Ch.6 - Analyzing Cash Flow and Other Financial Information
______ liabilities are those liabilities or debts that the business has to pay within one year.
Current
True or False: Cash flow statements for new businesses are very similar to the typical publicly traded corporate annual reports.
False
True or False: The cash crunch for a new business with negative cash flow is resolved when sales are growing.
False
Which of the following can help manage the cash flow of a new entrepreneurial firm?
The ability of the firm to barter for services.
True or False: In developing a cash flow projection, a new business owner should contact vendors and suppliers to ask about payment terms.
True
True or False: Until a new venture's positive cash flow exceeds its initial investment, entrepreneurial breakeven has not been achieved.
True
Financial analysis is a(n) ______ step in the due diligence effort.
critical
A(n) ______ analysis examines the differences between the business's predicted cash flow and the actual cash flow performance.
deviation
Cash flow statements are the ______ a budget.
exact opposite of
A small percent of credit accounts will ______.
go past due and ultimately become uncollectable
Cash flow ______ as a business's profits.
is not the same
The greatest reason for an entrepreneurial business's failure ______.
is the absence of sufficient cash flow
Equity is an investment into the entrepreneurial business made by the ______.
owners of the firm
Entrepreneurs can use their credit cards for their payments that gives them a leverage of 25 days to repay the amount. This is a ______ situation for the entrepreneurs.
positive cash flow
Businesses earn ______ when sales revenues are higher than expenses.
profits
One of the keys to developing an income statement for a new business is predicting ______.
sales for the business
A ______ is used by entrepreneurs to judge whether their businesses can survive the worst-case or successfully implement the best-case cash flow scenarios.
sensitivity analysis
The balance sheet should ______ the relevant types of current and fixed asset.
separate
Which of the following are examples of a current asset? (Check all that apply.)
- Accounts receivable - Cash - Notes receivable
Which of the following are likely expense categories that the typical business will have? (Check all that apply.)
- Advertising - Rent - Salaries
Which of the following statements are true about a float? (Check all that apply.)
- Banks usually hold state checks and wire transfers for a period of time. - It is the period of time between a business's bank deposits and when the bank gives access to the funds. - Banks typically have free use of the funds during the float period.
Which of the following statements are true about the differences between cash flow and budget statements? (Check all that apply.)
- Budgets are helpful for planning purposes, while cash flow statements help owners understand what they must have in cash to pay a period's bills. - Cash flow statements recognize expenses in the month they are paid, while budgets allocate expenses evenly over the time period. - Budgets project costs over a period of time, while cash flow statements focus on actual dispersement.
Which of the following statements are true about the role of cash in new businesses? (Check all that apply.)
- Carrying inventory of any type for new businesses results in payments for supplies taking place long before any cash is received by these businesses. - New businesses usually utilize cash to pay for their goods and supplies.
The three types of financial statements that are generated on a monthly or quarterly basis include which of the following? (Check all that apply.)
- Cash flow - Balance sheet - Income statement
Which of the following statements are true about the sensitivity analysis of a new business? (Check all that apply.)
- It helps examine the responsiveness of the potential cash flow to dramatic changes in either revenue or cost stream. - It should be conducted during the due diligence phase of studying a business idea.
Which of the following are true about an entrepreneurial firm's pro forma income statement? (Check all that apply.)
- It helps in understanding the business's overall cost picture. - It focuses on profit rather than cash flow.
Identify the purposes of a cash flow statement for a business. (Check all that apply.)
- It helps the owners accurately keep track of the business's overall cash position. - It helps the owners display the ability of the company to meet its obligations.
Which of the following statements regarding a break-even analysis are correct? (Check all that apply.)
- It recognizes that sales grow incrementally once the firm is started. - It includes both fixed and variable costs in its calculation. - It helps the entrepreneur determine the viability of a new venture.
Which of the following are examples of fixed assets? (Check all that apply.)
- Land - Machinery - Buildings
Which of the following statements regarding pro forma statements are correct? (Check all that apply.)
- Means "as a matter of form." - Helpful in planning the business's future financial situation. - Are estimates
Which of the following are examples of fixed costs? (Check all that apply.)
- Rent - Equipment leases - Insurance.
Which of the following are examples of long-term liabilities? (Check all that apply.)
- Stockholders' equity - Owners' equity - Mortgages payable
Which of the following statements are true of the financial analysis aspect of the due diligence process? (Check all that apply.)
- The financial analysis of a business is the most critical step of the due diligence process. - The financial analysis determines whether there is an actual financial opportunity.
Which of the following techniques can be used by entrepreneurs to predict sales for their firms when developing income statements? (Check all that apply.)
- They can study similar enterprises and try to estimate or research their sales levels. - They can talk with other entrepreneurs in the same domain against whom they will not compete.
______ is the actual cash that flows into the business minus the cash that goes out of the firm.
Cash flow
______ are easier to accurately forecast than ______.
Expenses; revenues
______ costs are expenses that must be paid no matter how many goods are sold.
Fixed
______ costs are costs that vary according to the number of units produced.
Variable
Entrepreneurial breakeven by a new business is achieved when ______.
a new venture's net cash flow is more than the initial investment plus the time value of the money invested
New business owners should ______ to prevent a cash crunch.
accurately forecast the business's cash flow
A(n) ______ is a summary of the business's assets and liabilities.
balance sheet
A ______ analysis is a tool for estimating when a business's income will exceed its expenses.
break-even
A(n) ______ statement projects all the costs that will be incurred by a business over some period of time and allocates those expenses evenly over that time.
budget
The focus on ______ in a new business is due in part to the firm's management also being the firm's owners.
cash flow
Entrepreneurs of a new firm should focus on the viability of the firm; the firm's viability will be decided by ______, not ______.
cash flow; profitability
A business's revenues often ______ sources that may not automatically be recognized.
come from a variety of
Current assets minus current liabilities are referred to as ______.
the firm's working capital
In the context of the financial tools used by entrepreneurs, the time value of money is calculated as ______.
the value of an entrepreneur's investment in time and money if he or she did not do the proposed venture
In the context of the financial tools by entrepreneurs, the time value of money refers to the ______.
value of money over time at a given rate of inflation or other type of return
The firm's assets minus its liabilities should equal______.
zero