CMA Inter Suggested Answers | Dec 24 Paper 11 Financial Management and Business Data Analytics (FMDA)

Table of Contents

1. MCQs
2. 2 (a) What are the principal features of a commercial paper?
3. 2 (b) What do you mean by Descriptive Analytics? Explain
4. 3 (a)The following information is available about Boxa
5. 3 (b)  A firm wants to know whether it belongs to the non
6. 4 (a) Prepare a Common-size Income Statement from the
7. 4 (b) Prakash Packers Ltd. has the following capital structure:
8. 5 (a) From the following information, calculate Net Present Value
9. 5 (b) A project, requiring initial investment of ₹ 5,00,000 in
10. 6 (a) JBC Ltd. sells goods at a gross profit of 25%. Depreciation
11. 6 (b) Himalaya Refrigeration Company purchases 1,600 units of
12. 7 (a) Jai & Karti Ltd. has a capital of ₹ 10 lakhs in equity shares
13. 7 (b) Alpha Pharma Ltd., which has been engaged in business for
14. 8 (a) What do you mean by Data Ethics? Discuss the five basic
15. 8 (b) What is Business Intelligence (BI)? List the procedures to
16. CMA Inter Dec 24 Paper 11 : Financial Management and Business Data Analytics

CMA Inter Dec 24 Suggested Answer Other Subjects Blogs :

1. Suggested Answer Dec 24 Paper 5 : Business Laws and Ethics
2. Suggested Answer Dec 24 Paper 6 : Financial Accounting
3. Suggested Answer Dec 24 Paper 7 : Direct and Indirect Taxation
4. Suggested Answer Dec 24 Paper 8 : Cost Accounting
5. Suggested Answer Dec 24 Paper 9 : Operations Management and Strategic Management
6. Suggested Answer Dec 24 Paper 10 : Corporate Accounting and Auditing
7. Suggested Answer Dec 24 Paper 12 : Management Accounting
8. CMA Inter Syllabus (New Updates)

Section - A

MCQs

(i) Which of the following is a widely used graph for Data Visualisation?

1. Bar chart
2. Pie chart
3. Histogram
4. All of the above

Answer : 

(D) All of the above

Explanation:

• Bar Chart: Used to compare quantities across categories.
• Pie Chart: Used to display proportions or percentages of a whole.
• Histogram: Used to represent the frequency distribution of a dataset.

All these graphs are widely used for data visualization depending on the type of data and purpose.

(ICMAI book page 629 | This question is also a part of www.konceptca.com question bank)

(ii) If the operating leverage is 1.22, the sales for the year is ₹ 75 lakhs, the variable cost is ₹ 42 lakhs, then the EBIT is equal to _____.

1. ₹ 32 lakhs
2. ₹ 27 lakhs
3. ₹ 31 lakhs
4. ₹ 31.5 lakhs

Answer : 

(B) ₹ 27 lakhs

Explanation:

OL = Contri / EBIT

Contri = 75-42 = 33

Hence 1.22 = 33 / EBIT

Hence EBIT = 27

(ICMAI book page 506 | This question is also a part of www.konceptca.com question bank)

(iii) Operating leverage arises because of ______.

1. Fixed Cost of Production
2. Fixed Interest Cost
3. Variable Cost
4. Step Cost

Answer : 

(A) Fixed Cost of Production

Explanation:

Operating leverage arises because of the presence of fixed operating costs in a firm's cost structure. Fixed costs do not change with the level of output, and as sales increase, the fixed costs remain constant, magnifying the impact on EBIT.

(ICMAI book page 506 | This question is also a part of www.konceptca.com question bank)

(iv) Suppliers and Creditors of a firm are primarily interested in _______.

1. Profitability Position
2. Liquidity Position
3. Market Share Position
4. Debt Position

Answer : 

(B) Liquidity Position

Explanation:

Suppliers and creditors are primarily interested in the liquidity position of a firm. This indicates the firm’s ability to meet its short-term obligations and ensures timely payments of dues. Ratios like the current ratio and quick ratio are used to assess liquidity.

(ICMAI book page 154 | This question is also a part of www.konceptca.com question bank)

(v) Which of the following does not help to increase Current Ratio?

