EEE Chapter 8 - Exam 2 Review

A​ firm's current assets are​ $75,000 and its current liabilities are​ $63,000. Its working capital is​ ___.

$12,000

Forecasts

- are predictions of a firm's future sales, expenses, income, and capital expenditures. - A firm's forecasts provide the basis for its pro forma financial statements. - When developed effectively, forecasts provide the foundation for a firm to prepare its future-oriented pro forma financial statements.

A balance sheet

- is a snapshot of a company's assets, its liabilities, and owners' equity. - While income statements cover a specified period of time, a balance sheet is a snapshot of the firm at a specific point in time.

Juice Heaven has​ long-term debt of​ $100,000 and​ stockholders' equity of​ $400,000. Juice​ Heaven's debt-to-equity ratio is​ _____.

0.25

Joe​ Smith, an analyst at a venture capital firm is analyzing the prospect of his firm investing in​ Juicevana, an organic juice chain that recently went public. He wants to calculate​ Juicevana's PE ratio. If​ Juicevana's stock price is​ $20 and its earnings per share is​ $2, its​ P/E ratio is​ ___.

10

The most comprehensive filing to the SEC required of​ publicly-traded firms is the​ ____.

10-K

If a firm has current assets of​ $300,000 and current liabilities of​ $100,000, its current ratio is​ ____.

3.0

The financial objective of​ ______ deals with the strength and vigor of the​ firm's overall financial posture. A. efficiency B. affordability C. liquidity D. stability E. profitability

stability

Pro forma financial statements are similar to historical financial statements except

that they look forward rather than backward.

The process of financial management includes

the activities a firm takes to determine if its financial objectives are being met.

Historical financial statements reflect past performance. Typically,

these documents are prepared on a quarterly and annual basis.

A​ firm's pro forma financial statements are similar to its historic financial statements except that​ __________.

they look forward rather than track the past

Preparing pro forma statements helps entrepreneurs

think about the quality of the strategies being implemented by their firm and to make adjustments to those strategies if necessary.

Several documents are foundational to an entrepreneur's efforts to assess the degree to which a firm's financial objectives are being satisfied. These documents, as follows, are prepared regularly:

(1) financial statements (a written report that describes a firm's health from a quantitative perspective), (2) forecasts (which are estimates of a firm's future sales, income, expenses, and capital expenditures based on its past performance, current situation, and its future plans), and (3) budgets (which are itemized forecasts of a firm's income, expenses, and capital requirements).

Pro forma financial statements

- are projections for expected performance in future periods. - These projections are based on forecasts and are usually completed for two or three years into the future. - - Unlike historical financial statements, firms are not required to make their pro forma statements publicly available.

Considered to be part of a firm's planning efforts,

- firms prepare a pro forma income statement, - a pro forma balance sheet, and - a pro forma statement of cash flows to help them anticipate and prepare for future activities and their anticipated outcomes.

Once a firm has completed its sales forecast,

- it must forecast its costs of sales as well as the other items on its income statement. - The most common way to do this is to use the percent-of-sales method, which is a method for expressing each expense item as a percentage of sales.

An income statement

- reflects the results of a firm's operations over a specified period of time. - It records all the revenues and expenses for the given period and shows whether the firm is making a profit or is experiencing a loss.

A statement of cash flows

- summarizes the changes in a firm's cash position for a specified period of time and details why the changes occurred. - This statement allows a firm to understand how much cash it has on hand and how its cash was used over a period of time.

Many​ start-ups are not profitable during their first​ ________ years.

1-3

Juice​ Heaven's current assets are​ $200,000 and its current liabilities are​ $50,000. Its current ratio is​ ____.

4.0

The process of financial management begins by tracking the​ company's past financial performance through the preparation and analysis of​ ______. A. marketing plans B. its business model C. budgets D. financial statements E. the mission statement

financial statements

Stability

is the strength and vigor of the firm's overall financial standing.

Budgets are​ ____ forecasts of a​ company's income,​ expenses, and capital needs. A. non-quantitative B. qualitative C. graphical D. itemized E. descriptive

itemized

The​ 10-K for any​ publicly-traded firm is​ ___________.

made available by the Securities and Exchange Commission (SEC)

Pro forma financial statements are​ _____________. A. not required by the SEC B. required by law C. to be filed periodically with the SEC D. required by the SEC E. mandatory

not required by the SEC

Historical financial statements reflect past performance and are usually prepared​ _______.

on quarterly and annual bases

The constant ratio method of forecasting goes​ hand-in-hand with​ _______. A. percent-of-cost method B. percent-of-capital C. all methods D. percent-of-sales method E. percent-of-cash

percent-of-sales method

A​ firm's _____ is similar to its historical financial statements except that it looks forward rather than tracks the past.

pro forma

Forecasts are an estimate of a​ firm's future income and​ expenses, based on past​ performance, its current​ circumstances, and its​ _____

future plans

​____ are an important tool for financial planning and control.

