CBSE Class 12 Commerce: Financial Management — Important Questions with Answers 2026

Key Concepts & Short Answer Questions

• Q: What are the objectives of financial management?
  Ans: Primary objective: Maximisation of shareholders' wealth (market value of shares). Other objectives: (1) Ensuring adequate funds for operations and growth. (2) Optimum utilisation of funds. (3) Ensuring safety of investment. (4) Planning a sound capital structure. Financial decisions: (a) Investment decision — where to invest (fixed/working capital). (b) Financing decision — debt vs equity mix. (c) Dividend decision — how much profit to distribute vs retain.
• Q: Explain the factors affecting capital structure.
  Ans: Capital structure is the mix of debt (borrowed funds) and equity (owners' funds). Factors: (1) Cost of funds — debt is cheaper (interest is tax-deductible). (2) Risk — more debt = more financial risk (fixed interest obligation). (3) Cash flow position — stable cash flows can support more debt. (4) Control — debt doesn't dilute ownership; equity does. (5) Tax rate — higher tax rate makes debt more attractive (tax shield). (6) Flexibility — keeping borrowing capacity for future. (7) Market conditions — bull market favours equity, bear market favours debt.

Long Answer / Application Questions

• Q: Differentiate between fixed capital and working capital.
  Ans: Fixed capital: Long-term investment in fixed assets (land, building, machinery, equipment). Used for establishing and expanding business. Not meant for resale. Depreciated over useful life. Sources: equity shares, debentures, long-term loans. Working capital: Short-term funds needed for day-to-day operations. Working Capital = Current Assets - Current Liabilities. Includes: cash, debtors, inventory, short-term loans. Factors affecting: nature of business, scale of operations, credit terms, seasonal variations.

Exam Tips

• Write structured answers with headings and points for Financial Management
• Use real-world examples wherever possible — examiners reward application
• For numerical problems, show all steps and calculations clearly