Entrepreneurship: Chapteer 8

According to the textbook, the three numbers that receive the most attention when evaluating an income statement are:

net sales, cost of sales, and operating expenses

The statement of cash flows is divided into three separate activities:

operating activities, investing activities, and financing activities

Peggy Owens owns a store that sells exercise equipment. Each January 1, she makes a very accurate account of all her merchandise and products waiting to be sold that are in her store. On January 1, Peggy is taking account of her store's:

Inventory

The Partnering for Success feature in Chapter 8 focuses on buying groups, and recommends that small businesses seek out buying groups to participate in. What is a "buying group" in the context of the feature?

A partnership that bands small businesses together to attain volume discounts on common products and services that they buy.

Match the financial term with its proper definition.

A) forecasts/depict relationships between items on a firm's financial statements B) forecasts/written report that quantitatively describes a firm's financial health C) budgets/itemized forecasts of a company's income, expenses, and capital needs D) financial ratios/written report that quantitatively describes a firm's financial health E) financial statements/an estimate of a firm's future income and expenses Answer : C

Samantha Diaz owns a seafood restaurant in Jacksonville, Florida. She is currently owed $15,000 by a corporation that she catered a meeting for and $2,000 on an overdue account. Samantha has $17,000 in:

Account receivable

Money owned to a company by its customers is referred to as:

Accounts receivable

Which of the following statement is incorrect regarding how balance sheets are prepared?

Assets are recorded at fair market value rather than cost.

Kevin Pierce was reading the business plan of New Venture Fitness Drinks, and noticed that prior to its financial forecasts, New Venture Fitness Drinks placed an explanation of the sources of the numbers for the forecast and the assumptions used to generate them. This explanation is called an:

Assumption sheet

A ________ is a snapshot of a company's assets, liabilities, and ownerss equity at a specific point in time.

Balance Sheet

________ are itemized forecasts of a company's income, expenses, and capital needs and are also an important tool for financial planning and control.

Budgets

Cash plus items that are readily convertible to cash, such as accounts receivable, marketable securities, and inventories are classified as ________ on a firm's balance sheet.

Current Assets

Southwest Airlines uses its assets very productively. Its turnaround time, or the time that its airplanes sit on their ground while they are being loaded and unloaded, is the lowest in the airline industry. In terms of the primary financial objectives of a firm, this attribute is a measure of Southwest's:

Efficiency

________ depict relationships between items on a firm's financial statements.

Financial ratios

In the context of a firm's statement of cash flows, ________ include cash raised during the period by borrowing money or selling stock an/or cash used during the period by paying dividends, buying back outstanding stock, or buying back outstanding bonds.

Financing activities

Real estate, buildings, equipment and furniture are classified as ________ on a company's balance sheet.

Fixed assets

________ are an estimate of a firm's future income and expenses, based on its past performance, its current circumstances, and its future plans.

Forecasts

________ reflect past performance and are usually prepared on a quarterly and annual basis.

Historical financial statement

Which financial statement records all of a firm's revenues and expenses for a given period and shows whether the firm is making a profit or experiencing a loss?

Income Statement

A firm's ________ reflects the results of its operations over a specified period and shows whether it is making a profit or is experiencing a loss.

Income statement

Which of the following selections correctly matches the financial statement with its description?

Income statement/tells how much a firm is making or losing.

A company's merchandise, raw materials, and products waiting to be sold are called its:

Inventory

In the context of a firm's statement of cash flows, ________ include the purchase, sale, or investment in fixed assets, such as real estate, equipment, and buildings.

Investing activities

Jamie Diehl has spent the past several days pouring over her historical financial statements and her projections for future sales periods based on forecasts. Jamie's objective is to develop a set of financial statements that she can show to an investor, which will reflect the projected financial status of her firm for the next two-three years. Jamie is working on creating a set of ________ financial statements.

Pro Forma

The ________ provides a firm a sense of how its activities will affect its ability to meet its short-term liabilities and how its finances will evolve over time.

Pro forma balance sheet

________ are projections for future periods based on forecasts and are typically completed

Pro forma financial statements

Which of the following statements about pro forma financial statements is incorrect?

Pro forma financial statements are required by the SEC.

________ is the ability to earn a profit.

Profitibality

According to the textbook, the most practical way to interpret or make sense of a firm's historical financial statements is through:

Ratio Analysis

Which of the following is an example of a long-term liability?

Real-Estate Mortgage

A firm's pro forma financial statements are similar to its historical financial statements except that:

They look forward rather than back

A company's ability to meet its short-term financial obligations is referred to as:

liquidity

The Savvy Entrepreneurial Firm boxed feature in Chapter 8 focuses on a scenario involving the selection of a new CEO for New Venture Fitness Drinks. The lesson learned from the feature was:

look at multiple years of an income statement rather than a single year to fairly assess how well a firm is performing financially

Financial management deals with two thingsraising money and:

managing a company's finances

A firm's profit margin, or return on sales, is computed by dividing:

net income by net sales

In regard to budgets, which of the following statements is not true?

Budgets are a poor tool for financial control.

BLMA Models, the company profiled in the opening feature in Chapter 8, sells model trains and model train accessories. According to the feature, the biggest challenge the company has faced is:

cash flow management

According to the textbook, the most important function of the pro forma statement of cash flows is to project whether the firm will have sufficient:

cash to meet it's needs

If a firm determines it can use the percentage-of-sales method and it follows the procedure described in the textbook, then the net result is that each expense item on its income statement (with the exception of those items that can be individually forecast) will grow at the same rate as sales. This approach is called the:

constant ratio method of forecasting

A firm's working capital is its:

current assets minus its current liabilities

A firm's ________ is its current assets divided by its current debt.

current ratio

In the context of computing the cost of sales, the 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 net sales

The four main financial objectives of a firm are:

profitability, liquidity, efficiency, and stability

The strength and vigor of a firm's overall financial posture is referred to as:

stability

Match the financial objective with its correct definition.

stability/the overall health of the financial structure of the firm, particularly as it relates to its debt-to-equity ratio

Which of the financial statements used by businesses to keep track of their financial affairs is the most similar to an ordinary person's end-of-the month bank statement?

statement of cash flows

Which of the following was not identified as one of the four main financial objectives of a firm?

timeliness

On a firm's income statement, net sales consists of:

total sales minus allowances for returned goods and discounts

When evaluating a balance sheet, the two primary questions are:

whether a firm has sufficient short-term assets to cover its short-term debts and whether it is financially sound

A financial statement is a(n):

written report that quantitatively describes a firm's financial health