Class 12 Business Studies Chapter 9 Worksheet 1: (Financial Management)
Generally, anxiety appears out of nowhere when you are in Class 12 and the subject is Business Studies.
You feel nervous about your board exams.
Hence, you start searching for Class 12 educational materials to practice BST case studies.
At this moment, you have visited the correct platform.
On this page, you can find several case studies (short and long) for practice and solve them. The first section is for short case studies, followed by long case studies.
Before you proceed, below are the quick details:
- Class: 12
- Subject: Business Studies
- Chapter Number: 10
- Chapter Name: Financial Market
- Worksheet Number: Case-Based Questions
- Worksheet Type: 1
Table of Contents
| Short Case Studies | Long Case Studies |
Short Case Studies
Case Study 1
Identify and state the type of decisions in the following cases:
- Ravi wants to open a restaurant and is looking for a proper place to open it. He is also thinking of the amount of funds which will be required for some of the set-ups, like food making and storage machinery.
- Ravindra is running a toy manufacturing company. He thinks of expanding his business. He meets his uncle and asks him for a sum of ₹ 2 crore. His uncle asks for a high interest rate. He agrees to it and promises to pay the money back within 2 years.
Case Study 2
The demand for takeaway food businesses is increasing day by day. People working in multi-national companies have to work till night very often, and they are reluctant to cook food.
Taking advantage of this opportunity, Amit and Bijoy started ‘Langer’, a takeaway food business.
The food became famous because of its good quality and the hygiene followed by them. Over the years, the business became very profitable.
They decided to expand the business by opening more branches in different cities.
To ensure consistent quality, they decided that all branches would use the same machines and maintain hygiene with advanced technology.
The cost of each machine was ₹ 12 crores. They knew that this decision was very costly, as it involved a huge cost, and the decision, once taken, is irreversible.
- Identify and state the financial decision discussed in the above paragraph.
- Explain any two factors affecting the decision identified in (i) above.
Case Study 3
Hemant, the finance manager, and Arun Chopra, the managing director of Ghoka Ltd., were discussing the source of finance to be raised for the modernisation of their existing plant. Quoting that ‘Sensex has gone bad by 5078 points in the last three years, Hemant suggests that equity should be preferred, while Arun Chopra wants to avail a loan.
- Keeping in mind the high operating costs of the company, suggest the source of finance that should be opted for the modernisation of the existing plant.
- Also, explain two factors that should be kept in mind for taking this decision.
Case Study 4
Sunrises Ltd., dealing in readymade garments, is planning to expand its business operations in order to cater to the international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity.
The company wishes to raise the required funds by issuing debentures.
The debt can be issued at an estimated cost of 8%. The EBIT for the previous year of the company was ₹ 80,00,000, and the total capital investment was ₹ 1,00,00,000.
Suggest whether the issue of debenture would be considered a rational decision by the company. Give a reason to justify your answer.
Case Study 5
Sunflower Ltd. is a trusted name in diagnostic services with seven branches across the city of Mumbai.
The directors of this company have projected that with the rise in health consciousness in society and the growing burden of chronic diseases, the demand for tests is expected to grow in the coming years; therefore, they decided to open branches of their lab in Pune.
It is estimated that it will require 150 crore of additional funds. The directors have to make a decision about how much share capital and how much debt. It will affect the overall cost of capital and the financial risk of the company.
- Identify and state the financial decision discussed in the above paragraph.
- State any three factors that should be kept in mind by the board of directors of Sunflower Ltd. while taking the decision identified in (i) above.
Case Study 6
Chetanshi Ltd. is a company dealing in readymade garments for several years. Recently, the profit of the company has started increasing. The finance manager decided to retain the profit instead of distributing it among the shareholders.
- Identify and state the financial decision taken by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
Case Study 7
Gupta International Ltd. earned a net profit of ₹ 50 crore. Mahesh, the finance manager of Gupta International Ltd., wants to decide how to appropriate these profits.
- Identify and state the decision that Mahesh will have to take.
- State any three factors that will help him in taking this decision.
Case Study 8
Aval Ltd. is engaged in the business of exporting canvas goods and bags. In the past, the performance of the company had been up to expectations.
In line with the latest demand in the market, the company decided to venture into leather goods, for which it required specialised machinery.
For this, the finance manager, Prabhu, prepared a financial blueprint of the organisation’s future operations to estimate the amount of funds required and the timings, with the objective to ensure that enough funds are available at the right time.
He also collected the relevant data about the profit estimates for the coming years. By doing this, he wanted to be sure about the availability of funds by the time they are required to run the operations of the business.
From the inside, trying to find out alternative sources from outside, he is preparing a plan for arranging these funds.
- Identify the financial concept discussed in the above paragraph. Also, state the objective to be achieved by the use of the financial concept so identified.
- “There is no restriction on payment of dividend by a company.” Comment.
Case Study 9
Gagneja Engineering Ltd., a leading manufacturer of rods, wants to manufacture trucks. It is important for a finance manager to ensure the availability of funds whenever required and their possible sources.