1. Issue of Debentures to buy Stock
2. Issue of Debentures to pay Creditors
3. Sale of Investment to pay Creditors
4. Avail Bank Overdraft to buy Machine

Answer : 

(D) Avail Bank Overdraft to buy Machine

Explanation:

• Issue of Debentures to buy Stock increases current assets (stock), raising the current ratio.
• Issue of Debentures to pay Creditors reduces current liabilities, increasing the current ratio.
• Sale of Investment to pay Creditors reduces both current assets and current liabilities proportionately, but typically improves the ratio.
• Avail Bank Overdraft to buy Machine decreases the current ratio because cash (current asset) is used while machinery (a fixed asset) is purchased, and current liabilities increase due to the overdraft.

(vi) Which of the following statements is correct?

1. A higher Receivable Turnover is not desirable.
2. Interest Coverage Ratio depends upon Tax Rate.
3. Increase in Net Profit Ratio means increase in Sales.
4. Lower Debt-Equity Ratio means lower Financial Risk.

Answer : 

(D) Lower Debt-Equity Ratio means lower Financial Risk.

(ICMAI book page 212 | This question is also a part of www.konceptca.com question bank)

(vii) A firm has EBIT of ₹ 50,000. Market value of debt is ₹ 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is:

1. ₹ 2,50,000
2. ₹ 1,70,000
3. ₹ 30,000
4. ₹ 1,30,000

Answer : 

(A) ₹ 2,50,000

Value of Firm = EBIT / Kw

= 50,000 / 0.20 = 2,50,000

(ICMAI book page 489 | This question is also a part of www.konceptca.com question bank)

(viii) Which one of the following is not a feature of Certificate of Deposits?

1. The minimum lock-in period for CDs is 30 days.
2. The minimum issue size of CDs are ₹ 1,00,000.
3. CDs are transferable by endorsement and delivery.
4. CDs attract stamp duty as applicable to negotiable instruments.

Answer : 

(A) The minimum lock-in period for CDs is 30 days. .. its 15 Days actually

(ICMAI book page 118 | This question is also a part of www.konceptca.com question bank)

(ix) Which one of the following is not applied in determining the credit policy of a firm?

1. Credit period duration of credit
2. Level of sales credit to optimize profits
3. Collection policy
4. Cost of goods sold

Answer : 

(D) Cost of goods sold

Explanation:

• The credit policy of a firm typically involves factors such as:
• (A) Credit period duration of credit: This is a core component of the credit terms offered.
• (B) Level of sales credit to optimize profits: Firms analyze how much credit sales can improve profitability.
• (C) Collection policy: This ensures timely recovery of receivables and reduces bad debts.
• However, (D) Cost of goods sold is not directly applied in determining the credit policy of a firm. While it may influence profitability, it is not part of the credit policy decisions

(ICMAI book page 413 | This question is also a part of www.konceptca.com question bank)

(x) A company is considering two capital structures. Plan A consists of 100% equity with equity 10,000 shares outstanding at ₹ 100 each. Plan B consists of 50% debt and 50% equity where the  debt is ₹ 5,00,000 at 10% interest, and there are 5,000 shares outstanding. at ₹ 100 each. If the EBIT is ₹ 1,50,000 and tax rate is 30%. What is the EPS under Plan B?

1. ₹ 14
2. ₹ 17
3. ₹ 20
4. ₹ 18

Answer : 

(A) ₹ 14

150,000 - 50,000 = 100,000 - 30% = 70,000 / 5000 = 14

(xi) Given, risk-free rate of return = 6%; market return = 11%; cost of equity = 15%; value of beta (β) is ______.

1. 1.9
2. 1.8
3. 2.0
4. 2.2

Answer : 

(B) 1.8

Re =Rf +β(Rm −Rf )

15 =6 + β(11-6)

β= 1.8

(xii) The procedure that organises data into a meaningful order to make it simpler to comprehend, analyse and visualise, is called

1. Data validation
2. Data sorting
3. Data aggregation
4. Data analysis

Answer : 

(B) Data Sorting

Explanation:

The procedure that organises data into a meaningful order to make it simpler to comprehend, analyse, and visualise is called Data Sorting. Sorting is a common technique used in data processing to arrange data either in ascending or descending order based on numerical or categorical values.

