Chapter 8: Assessing a New Venture's Financial Strength and Viability

________ us a company's ability to meet its short-term financial obligations.

Liquidity

What do start-up companies base their forecasts on?

Typically base on an estimate of sales and then on industry averages or experiences of a simililar start-ups regarging the cost of goods sold and other expenses.

What are the working capital and the current ratio for a company?

Working capital: Current capital - current liabilities Current ratio: Current capital / current liabilities

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

inventory

What is the four financial objectives of a firm?

1. Profitability 2. Liquidity 3. Efficiency 4. Stability

What is a snapshot of a company's assets, liabilities, and owners' equity?

Balance sheet

What is the percentage of sales method?

Express expenses as percentage of sales

What is involved in maintaining a firm's stability?

For a firm to be stable, it must not only earn a profit and remain a liquid but also keep its debt in check.

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

Forecasts

Describe pro forma financial statements.

Projections in the future.

Financial management deals with two things- managing a company's finances and: __________

Raising money

Define income statement.

Records revenues and expenses to show net income

Which forecast is developed first?

Sales forecast

What is the statement of cash flows?

Show the changes in a cash positions.

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

timeliness