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