budget usually of 2 parts gives detailed estimate of cash receipts and cash distribution. Estimate of cash receipts budget on cash incoming. Estimate of cash distribution based on cash outgoing.

c)      Cash Budget is a tool of control since it represents actions which can be shaped to will so that it can be suited in the conditioning which may or may not happen.

d)     Cash Budget begins when Cash Forecasting ends. Cash Forecasting is convince in Cash Budget.

e)      Cash Budget has a limited scope.

f)       Cash Budget denotes a definite target.

CASH FORECASTING:

1. Cash Forecast is a main estimate of cash balance likely to happen under anticipated conditions using a specified period of time.

2. Cash Forecasting is an estimate showing amt of cash which would be available in future period.

3. Cash forecast being statement of future event does not connote any sense of control.

4. Cash Forecasting is a preliminary step for Cash Budgeting. It ends with the forecast of likely cash balances.

5. Cash Forecast is a wider scope.

6. Cash Forecasting denotes some degree of flexibility.

WHAT IS COMMERCIAL PAPER?

A company can use commercial papers to raise funds. It is a promissory note carrying the undertaking to repay the amount on or after a particular date. Normally it is an unsecured means of borrowing and the companies are allowed to issue commercial papers as per the regulations issued by SEBI and Company’s Act. Some of them are:

• Minimum size 25 Lacs
• Maximum limit is 100% of working capital limit.
• Period is from 15 days to 1 year, and every renewal is treated as a fresh commercial paper.
• While using Commercial Paper, company should ensure that its net worth is at least 4 crores or more and it has been noted by at least 2 rating agencies like CRISIL, ICRA, CARE.

Commercial papers on maturity are to be honoured at face value and the registrars or the issue agencies lay down all the formalities of funding through commercial papers