Exam 5 study guide (chapters 14 & 16 )
_________ ratios measure how productive a particular asset is in producing sales movement.
Activity
_________occurs when the owner of real property does not enforce property rights and allows a non-owner to use the property as if it were his or her own.
Adverse possession
_________provides funds to pay the ordinary operating expenses of a business should it be forced to close temporarily because of an insured event.
Business interruption insurance
_________ is a measure of the amount of debt relative to total investment.
Financial Leverage
Crux Inc. and Synapse Inc. are two competing businesses in the same city. They use the services of the same insurance company and have taken the same policy. Crux has a higher deductible than Synapse for the policy. Which statement would be true in this case?
Synapse pays a higher premium than Crux
_________ measures the extent to which a business can meet its obligations for the long haul.
debt-to-equity ratio
For an owner, the main financial management emphasis while transferring a business to family members must be to:
increase asset value
This method of obtaining financing is neither equity nor debt, and certainly not a gift, but requires a contractual percentage of the revenues of a firm for a contractual time period. This is known as:
royalty funding
Working proactively to ensure that your physical place of business is (1) free of potential hazards and (2) _________ will prevent on-premises injuries and violations of EEOC or OSHA rules.
secure from intruders
_________blank are used to pay losses that are not covered by other liability insurance.
General liability insurance
_________ refers to the value of a business that exceeds the sum of the value of all individual assets but that cannot be sold separately from the business.
Goodwill
_________refers to a set of rules and procedures that work to limit the opportunity for employee theft or malfeasance.
Internal Control
Which scenario is true of co-insurance?
It requires that an owner carry insurance equal to a stated minimum percentage of the market value of their property.
Which statement concerning the loss of key employees is not true?
Key employees rarely become competitors
Which statement is true regarding the OSHA Act?
OSHA-defined "low hazard" industries are exempt from the recordkeeping requirements of the regulations.
Which statement concerning financial management is correct?
Obtaining money for your start-up is only the beginning of financing a small business
At the _________ stage of a business, the emphasis of financial management is to build owner wealth, to conserve assets, to match cash inflows to outflows, and to maximize the return on capital assets by making optimal investing decisions.
Operations
_________ is money from selling part of a business to people who are not and will not be involved in the management of the business.
Outside Equity
Payment for injury or damage that occurs during the use of a business's products is referred to as:
Product liability
Which statement concerning managing risk to buildings and land is not true?
Storm proofing a building requires the same features, regardless of location
An organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area is referred to as:
a community development organization
A business that collects, collates, and reports information concerning an entity's use of debt is:
a credit reporting agency
When an entrepreneur gets funding for his business from an account that his family had initially set up for his future education or a first home, it is referred to as:
accelerated cash-out
A legal form or business organization that has a choice, under federal tax law, of being taxed as either a corporation or as a partnership is:
an LLC
Financial management requires that you have some method to measure and compare your financial position and financial results. Your financial position is reflected on your _________, and your financial results on your _________.
balance sheet; income statement
After being in business for 24 months, Paul's auto spare parts company Chromson Inc. grows to a relatively stable size. Which scenario would be Paul's primary financial management need at this stage?
building owner's wealth
In which way does borrowing help increase potential profits?
by providing capital funds for additional business opportunities
If financed using unsecured debt, which answer option is not one of the ways a lender can collect any unpaid loan payments?
by seizing specific assets
Liability insurance protects a business against:
claims from harm caused by inadvertent consequences of actions of the business or its employees
Something of value given or pledged as security for payment of a loan is called:
collateral
Which answer option is not one of the Four Cs of borrowing?
cost of capital
Fidelity bonds help to:
cover losses incurred by the employer due to employee embezzlement.
Ted's business, situated near the Missouri River, was partially destroyed when the river overflowed after a deluge. Which action would have helped Ted minimize the effect of the flood from interrupting the operations of his business?
creating provisions for subcontracting work to minimize business interruption
The computers at a graphics design company were stolen recently. Which these insurance option that the company holds will repay the losses incurred?
crime insurance
This ratio is determined by dividing current assets by current liabilities.
current ratio
Which ratio is better when it is a lower number?
debt to assets ratio
Which ratio is determined by dividing total liabilities by total assets?
debt to assets ratio
When interpreting this ratio, a lower ratio indicates greater solvency and a higher ratio indicated increased business risk.
debt to equity ratio
A(n) _________blank is an amount of loss that is specifically excluded by the insurance contract.
deductible
Hugh starts his own animation company by borrowing funds from his parents. His parents tell him that he can repay them when the business is generating profits. This is an example of:
deferral
Which statement concerning business risks related to the property of the business is true?
each type of property involves specific forms of risk
Jacob often manipulates charges on his travel expenses to indicate higher amounts when he travels for the company he works for. Trent, the accounts manager, accepts fake bills and assists Jacob in deceiving the company. They split the profits made this way. This is an example of theft by:
employee collusion
There are three general types of events that cause business risk. Which answer option is not one of those three general types of events?
events related to the competitors of the business
________ repay employers for losses caused by dishonest or negligent employees.
fidelity bonds
_________is a set of theories and techniques used to optimize the receipt and use of capital assets.
financial management
When a business needs cash for marketing or cash for building inventory levels, their financial management needs are:
financing for growth
When the financial management needs of a business are to reinvest for maintenance or to build owner wealth, the business needs:
financing for operations
_________ exist for the purpose of addressing some identified social need that cannot be adequately met by market forces.