(ICMAI book page 589 | This question is also a part of www.konceptca.com question bank)

(xiii) Which of the following is/are the type(s) of cloud computing?

1. Private cloud
2. Public cloud
3. Hybrid cloud
4. All of the above

Answer : 

(D) All of the above

Explanation:

The three main types of cloud computing are:

1. Private Cloud: Dedicated to a single organization for exclusive use.
2. Public Cloud: Services provided over the internet and shared among users.
3. Hybrid Cloud: A mix of private and public clouds that allows for shared resources and flexibility.

All these types are widely used in modern cloud computing environments.

(ICMAI book page 649 | This question is also a part of www.konceptca.com question bank)

(xiv) If the company’s D/P ratio is 60% and ROI is 15%, what should be the growth rate under Gordon model?

1. 5.5%
2. 7.2%
3. 6.0%
4. 9.6%

Answer : 

(C) 6.0%

g= ROI x (1 - D/P)

= 15% x 0.4 = 6%

(xv) Which financial metric is crucial for understanding a firm’s Cash Management efficiency?

1. Gross Profit Margin
2. Cash Conversion Cycle
3. Operating Profit
4. Return on Capital Employed

Answer : 

(B) Cash Conversion Cycle

Explanation:

The Cash Conversion Cycle (CCC) is the most crucial financial metric for understanding a firm’s cash management efficiency. It measures the time taken by a firm to convert its investments in inventory and receivables into cash, minus the time it takes to pay off its liabilities.

• A shorter CCC indicates higher cash efficiency.
• Gross profit margin, operating profit, and ROCE are important, but they do not directly measure cash flow efficiency.

(ICMAI book page 394 | This question is also a part of www.konceptca.com question bank)

Section - B

Question 2 (a)

What are the principal features of a commercial paper? Discuss the advantages offered by commercial paper to its issuers.

Answer :

Principal Features of a Commercial Paper:

• Unsecured Instrument:
  Commercial Paper (CP) is an unsecured short-term promissory note issued by well-known, creditworthy companies​.

• Issued at a Discount:
  It is typically issued at a discount to face value and redeemed at its face value​.

• Fixed Maturity Period:
  The maturity period ranges between 7 days to 1 year in India​.

• Transferable:
  Commercial Papers are negotiable and transferable by endorsement and delivery​.

• High Creditworthiness:
  Only companies with a tangible net worth and strong credit ratings are allowed to issue CPs​.

Advantages of Commercial Paper to Issuers:

• Simple Documentation:
  The issuance process involves minimal documentation, making it simple and efficient​.
• Cost-Effective Alternative:
  Commercial Paper is a cheaper alternative to bank finance for short-term borrowing​.

• Flexible Maturity:
  CPs can be tailored with suitable maturity periods to match the company's cash flows​.

• Diversification of Funds:
  It allows companies to diversify their sources of funds beyond traditional bank loans​.

• Enhances Financial Image:
  Companies issuing CPs are viewed favorably in the financial market, improving their long-term financing prospects​.

(ICMAI book page 115 | This question is also a part of www.konceptca.com question bank)

Question 2 (b)

What do you mean by Descriptive Analytics? Explain the information revealed by Descriptive Analytics. 

Answer :

Meaning of Descriptive Analytics:

Descriptive Analytics refers to the process of collecting, organizing, and presenting historical data in a readily digestible format to understand what has happened within an organization. It serves as a basic starting point for analyzing data before moving into diagnostic, predictive, or prescriptive analytics.

Information Revealed by Descriptive Analytics:

1. Historical Overview:
   It gives a clear snapshot of past performance through key metrics like sales reports, revenue, inventory, and workflow data.
2. Data Trends and Patterns:
   Using simple statistical tools like averages, percentages, and changes, it helps identify trends and patterns in the data.
3. Performance Insights:
   Descriptive analytics enables organizations to measure Key Performance Indicators (KPIs) and assess if they are meeting objectives.
4. Visualization:
   It uses tools like line graphs, bar charts, and pie charts to make data insights comprehensible for decision-makers.
5. Social Analytics:
   It provides insights into social media metrics such as followers, likes, posts, and user engagement to understand sentiment and activity.
6. Identifying Changes Over Time:
   While descriptive analytics does not make predictions, it can compare data across time periods to highlight positive or declining trends.

