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

UGC NET - MANAGEMENT- PAPER—II DEC 2006

1.      Price elasticityof demand for luxury goods will be :

(A)    Relatively elastic                             (B)     Relatively inelastic

(C)    Infinitely elastic                              (D)    Infinitely inelastic

2.      In the short run, profit maximisingfirm produces additional units of production, aslong as :

(A)    Elasticity of demand is infinite

(B)     Total revenueis increasing

(C)    Price covers at least average fixed cost

(D)    Additional revenue per unit exceeds additional cost per unit

3.      In the typical demand schedule, quantitydemanded :

(A)    varies directly with price              (B)     varies indirectlywith price

(C)    varies inverselywith price            (D)    is independent of price

4.      Shut down point is that point where price is :

(A)    Less than variable cost                  (B)     Equal to variable cost

(C)    Equal to average cost                    (D)    None of the above

5.      Which is not an instrument of monitory policy ?

(A)    Bank rate                                        (B)     Tax policy

(C)    Reserve ratio                                   (D)    Buying/selling securities in open market

6.      The assumption that conflict betweenthe organisation (if limited to the economiccontext only)  leads to innovativeness and the new product development, technologicaladvancement and better services at low prices,refers to :

(A)    Law of diminishing return            (B)     Cost reduction strategy

(C)    Deflationary economy                   (D)    Laissez-faire economy

7.      Cognitive reorganisation and reinforcement takes place in which of the followingstages of adoption :

(A)    Implementation                              (B)     Proposal

(C)    Deliberation                                    (D)    All of the above

8.      Those functionsin an organisation, which are perceived to be directlycontributing to the organisation’s objectives, are known as :

(A)    Staff function                                 (B)     Corporatefunction

(C)    Integration function                       (D)    Line function

9.      The assumptions about human nature (i)      work is inherently distasteful to most people (ii)       most people would like to be directed,and (iii)   most people have little or no creativity are propounded by :

(A)    Hygiene Theory                              (B)     Maslow’s Theory

(C)    Theory X                                         (D)    Theory Y

10.    Objectives of communication

(i)      to seek compliance and ensure uniformity in action

(ii)     to meet deadlinesand production targets

(iii)    to disseminate information to a larger number of people, and

(iv)    save cost in terms of time and money refers to :

(A)    One-way communication              (B)     Two-way communication

(C)    Grapevine                                       (D)    Non-verbalcommunication

11.    Theprocess of establishing the value of jobs in a Job hierarchy, is known as : 
          (A)        Job Analysis                                                    (B)     Job Evaluation

(C)    Job Requirement                                                 (D)    Performance Evaluation

12.    Standing Labour Conference (SLC) was constituted in line with the recommendations of Royal Commission on Labour in the year :

(A)    1942                    (B)     1944                    (C)    1946                    (D)    1948

13.    Theart of estimating a person’scharacter etc., from the handwriting, is known as : 
          (A)          Physiognomy                                  (B)     Phrenology

(C)    Numerology                                         (D)    Graphology

14.    Which of the followingare not significant causal factorsfor grievances ? 
         (A)   Wages, working conditions and supervision

(B)     Management policies, practices and maladjustment of employees

(C)    Both (A) and (B) above

(D)    None of the above

15.    The methodof management development which purports to develop awareness and sentiments to one’s own and others’ behavioural patterns, is known as :

(A)    StructuredInsight                          (B)     The syndicate system

(C)    Business games                               (D)    Sensitivity training

16.    In capital lease depreciation is claimed by :

(A)    Lessor                                              (B)     Lessee

(C)    Both                                                 (D)    None of the above

17.    Corporate control is maintained intact by issuingshares through : 
          (A)  Public offer                                       (B) Rights issue

(C)    Book building                                  (D)    None of the above

18.	Convertible bond is :
	(A)    Debt+Warrant	(B)	Debt+Cash
	(C)    Debt+Share	(D)	None of the above

19.    In a merger bargain, the exchange ratio is determined on the basis of :

(A)    Potential of merging company

(B)     Issued capitalof the two companies

(C)    Market share

(D)    Future value of companyto the acquirer

20.    Corporate-Governance dealswith value creationfor :

(A)    Corporate                                        (B)     Shareholders

(C)    Stakeholders                                    (D)    None of the above

21.    State which one is not a function of marketing :
         (A) Identification of customers needs and wants 
          (B) Productplanning and development

(C)    Guiding the funding agencies

(D)    Communicating

22.    “Marketing mayopia”is based upon :

(A)    current productofferings              (B)     forecasting the future productoffering