foundations
The percentage amount that the payout of an investment differs from original cost is known as:
gain on investment
Which answer option is not one of the most commonly identified sources of U.S. business risk small businesses face?
government instability
Gifts of money made to a business for a specific purpose are referred to as
grants
Which ratio measures the percentage of sales revenue available to pay operating costs and to provide profits after paying for inventory?
gross margin ratio
The emphasis of financial management during the _________ phase is to obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees.
growth
The U.S. government directly subsidizes several sectors of business. Which answer option is not one of the three main sectors that receive consistent subsidies?
housing
Which scenario is true of the debt-to-equity ratio?
if the ratio is greater, it indicates increased business risk
When debt increases as a percentage of total investment, returns on equity:
increase at a decreasing rate
Which answer option is an example of debt financing?
incubators
There are three main types of risk related to events involving personnel. Which of these is not one of three main employee risks?
injury
A contract between two or more parties in which one party agrees, for a fee, to assume the risk of another is called:
insurance
Separation of duties is most important for:
intangible assets
A(n) _________ is a valuable process that can greatly help an employer with the issues of keeping risks at acceptable levels. It is strictly a management tool that is not provided to outsiders; it can be structured and conducted in any systematic manner the owner finds acceptable.
internal audit
Which statement is not true of using insurance to manage business risk?
it is possible to use insurance to avoid all types of business risk
Partnerships through which two or more businesses combine to undertake a specific economic activity are called:
joint ventures
_________ ratios measure the relative risk that a business setback could cause bankruptcy.
leverage
Which statement is not true of using insurance to manage business risk?
malpractice claims
The most highly desired form of insurance for most employees is:
medical insurance
Which answer option are SBA-approved partners who offer guaranteed loans under $50,000 to eligible small businesses?
microlender
Computer, and the information they hold, is a big risk for many small businesses. One solution to ransomware attacks is to have:
multiple backups
Axion Inc. is a small business started by Robert. As the business grew, he decided to implement new company policies that would ensure that his employees are not encouraged to set up competition against Axion. Which technique should he adopted to achieve this?
negotiate contracts with key employees that limit their freedom to go into competition
As a small business owner, which scenario could land you in prison?
not paying your taxes
Which factors should be included in an employee contract for a key employee?
offer rewards for providing adequate termination notice
After successfully operating for five years, Tina plans to sell her computer service center. Which scenario would be Tina's main financial management need as she exits the business through sale?
optimizing capital structure for profits
The ratio of debt to equity that provides the maximum level of profits is called:
optimum capital structure
Which scenario is a drawback to financing with debt?
payment is expected even if you have no money to make the payment
Separation of duties requires you to do two things to protect yourself from theft: develop and enforce rules that prevent the employee responsible for an asset from being able to account for that asset, and: Multiple Choice
physically protect your property
When examining debt worthiness, lenders eagerly loan money to:
purchase capital equipment
Which answer options is not one of the ways to protect the PCs you use in your small business?
ransomware programs
Which action should be undertaken in order to reduce a business's exposure to the risk of violating tax regulations?
reconcile the cash register tape to the cash register contents every day
The most common form of institutional gift financing is in the form of:
reduced taxes
_________ refers to laws and governmental rules that limit the freedom of business owners to manage their businesses as they please.
regulation of the workplace
Which answer option is a "protected class" affecting business owner's interactions with their employees?
religion
Intellectual property rights may be legally protected in several ways. Which answer option is not one of the ways of protecting intellectual property?
rely on OSHA for protection
This ratio is determined by dividing net income by average investment.
return on investment
_________ provides a lender with the right to seize specific assets if the loan is not paid back as specified in the loan contract.
secured debt
Martin, an employee at a boutique store, is required to handle store displays and also ensure that all the sales records tally at the end of each business day. However, he committed fraud by recording fake sales and then keeping the products for himself. Which managerial concept would have helped the store avoid this deception?
separation of duties
Julia recently set up a factory that manufactures shoes. To ensure that her business complies with the basic OSHA regulations, which step should she take?
she must provide medical examinations for all her employees
If a risk-averse small business owner can't reduce the level of risk to where they are comfortable, they can either ensure against future losses or:
spread the risk among other people or business
A _________ is an agreement with an insurance or bonding company that will pay a specified amount in the event that the entity bonded fails to comply with specified contractual requirements.
surety bond
_________ is provided by state and local governments, primarily to encourage specific activities that are expected to improve the blighted areas or provide additional employment.
tax abatement
Direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria are referred to as:
tax credits
_________is a form of insurance that does not accumulate any value over the contract period.
term insurance
The best strategy of managing risks is to develop a business environment that minimizes: (1) the probability of the event occurring, and (2):
the amount of loss if the event does occur
The amount an insurance company must pay out in claims is a function of all but one of the following answer options. Which option is not one of those functions?
the annual amount the business owners pays for the insurance
Which statement is true of using internal audits to manage risk?
the owner should provide sufficient authority to the auditor to ensure that he or she can accomplish the goals of the audit
The most common form of employee collusion is:
theft of cash and inventory
According to the Association of Certified Fraud Examiners, what is the number one method for fraud detection?
tips
The first task to be completed before a comprehensive insurance program for a business can be developed is:
to identify risks
_________blank is collected by the IRS and state agencies as a percentage of tax upon payroll.
unemployment insurance
Which statement concerning compliance with government regulations is true?
violation of some of the regulations is probably inevitable
Which of these answer options describe angel investors?
wealthy individuals who invest in companies in relatively early stages of development