(ICMAI book page 641 | This question is also a part of www.konceptca.com question bank)

Question 3 (a)

The following information is available about Boxa company:

You are required to calculate the following:
(i) Days sales outstanding
(ii) Interest coverage ratio
(iii) Debt ratio
(iv) Inventory turnover ratio
(v) Earnings per share 

Answer :

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Question 3 (b)

 A firm wants to know whether it belongs to the non-bankrupt class of firms. Certain figures are extracted from the financial statements of the firm. You are required to use Altman’s Z score model and place the firm in the appropriate class.

• Sales: ₹ 20,00,000
• EBIT: ₹ 10,00,000
• Total Assets: ₹ 40,00,000
• Book Value of Total Liabilities: ₹ 16,00,000
• Retained Earnings: ₹ 24,00,000
• Market Value of Equity: ₹ 80,00,000
• Working Capital: ₹ 8,00,000

Answer :

X1 = WC / TA = 8,00,000 / 40,00,000 = 0.2

X2 = RE / TA = 24,00,000 / 40,00,000 = 0.6

X3 = EBIT / TA = 10,00,000 / 40,00,000 = 0.25

X4 = MV / TL = 80,00,000 / 16,00,000 = 5

X5 = Sales / TA = 20,00,000 / 40,00,000 = 0.5

Score = 0.2 + 0.6 + 0.25 + 5 + 0.5 = 6.55

Interpretation:

According to Altman’s Z-Score model:

• Z > 2.99: The firm belongs to the non-bankrupt class.
• Z between 1.81 and 2.99: The firm is in the grey area.
• Z < 1.81: The firm belongs to the bankrupt class.

Question 4 (a)

Prepare a Common-size Income Statement from the following income statements and interpret the same. 

INCOME STATEMENT

Answer :

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Question 4 (b)

Prakash Packers Ltd. has the following capital structure:

Additional Information:

(i) The market price per equity share is ₹ 32. The company is expected to declare a dividend per share of ₹ 2 per share and there will be a growth of 10% in dividends for the next 5 years.

(ii)The preference shares are redeemable at a premium of ₹ 5 per share after 8 years and are currently traded at ₹ 84 in the market.

(iii) Debenture redemption will take place after 7 years at a premium of ₹ 5 per debenture and the current market price is ₹ 90 per debenture.

(iv) The corporate tax rate is 40%.

You are required to calculate the weighted average cost of capital using book value weights. 

Answer :

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Question 5 (a)

From the following information, calculate Net Present Value of the following business proposal and suggest whether the proposal should be accepted or rejected: 

Present Values of Re. 1.00 at 18% are as follows:

Answer :

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Question 5 (b)

A project, requiring initial investment of ₹ 5,00,000 in creating a fixed facility, ensures net incremental inflow of ₹ 1,50,000 per annum before deduction of depreciation and tax. The fixed facility is likely to have an economic life of five years with scrap value of ₹ 1,00,000 at the end. Depreciation is allowed on straight-line basis and marginal tax rate is 40%. The cost of capital is 10% p.a.

You are required to estimate the IRR of the project and advise the management on its acceptability.

Consider the following Present table:

Answer :

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Question 6 (a)

JBC Ltd. sells goods at a gross profit of 25%. Depreciation is considered as a part of cost of production. The following are the annual figures given to you:

The company keeps one month’s stock each of raw materials and finished goods. It also keeps ₹ 1,00,000 in cash.
You are required to estimate the working capital requirements of the company on cash cost basis, assuming 15% safety margin. 

Answer :

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Question 6 (b)

Himalaya Refrigeration Company purchases 1,600 units of a component annually, from Bolts & Pins Associates. The annual cost of holding each unit of component is ₹ 8 and the cost of placing order each time is ₹ 100.
You are required to calculate:
(i) Economic Order Quantity;
(ii) Reorder Level; and
(iii) Maximum and Minimum Inventory Level, if the company operates 320 days in a year, material procurement time is 10 days, and safety stock is 20 units. Assume minimum consumption rate per day = average consumption rate per day. 