It is also important to ensure that the company does not raise funds unnecessarily. The fund requirement and the availability have to be matched.
- Identify and give the meaning of the concept discussed in the case, which will help the finance manager to achieve his objectives.
- Also, state any three points of importance of the concept identified in (i) above.
Case Study 10
Though Ran Apparels is making huge profits every year on a regular basis, it is not able to provide sufficient dividends to its shareholders.
As a result, EPS remains low. Identify and explain the concept that can help to resolve the problem.
Case Study 11
The Return on Investment (RoI) of a company has ranged between 10%-12% for the past three years.
To finance its future fixed capital needs, it has the following options for borrowing debt.
- Option ‘A’: Rate of interest 9%
- Option ‘B’: Rate of interest 13%
Which source of debt, ‘Option A’ or ‘Option B’, is better?
Give a reason in support of your answer. Also, state the concept used in making the decision.
Case Study 12
Company ‘A’ has a debt-equity ratio of 3:1. Another Company, ‘B’, has a debt-equity ratio of 2.5:1. Both companies are part of an industry where the operating costs are high. Many of the companies in this industry are vulnerable to high business risk.
Which one of the two companies is going to have higher chances of financial risk?
Why do you think the financial risk in the above-mentioned industry is going to be dangerous for the companies?
Case Study 13
Kanav, after graduating from college with a specialisation in renewable energy, was determined to start a solar power plant. The venture required heavy investment in plant and machinery and less in manual labour.
Kanav invested in the latest solar panel technology and infrastructure and purchased the latest solar panels, inverters, and battery storage systems.
Despite the high risk and substantial investment, Kanav’s business had good expansion possibilities.
The world was increasingly moving towards clean energy solutions, and there was a growing demand for sustainable power sources.
So, Kanav decided to create a higher capacity for his solar production and storage plant, which required investment in fixed assets, which Kanav was able to arrange. As the years passed, the solar power plant did very well and played a pivotal role in the city’s transition towards a greener and more sustainable future.
Identify and explain the two factors affecting the fixed capital requirements discussed in the above case.
Case Study 14
Pinnacle Ltd. deals in the sale of stationery and office furniture. They source the finished products from reputed brands that give them four to six months' credit. Seeing the market for these items, they are also planning to introduce electronic items, for which they will need more financing. Therefore, the plan is to expand these items by opening outlets throughout India.
For this, they decided to join hands with a Japanese electronic goods manufacturer. Identify and state any two factors that would affect the fixed capital requirement of Pinnacle Ltd. as discussed above.
Case Study 15
KJ Ltd. is manufacturing trucks at its manufacturing unit in Kolkata. The demand for its trucks is high as the economic growth is about 7% to 8%.
The company has estimated a 20% increase in the demand for its trucks. It is planning to set up a new truck manufacturing unit.
For this, the company will require approximately ₹2,000 crore as fixed capital and ₹500 crore as working capital.
The company has already arranged for its fixed capital. State any three factors that the finance manager of the company should keep in mind while arranging its working capital.
Case Study 16
Verma Ltd. has various warehousing arrangements. The services provided by the company help businesses to decrease their overheads, increase efficiency, and reduce the distribution time.
- State whether the working capital requirements of Verma Ltd. will be high or low. Give a reason.
- Explain any two factors affecting working capital requirement.
Case Study 17
KJ Ltd. is manufacturing trucks at its manufacturing unit in Kolkata. The demand for its trucks is high as the economic growth is about 7% to 8%.
The company has estimated a 20% increase in the demand for its trucks. It is planning to set up a new truck manufacturing unit.
For this, the company will require approximately 2,000 crores as fixed capital and 500 crores as working capital.
The company has already arranged for its fixed capital. State any three factors that the finance manager of the company should keep in mind while arranging its working capital.
Long Case Studies
Case Study 18
S Ltd. is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7-8% and the demand for steel is growing. It is planning to set up a new steel plant so that it can meet the increased demand.
It is estimated that it will require about ₹ 5,000 crore to set up and about ₹ 500 crore of working capital to start the new plant.
- Describe the role and objectives of financial management for this company.
- Explain the importance of having a financial plan for this company. Give an imaginary plan to support your answer.
Case Study 19
‘Neeraj Exports Ltd.’ is engaged in the export of electronic goods. The company has been expanding its operations for the last few years and is now planning to set up a new manufacturing unit.
It is faced with the decision of how to finance this new project.
The company has a solid cash flow position and has been consistently generating profits. However, it already has significant fixed operating costs in the form of rent, salaries, and other expenses.
The current shareholders are not in favour of issuing additional equity shares as they fear losing control of the company.
Meanwhile, the stock market is experiencing a downturn, which makes raising funds through equity challenging.
In light of these factors, the company is considering its financing options.
Quoting lines from the above discussion, identify and explain any four factors affecting the financing decision.
Case Study 20
Abhishek Ltd. is manufacturing cotton clothes and has been consistently earning good profits for many years, and this year it has also been able to generate profits with the availability of enough cash and good prospects of growth in the future.
