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Financial Management (12 Business Studies)

Practise chapter-wise MCQs for Class 12 Business Studies — Financial Management. Every question comes with the correct answer and an explanation.

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TL;DR: Practise chapter-wise MCQs for Class 12 Business Studies — Financial Management. Every question comes with the correct answer and an explanation.

Written & reviewed by the Syllab.in Academic Team (CBSE/NCERT subject experts) · Updated Aug 8, 2026

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Practise chapter-wise MCQs for Class 12 Business Studies — Financial Management. Every question comes with the correct answer and an explanation.

Financial Management MCQs with Answers & Explanations

Q1. A company decides to invest in a new plant and machinery. This is an example of which type of financial decision?

  1. Investment Decision ✓ (correct)
  2. Profitability Decision
  3. Financing Decision
  4. Dividend Decision

Explanation: Investment decisions involve the allocation of funds to long-term assets or projects that are expected to generate future returns.

Q2. Which of the following is a factor influencing the financing decision of a company?

  1. Cost of Financing
  2. Risk Associated with Financing
  3. Control Considerations
  4. All of the above ✓ (correct)

Explanation: All these factors are crucial for a firm when deciding on its financing mix. The cost of debt versus equity, the risk involved in leverage, and the desire to maintain control all play a significant role.

Q3. Which of the following is NOT a primary objective of financial management?

  1. Wealth Maximization
  2. Profit Maximization ✓ (correct)
  3. Ensuring Solvency
  4. Minimizing Cost of Capital

Explanation: While profit maximization is a short-term goal, wealth maximization is considered the primary objective of financial management as it encompasses long-term value creation and considers the time value of money and risk.

Q4. A company with a high debt-equity ratio is generally considered to have:

  1. High liquidity
  2. Low financial risk
  3. High financial risk ✓ (correct)
  4. Low operating risk

Explanation: A high debt-equity ratio indicates that the company relies heavily on borrowed funds, which increases its financial risk due to fixed interest payments and potential for bankruptcy if unable to meet its obligations.

Q5. The primary goal of dividend policy is to:

  1. Ensure the company's stock price is low
  2. Maximize retained earnings
  3. Minimize the cost of equity
  4. Maximize the total return to shareholders ✓ (correct)

Explanation: The dividend policy aims to balance the immediate returns to shareholders (through dividends) with future growth prospects (through retained earnings) to maximize overall shareholder value.

Q6. The process of determining the optimal amount of capital that a firm should raise from various sources is known as:

  1. Capital Structure Decision ✓ (correct)
  2. Capital Budgeting
  3. Dividend Policy Formulation
  4. Working Capital Management

Explanation: Capital structure decisions focus on the mix of debt and equity financing that a firm uses to fund its operations and growth.

Q7. The decision on how much of the profit should be distributed to shareholders as dividends and how much should be retained for future growth is known as:

  1. Investment Decision
  2. Dividend Decision ✓ (correct)
  3. Financing Decision
  4. Working Capital Decision

Explanation: Dividend decisions deal with the distribution of profits between shareholders and reinvestment in the business.

Q8. The decision related to the amount of funds to be raised and the proportion of different sources of finance is known as:

  1. Investment Decision
  2. Liquidity Decision
  3. Financing Decision ✓ (correct)
  4. Dividend Decision

Explanation: Financing decisions concern how a firm raises its finances, dealing with the proportion of debt and equity in the capital structure.

Q9. Which of the following is a characteristic of a sound working capital management?

  1. Over-reliance on short-term debt
  2. Delaying payments to suppliers
  3. Maintaining excessive inventory
  4. Ensuring sufficient liquidity for short-term obligations ✓ (correct)

Explanation: Effective working capital management aims to maintain a balance between liquidity and profitability, ensuring the firm can meet its short-term obligations without tying up excessive funds.

Q10. Which of the following is a measure of a firm's liquidity?

  1. Current Ratio ✓ (correct)
  2. Debt-Equity Ratio
  3. Return on Investment
  4. Price-Earnings Ratio

Explanation: The Current Ratio (Current Assets / Current Liabilities) is a key indicator of a firm's ability to meet its short-term obligations.

More 12 Business Studies MCQs

  • Nature and Significance of Management
  • Principles of Management
  • Business Environment
  • Planning
  • Organising
  • Staffing

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