(C)    droppinga product                       (D)    adding a product

23.    Marketing information system is the system of information that flows to assist :

(A)    Promotional programmes

(B)     Sales personnels development

(C)    Marketing planningand decision making

(D)    Marketing-mix

24.    SWOTanalysis is analyticaltool for having : 
         (A)     Comperativeadvantage

(B)     Competitive advantage

(C)    Comprehension of current overallsituation of a firm

(D)    None of the above

25.    Consumers are aware of damages caused by packaging, product process, so theyprefer :

(A)    Social marketing concept              (B)     Green marketing concept

(C)    Direct marketingconcept             (D)    Organic marketing concept

26.    A L.P.P. will have an unbounded solutionif : 
          (A) The objectivefunction is non linear

(B)     If all the basic solutionsvanish

(C)    If for atleast one j, for which yij≤0, Zj−Cj  is negative

(D)    If for all j, for which yij≤0, Zj−Cj  is positive

27.    Just-in-time inventory system implies :
          (A)  EOQ in purchase orders

(B)     Production lots in manufacturing process

(C)    Time lag in new material procurement

(D)    Production quantities ideally equal to delivery quantities

28.    The CriticalPath of a network is :

(A)    for which earliest start time and latest start time are same

(B)     the shortesttime path througha network

(C)    for which earliest finish time and latest finish time are same

(D)    the longest time path througha network

 30.    AQL (Acceptable Quality Level) is :

(A)    Quality level acceptable in the society

(B)     Fraction defective (f) that the user considers acceptable

(C)    Fraction defective (f) that the producer considers acceptable

(D)    Quality level acceptable in the industry

31.    The two lines of regression are 3x+2y=26 and 6x+y=31 then the mean of X is : 
         (A)  3          (B) 4                  (C) 7                   (D) 9

32.    A speaks the truth in 70 percent cases and B in 80 percent cases.  The probability that they will contradict each other in describing a single event :

(A)    0.36                     (B)     0.38                     (C)    0.4                       (D)    .42

33.    A maximumlikelihood estimator is always :

(A)    consistent            (B)     unbiased              (C)    efficient      (D)    none of these

35.    Growing popularity of DBMS is due to :

(A)    User friendliness                             (B)     Report writing

(C)    Better responsetime                       (D)    Query processing

36.    Which of the followingterms is not a part of the BCG model ?

(A)    Star                      (B)     Cash cow                     (C)    Cat             (D)    Dog

37.    Thedimensions of Group Mapping are : 
         (A)    Price versus Product-line breadth
         (B)    Priceversus Volume of production

(C)    Productioncapacity versus Cost of production

(D)    Total demand versus Market share

38.    Which of the followingis not an element of the Porter’sGeneric competitive strategy model ?

(A)    Cost leadership                               (B)     Focus

(C)    Product Differentiation                  (D)    Leadership

39.    Market entry strategies vary from country to country because of :

(A)    Varied political environment        (B)     Varied culturalenvironment

(C)    Varied economic conditions          (D)    All of the above

40.	Policies of WTO are formulated by :
	(A)    Heads of the member countries	(B)	Trading Blocks
	(C)    Ministerial conference	(D)	None of the above

41.    Which is not a socio-economic rationale for promotingSSI in India ?

(A)    Employment generation

(B)     Export promotion

(C)    Offering competition to large-scale industry

(D)    Labour intensive

42.    Which of the followingis not a part of incentives to SSI ? 
          (A)    Subsidy to labour wages                (B)     Tax holidays

(C)    Lower interestrate                        (D)    Interest subsidy

43.    Theinterest rate for ‘bridge finance’is : 
         (A)  lower than that of short-term loan 
          (B) equal to that of short-termloan

(C)    higher than that of short-term loan

(D)    nil

44.    Which of the following organisations provide institutional support to SSI ?

(A)    Indian Instituteof Foreign Trade           (B)     Tool Design Institute of SIDO
(C)   Nationalized Banks                                (D)    Ministry of Commerce

45.    Technology Development and Modernization Fund is providedby :

(A)    SIDBI                   (B)     NABARD           (C)     KVIC                   (D)    SIDO

46.    “Ecology Paradigm”of management refers to :

(A)    environmental management         (B)     stackholders’ management

(C)    strategicchoice framework           (D)    none of the above

47.	Social responsibility is not :
	(A)    Legal behaviour	(B)	Legal compliances
	(C)    Ethical compulsion	(D)	All of the above

48.    Economic value added is the measure of :

(A)    strategy evaluation                        (B)     shareholders’ wealth

(C)    stakeholders’ wealth                      (D)    none of the above

49.	Egalitarian behaviour refers to :
	(A)    natural behaviour	(B)	moral behaviour
	(C)    social behaviour	(D)	ethicalbehaviour

50.    The processthrough which peopleare baptized to accept the tradition and maintain the homogeneity of ethos and behaviours is termed as :

(A)    Induction                                         (B)     Orientation

(C)    Acclimatisation                               (D)    Socialization