It is a well-managed organisation that believes in quality, equal employment opportunities, and good remuneration to employees, and it has many shareholders who prefer to receive a regular income from their investments.
It has taken a loan of ₹50 lakhs from ICICI Bank and is bound by certain restrictions on the payment of dividends according to the terms of the loan agreement.
The above discussion about the company leads to various factors that decide how much of the profits should be retained and how much should be distributed by the company.
Quoting the lines from the above discussion, identify and explain any four such factors.
Case Study 21
‘Sarah Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for many years.
This year, too, it has been able to generate enough profits. There is enough cash in the company and good prospects for growth in the future.
It is a well-managed organisation and believes in quality, equal employment opportunities, and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments.
It has taken a loan of ₹40 lakhs from IDBI and is bound by certain restrictions on the payment of dividends according to the terms of the loan agreement.
The above discussion about the company leads to various factors that decide how much of the profits should be retained and how much should be distributed by the company.
Quoting the lines from the above discussion, identify and explain any four such factors.
Case Study 22
Mr. Shah is the owner of Shah Marble Ltd. Within a short span of time, the company could generate cash flow, which not only covered fixed cash payment obligations but also created a sufficient buffer.
The company is on the growth path, and a new breed of consumers is eager to buy the Italian marble sold by Shah Marble Ltd.
To meet the increasing demand, Mr. Shah decided to expand his business by acquiring a mine. This required an investment of ₹120 crore.
To seek advice in this matter, he called the financial advisor, Mr. Seth, who advised him about the judicious mix of equity (40%) and debt (60%).
Mr. Seth also suggested that he take a loan from a financial institution, as the cost of raising funds from a non-financial institution is low. Though this will increase the financial risk, it will also raise the return on equity shareholders.
He also said that to reduce the tax liability, the company should prefer debt financing, as the interest on debt is allowed to be deducted from taxable income.
At the same time, interest on debt acts as a tax-deductible expense, contributing to the reduction of tax liability. After due deliberations with Mr. Seth, Mr. Shah decided to raise funds from a financial institution.
- Identify and explain the concept of financial management as advised by Mr. Seth in the above question.
- State any four factors affecting the concept as identified in part (i) above, which have been discussed between Mr. Shah and Mr. Seth.
Case Study 23
Mania Industries Ltd manufactures steel. Its plants are located in Gujarat. It produces around two lakh tonnes per annum of saleable steel.
With the increased demand for steel, it plans to expand the capacity of the existing steel plants.
It will require ₹3,500 crore of fixed capital and ₹1,600 crore of working capital. The company is considering whether it should issue equity shares or 7% debentures of ₹1,600 crore.
The capital structure at present comprises equity only. The finance manager of the company suggested that since the stock markets are undergoing a bearish phase, the company should issue debentures.
- Is it justified to raise funds by issuing debentures? Give a reason.
- Explain the impact of the issue of debentures on the risk faced by the company.
- Explain the impact of the cost of debt and cost of equity on the capital structure of the company.
Case Study 24
ABC Tech Solutions is a growing software company that specialises in developing innovative technology solutions for various industries.
The company has recently decided to expand its operations by opening a new development center in a different city.
To set up this center, ABC Tech needs to invest in advanced computer systems, office infrastructure, and various other fixed assets.
While planning this expansion, the management faces the challenge of efficiently managing its fixed capital, which includes the long-term assets.
The CEO, Mr. Rajesh, emphasised the importance of this decision, as it will have a direct impact on the company’s future profitability and growth.
Additionally, the company needs to evaluate how these fixed assets can be managed to ensure the smooth functioning of the new center.
The finance team begins analysing factors while setting up in a new location. They also consider the cost of acquiring fixed assets and the company’s future expansion plans to ensure they allocate sufficient capital. Mr. Rajesh stresses the importance of managing fixed capital to ensure that assets are used efficiently, financial stability is maintained, and the company can remain competitive in the market.
- Give any four reasons why management of fixed capital is important.
- State any two factors that affect the requirement of fixed capital.
Case Study 25
Vikram Automobiles Pvt. Ltd., a leading manufacturer of electric two-wheelers in India, has witnessed an extraordinary surge in demand over the past 12 months. “It’s been an exciting period for us, with sales hitting record levels,” says the CFO of Vikram Automobiles.
The company caters to the growing urban population eager to shift to eco-friendly modes of transport.
Interestingly, working capital management has been smooth, with a turnover of trade receivables averaging between 10 and 20 days.
One of the key reasons working capital remained in control was the pre-orders for their new range of electric scooters. Customers had placed advanced orders and payments in advance, with deposits paid, which helped boost the company’s cash flow.
The quick turnover of finished products and the company’s efficient inventory management kept storage costs low. “As soon as the scooters are manufactured, they are immediately shipped to dealers, keeping inventory at minimal levels,” said the CFO.
Moreover, favourable banking relationships further supported the company’s strong cash flow position, aiding in efficient working capital management.
- Explain the concept of working capital.
- Identify and explain any four factors that affect the requirement of working capital.
The End
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