Budgets

​_____ are itemized forecasts of a​ company's income,​ expenses, and capital needs. A. Financial statements B. Balance sheets C. Budgets D. Regulatory filings E. Business plans

Budgets

____ is how productively a firm utilizes its assets relative to its revenue and its profits. A. Affordability B. Profitability C. Liquidity D. Stability E. Efficiency

Efficiency

Which of the following is NOT a question dealt with by a​ firm's financial​ management? A. How efficiently are we utilizing our​ assets? B. How can we sell more​ products? C. How much cash do we have on​ hand? D. Overall, are we in good shape​ financially? E. Where will the funds we need for capital improvements come​ from?

How can we sell more​ products?

Which of the following is NOT a question with which the financial management of a firm​ deals? A. How are we​ doing? B. Do we have enough cash to meet our​ short-term obligations? C. How efficiently are we utilizing our​ assets? D. How can we sell our​ products? E. How much cash do we have on​ hand?

How can we sell our​ products?

​_____ is a​ company's ability to meet its​ short-term financial obligations. A. Affordability B. Stability C. Efficiency D. Profitability E. Liquidity

Liquidity

The four main financial objectives of entrepreneurial firms:

Profitability, liquidity, efficiency, and stability

​_____ firms are required by the Securities and Exchange Commission​ (SEC) to prepare financial statements and make them available to the public.

Publicly-traded

______ is a statistical technique used to find relationships between variables for the purpose of predicting future values. A. Conjoint B. Financial C. Operational D. Regression E. Computational

Regression

Which is the first forecast​ developed? A. Marketing B. Human resources C. Sales D. Manufacturing E. Cash

Sales

Which is the right order of preparation of the three financial​ documents? A. The balance​ sheet, the income​ statement, and the statement of cash flows. B. The statement of cash​ flows, the balance​ sheet, and the income statement. C. The balance​ sheet, the statement of cash​ flows, and the income statement. D. The income​ statement, the balance​ sheet, and the statement of cash flows. E. The income​ statement, the statement of cash​ flows, and the balance sheet.

The income​ statement, the balance​ sheet, and the statement of cash flows.

Newly-established firms typically base their forecasts on

a good-faith estimate of sales and on industry averages (based on a percentage of sales) or the experiences of similar start-ups for cost of goods sold and other expenses.

Financial management deals with two activities long dash raising money and managing a​ company's finances in a way that​ _______. A. sells more goods B. sells more products C. optimizes demand D. facilitates an exchange E. achieves the highest rate of return

achieves the highest rate of return

Historical financial statements include

an income statement, a balance sheet, and a statement of cash flows.

The 10dashK is similar to the​ ____. A. business model B. business plan C. budget D. forecast E. annual report

annual report

Forecasts should be accompanied by​ a(n) _____.

assumptions sheet

Furniture that a firm owns is a​ _____.

fixed asset

A​ firm's _____ ratio equals its current assets divided by its current liabilities. A. quick B. payment C. efficiency D. current E. turnover

current

Efficiency

deals with how productively a firm uses it assets relative to its revenue and profits.

Money for a firm either comes from external sources​ (e.g., investors or​ lenders) or is internally generated through​ _________. A. strategy B. sales C. revenues D. costs E. earnings

earnings

​_______ is how productively a firm utilizes its assets relative to its revenues and its profits. A. Stability B. Profitability C. Efficiency D. Affordability E. Liquidity

efficiency

To pursue an opportunity and to turn that pursuit into a viable venture,

entrepreneurs require financial capital. Financial management deals with this reality.

The preparation of pro forma statements​ ______.

helps firms rethink their strategies

A​ firm's pro forma financials should be prepared​ _____.

in conjunction with the firm's overall planning activities

The​ _____ reflects the results of the operations of a firm over a specified period of time.

income statement

Money for a firm either comes from external resources such as​ _____ or is​ internally-generated through earnings. A. federal agencies B. investors or lenders C. customers D. suppliers E. government

investors or lenders

Liquidity

is the ability of a company to meet or satisfy its short-term obligations.

Profitability

is the ability of a firm to earn a profit.

A financial statement is a written report that​ ______ describes a​ firm's financial health.

quantitatively

Financial management deals with two​ activities: _______ and managing a​ company's finances in a way that achieves the highest rate of return. A. selling products B. promoting the product C. mentoring the people D. raising money E. operating the firm

raising money

More specifically, financial management is concerned with two activities:

raising money and managing a company's finances in a way that achieves the highest rate of return.

A statistical technique used in forecasting is​ ______ analysis. A. corporate B. market C. business D. regression E. programming

regression

The Securities and Exchange Commission (SEC)

requires that publicly traded firms prepare and submit these documents.

Marlo's Appliances believes that annually it has to have revenues of at least​ $440,000 to fully meet its total costs. For​ Marlo's Appliances,​ $440,000 is its​ _________. A. operational margin B. payback point C. profitability margin D. flex point E. break-even point

​break-even point