Finance Midterm

quick ratio

(Current Assets - Inventory) / Current Liabilities

restaurant failure rate in first year operations

30%

total payroll should not exceed ___% of sales

30-35%

most common type of business in the US

Sole proprietorship

insurance is what kind of cost

a fixed cost

a contra-asset

a reduction in value of an asset

common sized income statements

assist in the comparison of companies of different statements

what does the SBA offer

counseling through district offices, on-line training and workshops, mentoring

current ratio

current assets/current liabilities

the two principal sources of financing for corporations are

debt and equity

what ratio is better when it is a lower number

debt ratio

ratios can provide information about

debt, profitability, liquidity

uses of ratios in a company

evaluate employee performance, prepare financial projections, evaluate the financial condition of a major supplier

a business owners personal assets should be included with the assets of the business entity

false

where do accrued expenses go on balance sheet

liability section

a multi-step income statement shows

operating income

the most common form of institutional gift financing is in the form of

reduced taxes

according to the BRIE model, what fall under the boundary category

registering the business name and opening a business bank account

bootstrapping

starting a company with little capital and relying on mostly outside investments. Using mostly profit of the business only to expand

direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria are referred to as

tax credits

what are considerations when choosing a business form

taxation, ability to raise capital, liability of owners

a current ratio greater than 1 could indicate

the business has sufficient current assets to satisfy its current liabilities and the business may have extra cash that it is not using efficiently

operating leverage

the relationship of fixed and variable costs

capital structure

the way a business finances its operations, the mix of debt and equity used in the business, the right side of the balance sheet (liabilities and equity)

a restaurant performance index greater that 100 indicates an increase in key industry indicators

true

major suppliers may use financial ratios to determine credit terms they would grant to a business

true

rapid growth in credit sales could mean much greater profits that cash

true

the current restaurant performance index indicates a positive outlook for sales growth, but negative for the overall economy

true

financial analysis

uses historical financial statements to measure a company's performance and in making financial projections of future performance

Capital budgeting is concerned with

what long term investments a firm should undertake

what is a cash equivalent

An investment that is readily convertible to a known amount of cash and has an original maturity to the investor of 3 months or less.

operating profit margin

EBIT/sales

what is a cash disbursement schedule

a schedule of the amounts and timings of payments of cash out of a business

what is a cash receipts schedule

a schedule of the amounts and timings of the cash coming into a business

the quick ratio of a firm would be unaffected by

accounts payable are reduced by obtaining a short term loan

the four things the restaurant performance index measures

capital expenditures, labor expenditures, same-store sales

what provides limited liability to owners

corporations, LLCs, S corporations

inventory is classified as a ___ and is shown on the ___

current asset, balance sheet

checking and savings accounts are the most common forms of

demand deposits

the break even model is a tool to

determine the number of units or sales needed to cover all operating costs

EBIT

earnings before interest and taxes

cost of goods sold is classified as a ___ and is shown in the ___

expense, income statement

the income statement gives a picture of the financial position of a business at a point in time

false (balance sheet)

a business with high fixed costs should generally

finance expansion by issuing equity

a set of theories and techniques used to optimize the receipt and use of capital

financial management

an important distinction of a benefit corporation is

flexibility regarding transfer of ownership

gifts of money made to a business for a specific purpose are referred to as

grants

capital structure

how a firm raises money to fund its investments

balance sheets indicate

how much debt a business has, what can be turned into cash, how much their customers owe

statement that shows the profit or loss of the company for a period of time (month, quarter, year)

income statement

what elements of the BRIE model represent the desire to start a business

intention

if a company pays $30,000 cash to pay off existing accounts payable, what will happen the the company's current ratio

it will increase

how quickly a company can raise money by converting assets to cash

liquidity

working capital management

managing cash flow in day to day operations

uses of financial accounting

obtaining loans, internal management decision making, preparing the income tax forms

a technique small business use to increase cash inflows

offering discounts for prompt payment

contribution margin

price minus variable cost

primary causes of cash flow problems for small businesses

requirements to periodically make large capital investments, difficulty collecting money due from customers, seasonal variation in sales

the four categories in the NRA industry update video

restaurant performance index, employment, food price inflation, menu price inflation

common sized balance sheets

show each balance sheet account as a percentage of total assets

a classified balance sheet

shows the amount of current liabilities

private businesses that are authorized to make SBA insured loans to start ups and small businesses are called

small business investment companies

Which ratio would be most useful to assess the ability of the company to pay off its short term debt

the current ratio

weighted average cost of capital

the overall cost of financing the business

what is a preference of small businesses vs high growth ventures

the preferred funding source for small businesses is the owner's own money

financial leverage

the relationship of debt and equity in the capital structure

what is the operating cycle of a business

the time required for a business to acquire resources, convert them into a product, sell the product, and receive cash from the sale

what are angel investors

they are wealthy individuals who invest in companies in relatively early stages of development

what is the purpose of a cash budget

to anticipate cash needs

debt ratio

total liabilities/total assets

what does the restaurant performance index measure

trends in four industry indicators as well as an expectations index