The Financial Management Decision Process Part-II



1 The Financial Management Decision Process. What are the three types of financial management decisions?

For each type of decision, give an example of a business transaction that would be relevant.


LO 3 1.2Sole Proprietorships and Partnerships –

What are the four primary disadvantages to the sole proprietorship and partnership forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form?

LO 3 1.3Corporations

What is the primary disadvantage of the corporate form of organization? Name at least two of the advantages of corporate organization.

LO 2 1.5Goal of Financial Management

What goal should always motivate the actions of the firm’s financial manager?

LO 4 2.6Cash Flow from Assets

Suppose a company’s cash flow from assets was negative for a particular period. Is this necessarily a good sign or a bad sign?

LO 4 2.7 Operating Cash Flow

Suppose a company’s operating cash flow was negative for several years running. Is this necessarily a good sign or a bad sign?

LO 4 2.8Net Working Capital and Capital Spending

Could a company’s change in NWC be negative in a given year? (Hint: Yes.) Explain how this might come about. What about net capital spending?


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