Answer :

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Question 7 (a)

Jai & Karti Ltd. has a capital of ₹ 10 lakhs in equity shares of ₹ 100 each. The shares are currently quoted at par. The company proposes declaration of a dividend of ₹ 10 per share at the end of the current financial year. The capitalization rate for the risk class to which the company belongs is 12%. What will be the market price of the share at the end of the year, if
(i) a dividend is not declared?
(ii) a dividend is declared?

Assuming that the company pays the dividend and has net profits of ₹ 5,00,000 and makes new investments of ₹ 10 lakhs during the period, how many new shares must be issued? 

Answer :

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Question 7 (b)

Alpha Pharma Ltd., which has been engaged in business for the last five years, furnishes the following information for its only product Metmorphin Hydrochloride which is being sold at ₹ 23 per unit:

• Face Value of each share of the company: ₹ 10
• Tax rate applicable: 30%.

(i) What is the number of units that should be sold so that the Earnings before Taxes (EBT) is equal to zero?
(ii) If Earnings before Interest & Taxes (EBIT) increase to three times the current EBIT, then what is the Earnings after Taxes (EAT)?
(iii) What will be the degree of operating, financial and combined leverage? 

Answer :

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Question 8 (a)

What do you mean by Data Ethics? Discuss the five basic principles of Data Ethics that a business organisation should follow.

Answer :

Meaning of Data Ethics:

Data Ethics refers to the principles and moral obligations that guide the collection, storage, analysis, and use of data, particularly when dealing with personally identifiable information (PII). It ensures that data usage is ethical, transparent, and respects privacy.

Five Basic Principles of Data Ethics:

1. Ownership:
• Personal information belongs to the individual, and collecting it without consent is unethical.
• Consent should be obtained through privacy policies, agreements, or user acceptance of terms and conditions.
• Sensitive data, such as financial data, must only be used with prior permission​.
2. Transparency:
• Organizations must be clear about the purpose of data collection.
• For example, if cookies are used to track user behavior, the organization must inform users and explain how the data will be stored and used​.
3. Privacy:
• Personally Identifiable Information (PII) should be stored securely and not made public.
• Organizations must implement data security measures such as encryption and dual authentication to protect sensitive data​.
4. Intention:
• Data analysis must be conducted ethically and should not exploit weaknesses or harm individuals.
• Collecting unnecessary data is considered unethical​.
5. Outcomes:
• Even if intentions are good, data analysis may sometimes produce negative impacts (known as disparate impact).
• Organizations should carefully assess and mitigate any harmful outcomes​.

(ICMAI book page 576 | This question is also a part of www.konceptca.com question bank)

Question 8 (b)

What is Business Intelligence (BI)? List the procedures to which the use of BI has expanded.

Answer :

Meaning and Procedures of Business Intelligence (BI):

Business Intelligence (BI) involves the use of data analytics, visualization tools, and infrastructure to assist businesses in making data-driven decisions. It enables organizations to identify trends, improve performance, and respond effectively to market changes.

Expanded Procedures of BI:

• Data Mining:
  Extracting patterns and insights from large datasets using machine learning and analytical tools.

• Reporting:
  Sharing analyzed data with stakeholders to facilitate informed decision-making.

• Performance Metrics and Benchmarking:
  Comparing current data to past performance to evaluate progress toward goals.

• Descriptive Analytics:
  Analyzing historical data to identify what has happened.

• Querying:
  Extracting answers from datasets for specific questions.

• Statistical Analysis:
  Using statistics to explore why trends occurred and analyze patterns.

• Data Visualization:
  Presenting data insights through charts, graphs, and dashboards for better comprehension.

• Visual Analysis:
  Real-time exploration and storytelling with data for immediate insights.

• Data Preparation:
  Compiling and cleaning data from multiple sources for accurate analysis

(ICMAI book page 649 | This question is also a part of www.konceptca.com question bank)

Financial Management and Business Data Analytics detailed analysis

CMA Intermediate Paper 11

Financial Management and Business Data Analytics

Chapter-wise Weightage Analysis with Difficulty Levels

Section A (MCQs - 30 Marks)

Section B (Descriptive - 70 Marks)