C 7-10 Quiz

If a business has total gross profit of $14,720 and total operating costs of $11,500, what is its net profit?

$3,220

Firms are concerned about liquidity, which means the ability to convert inventory into credit sales.

False

Future value is a component of the time value of money; however, present value is not.

False

Lender financing occurs when a business establishes trade credit with the lender.

False

Operating-efficiency ratios are important to a business. They include collection period, debt period, and inventory turnover.

False

The cash flow statement is: cash flow = cash on hand + credit and cash sales - cash disbursements.

False

You could borrow money from friends and family who would like to invest in your business, or you could offer them ________.

equity

A business's operating ratios are computed by ________.

expense/sales

The balance sheet equation tells us that assets - liabilities = net profit.

false

Variable costs are expenses that must be paid regardless of whether sales are being generated.

false

What analytic tool allows you to compare income statements from different periods, even if the dollar figures are very different?

financial ratios

Depreciation is a(n) ________.

fixed operating cost

In the United Kingdom, the income statement is called the ________.

group profit and loss account

The equity investor's risk is ________ that of the debt lender.

higher than

What do you have to do before you can sell stock in your business?

incorporate

What must balance with assets on the balance sheet?

liabilities and owner's equity

Which of the following is not a basic financial document that entrepreneurs use to track their businesses?

market share statement

How would you express a ratio as a percentage?

multiply it by 100

The return on sales ratio is ________.

net income/sales

The last line of an income statement shows a business's ________.

net profit or net loss

Owner's equity is also called ________.

net worth

You should keep reserves of at least ________.

one half of the start-up investment

When the ratio of expenses versus sales is used to express expenses as a percentage of sales, it is called a(n) ________ ratio.

operating

In the income statement, EBIT minus interest costs equals ________.

pre-tax profit

Return on Sales (ROS) is also called a(n) ________.

profit margin

To manage cash flow, you should ________ and then subtract expenses you expect to incur.

project cash receipts

What are the two steps in making a cash flow projection?

projecting cash receipts and subtracting expected cash expenses

A ________ is a document agreeing to repay a certain sum of money (with interest) by a specified date.

promissory note

The Thomas Register of American Manufacturers lists companies that specialize in creating ________.

prototypes

Debt ratios show the relationship between debts and equity

true

In the phrase I SAID U R + "Other FXs", UR stands for ________.

utilities and rent

Once a business is operational, an entrepreneur needs to keep an eye on ________, which is defined as "Current Assets minus Current Liabilities."

working capital

Ideally, you want to have a positive "double" bottom line. This means ________.

your profit allows you to stay in business and achieve your mission

Financing with earnings is an option under what circumstances?

A company is profitable and has positive cash flow from operations.

________ is a review of financial and business records to ascertain integrity and compliance with standards and laws, particularly by the U.S. Internal Revenue Service.

Audit

As a sole proprietorship, you sell tangible products to the public at retail. You will need to pay ________.

Both sales tax and self-employment tax

________ accounts are credit accounts that have a single borrowing limit and may be used and repaid on a repeated cycle.

Charge

________ is what remains when you subtract fixed and variable costs and taxes from revenues.

Net profit

Which of the following is not a key rule for managing cash flow?

Pay bills as soon as possible.

________ will tell you how long it will take you to earn enough profit to cover your start-up investment.

Payback

The expression, "What you made over what you paid, times one hundred," is a device to remember how to compute ________.

ROI

ROI is always calculated for ________.

a specific time period, such as month or a year

To see how costs are affecting net profit, try analyzing the income statement by expressing each ________.

as a percentage of sales

Which of the following is not one of the "Five C's of Borrowing?"

certainty

If you extend credit, it is critical to minimize this number to keep cash flowing.

collection-period ratio

Other variable costs per unit subtracted from Total COGS per unit equals ________.

contribution margin per unit

There are two categories of variable costs: ________.

cost of goods sold and other variable costs

Relying primarily on debt financing is very dangerous for a company because ________.

creditors can force a company into bankruptcy or take over company property

Cash itself or items that could be quickly turned into cash or will be used within 1 year are called ________.

current assets

Bonds are a form of ________.

debt financing

The amount you will have to pay over a given period of time until the loan is repaid is called ________.

debt service

The percentage of value of an asset subtracted each year until the value becomes zero, to reflect wear and tear on the asset, is called ________.

depreciation

In a business formula such as Return on Investment, "on" means ________.

divided by

Which of the following is not a type of community development loan fund?

public employee credit union

The difference between a receipt and an invoice is that the receipt records ________.

purchases

The ________ ratio tells you whether you have enough cash to cover your current debt.

quick

To create a same-size analysis, calculate each line item as a percentage of ________.

sales

Start-up investment is the one-time expense of opening a business. It is also called ________.

seed capital

Corporate, partnership, individual income tax, and ________ tax returns must be filed on time with the U.S. Internal Revenue Service.

self-employment

Financing a corporation with debt means borrowing or ________.

selling bonds

Venture capitalists can make their money by ________.

selling their percentage share of the business to another investor / waiting until the company "goes public" and converting their shares into stock, which can then be traded on the stock market

Statistics indicate that 45 percent of all small businesses ________.

survive five or more years

One of the penalties for failure to file proper wage taxes is sweeping your company bank account. What action will the federal government take?

taking out any available funds

Which business below is most likely to have cash flow that is cyclical?

tax return preparation business

A burn rate is ________.

the amount of cash per month a business can spend before it runs out of cash

A litmus test for profitability is ________.

the economics of one unit, EOU