Entrepreneurship SB ch. 8
Which of the following is NOT one of the four classic analysis techniques?
Competitive analysis
The ______ ratio provides information on the portion of the business owned by the lenders and that portion owned by the founder(s).
Debt-to-equity
True or false: Hypothesis-driven analysis lets a firm move very quickly and make changes in rapid fashion to react to customers.
True
True or false: Profitability is a result of effectively managing the assets and cash flow of a firm.
True
The ______ ratio is calculated by dividing total liabilities by total assets minus total liabilities.
debt-to-equity
Activity ratios measure the ______ with which the entrepreneur handles the business's resources.
efficiency
The analysis of any size company should proceed _____.
from the general and move toward the specific
The purpose of ratio analysis _____.
is to examine the company's performance along four areas: liquidity, activity, leverage, and profitability
Evaluating a firm starts with its ______ and how the entrepreneur expects to build its ______.
mission; competitive advantage
A firm's _____ is a measure that looks at the firm's gross profit minus all of its functioning expenses.
operating profit margin
Use the correct formula to solve the following gross profit margin ratio problem where the company's gross profit was $175,000 and net sales were $300,000.
.58
______ ratios measure the efficiency with which the entrepreneur is handling the business's resources.
Activity
______ is the analysis of the differences between the predicted and the actual performance.
Deviation analysis
_____ is used to determine the overall profit that is obtained from all sales during the period.
Gross profit margin
Which is the correct formula for calculating the gross profit margin ratio?
Gross profit ÷ Net sales
______ turnover is cost of goods sold divided by inventory.
Inventory
Identify a true statement about a firm's return on assets (ROA).
It is calculated by dividing net profit by total assets.
______ ratios are used to examine the relative level of indebtedness of the business.
Leverage
Which of the following measures the short-term ability of a firm to meet its obligations?
Liquidity ratios
A firm's _____ offers a picture of the relative margin earned by the firm after all obligations and expenses are considered.
Net profit margin
Which of the following profitability ratios examines a firm's ability to return an overall profit compared with the number of assets that the firm has invested into the effort?
Return on assets (ROA)
In the context of the profitability ratios of a firm, identify the profitability ratio that is used to provide investors with an evaluation of how much each dollar of their investment is generating in profit.
Return on equity (ROE)
______ analysis is a chart using a business's financial statements to create a pro forma projection based on a dramatic increase or decrease in sales, or the complication of a major change in the business.
Sensitivity
______ are a means of analyzing a business, its activities, and its performance without focusing on financial data.
Short surveys
A firm's key measures should focus on the important aspects with which the firm hopes to build its _____.
competitive advantage
Inventory turnover is calculated by _____.
cost of goods sold divided by inventory
Which of the following are the leverage ratios commonly used to evaluate the relative level of indebtedness of a business?
• Debt-to-assets • Debt-to-equity
Which of the following are true statements about an organization's operating profit margin?
• It is also known as Earnings Before Interest and Taxes (EBIT). • It is representative of the operating efficiency of the organization.
Which of the following statements are true about gross profit margin?
• It is calculated by dividing gross profit by net sales. • It is used to determine the overall profit obtained from all sales during a given period.
Which of the following statements are true about a firm's net profit margin?
• It is calculated by dividing net profit by net sales. • It provides entrepreneurs with an understanding of the margin earned after all obligations and expenses are considered.
Identify the true statements about a firm's return on equity (ROE).
• It shows how much each dollar of investment is generating in profit. • It is calculated by dividing the firm's net profit by its equity.
Which of the following statements are true about a firm's deviation analysis?
• It tracks various performance measures from one time period to the next. • It uses a deviation chart that should be maintained for all-important metrics.
Which of the following statements about leverage ratios are correct?
• Leverage ratios are used to evaluate the relative level of indebtedness of a business. • There are three leverage ratios that are commonly used. • Creditors use them to ensure that the business has the ability to repay loans.
_____ _____ examine the performance of a firm and its potential to generate economic returns of and above its costs.
• Profitability • Ratios
Which of the following statements about ratio analysis is correct?
• Ratios help the entrepreneur examine the firm's overall health. • One firm's ratios should be compared to other similar firms, an industry average, or the previous month's/year's performance • Ratios by themselves are of little value.
Identify the true statements about hypothesis-driven analysis for new businesses.
• The analysis uses the hypothesis that an entrepreneur has about what a customer really desires. • The analysis is conducted in small batches.
Which of the following are true about the use of short surveys in business?
• They can be given to any party to a transaction with the business. • They give entrepreneurs the opportunity to evaluate their firm's performance on dimensions that may lead to financial success.
Which of the following statements are true about liquidity ratios?
• They measure a business's short-term ability to meet its obligations. • They are used by banks to measure the credit worthiness of the business.