✓ Board-verified
Business Studies · 2024 · 6 marks
CBSE 2024 · Region 5 · Set 1 · Q32
(a) Explain the following factors affecting the working capital requirements of a business: (i) Operating efficiency (ii) Credit availed (iii) Level…
(a)
Explain the following factors affecting the working capital
requirements of a business:
(i)
Operating efficiency
(ii)
Credit availed
(iii)
Level of competition
OR
(b)
Explain the following factors affecting the dividend decision of a
company:
(i)
Stability of dividends
(ii)
Contractual constraints
(iii)
Stock market reaction
Marking-scheme solution
$\displaystyle 24$ Q. (i) Operating Efficiency
§ Firms manage their operations with varied degrees of efficiency.
§ These efficiencies may reduce the level of raw materials, finished goods
and debtors resulting in lower requirement of working capital.
(ii)
Credit availed
§ A firm allows credit to its customers and also may get credit from its
suppliers.
§ To the extent the firm avails credit on purchases, the working capital
requirement is reduced.
(ii)
Level of competition
§ Level of competition affects the working capital requirement of an
organisation as higher competition requires larger stocks to meet urgent
orders from customers which results into requirement of more working
capital.
§ Competition may also force the firm to extend liberal credit terms.
OR
Q. (b) Explain the following factors affecting the dividend decision of a
company:
(i)
Stability of dividends
(ii)
Contractual constraints
$\displaystyle 25$ Q. (iii) Stock market reaction
(i)
Stability of dividends
§ Companies follow a policy of stabilizing dividend per share. The increase
in dividend is generally made when there is confidence that their earning
potential has gone up and not just the earning of the current year.
§ Companies do not alter dividend per share if the change in earnings is small
or seen to be temporary in nature.
(ii)
Contractual constraints
§ Sometimes the lenders may impose some restrictions on the payment of
dividend in future.
§ The companies are required to ensure that the payment of dividend does not
violate the terms of the loan agreement entered by the company.
(iii)
Stock market reaction
§ Investors, in general, view an increase in dividend as good news and stock
prices react positively to it.
§ The possible impact of dividend policy on the equity share price is one of
the important factors considered by the management while taking a
decision about dividend.
More from Financial Management
- Which of the following is NOT a factor affecting capital structure of a company?2023 · asked 2×
- State any three points of importance of Financial Planning. OR State any three factors that determine the requirement of fixed capital of a company.2023 · asked 2×
- Read the following statements carefully: Statement I: Higher fixed operating costs result in higher business risk. Statement II: If the firm’s…2026
- Match the factors affecting fixed capital requirements given in the Column-I with their explanations given in Column-II: Column – I Column - II A…2023
- 'Payal Ltd.' plans to start manufacturing solar panels which will require a significant amount of investment in machinery. The machinery which they…2025
- State any four factors that affect the decision related to how much profit is to be distributed and how much profit is to be retained in the business.2023
- The risk related to inability to meet fixed financial charges like interest payment and other repayment obligations is known as:2025
- ‘Ratan Ltd.’ and ‘Lara Ltd.’ are two companies with each having a capital employed of ₹ 20,00,000. ‘Ratan Ltd.’ had raised funds by issuing shares…2026
CBSE Class 12 Business Studies past-paper question from the 2024 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.