The correct answer is option 4- A-III, B-I, C-II, D-IV.
| List I |
List II |
| A. Net Working capital |
III. Excess of current assets over current liabilities |
| B. Fixed capital decision |
I. Investments in long term assets |
| C. Financial leverage |
II. Proportion of debt in the overall capital |
| D. Trading on equity |
IV. Increase in profit earned by the equity shareholders
due to the presence of fixed financial charges |
(A) Net Working Capital- (III) Excess of current assets over current liabilities.
Some part of current assets is usually financed through short-term sources, i.e., current liabilities. The rest is financed through long-term sources and is called net working capital. Thus, NWC = CA – CL (i.e. Current Assets - Current Liabilities.) Thus, net working capital may be defined as the excess of current assets over current liabilities.
(B) Fixed capital decision- (I) Investments in long term assets.
Fixed capital refers to investment in long-term assets. Management of fixed capital involves the allocation of a firm’s capital to different projects or assets with long-term implications for the business. These decisions are called investment decisions or capital budgeting decisions. They affect the growth, profitability and risk of the business in the long run.
(C) Financial Leverage- (II) Proportion of debt in the overall capital.
Financial leverage- The proportion of debt in the overall capital is also called financial leverage. Financial leverage is computed as D/E or D/D + E when D is the Debt and E is the Equity. As the financial leverage increases, the cost of funds declines because of increased use of cheaper debt but the financial risk increases. The impact of financial leverage on the profitability of a business can be seen through EBIT-EPS.
(D) Trading on equity- (IV) Increase in profit earned by the equity shareholders due to the presence of fixed financial charges.
Trading on Equity is a financial technique where a company utilizes borrowed funds, such as debt, to amplify the return on investment for shareholders. By using debt in addition to equity financing, the company aims to increase its earnings per share (EPS), thereby enhancing the returns for its equity shareholders. This concept is closely related to the financial leverage strategy, which involves using fixed-cost funds to magnify the returns on equity. | 
