Finance Midterm
quick ratio
(Current Assets - Inventory) / Current Liabilities
restaurant failure rate in first year operations
30%
total payroll should not exceed ___% of sales
30-35%
most common type of business in the US
Sole proprietorship
insurance is what kind of cost
a fixed cost
a contra-asset
a reduction in value of an asset
common sized income statements
assist in the comparison of companies of different statements
what does the SBA offer
counseling through district offices, on-line training and workshops, mentoring
current ratio
current assets/current liabilities
the two principal sources of financing for corporations are
debt and equity
what ratio is better when it is a lower number
debt ratio
ratios can provide information about
debt, profitability, liquidity
uses of ratios in a company
evaluate employee performance, prepare financial projections, evaluate the financial condition of a major supplier
a business owners personal assets should be included with the assets of the business entity
false
where do accrued expenses go on balance sheet
liability section
a multi-step income statement shows
operating income
the most common form of institutional gift financing is in the form of
reduced taxes
according to the BRIE model, what fall under the boundary category
registering the business name and opening a business bank account
bootstrapping
starting a company with little capital and relying on mostly outside investments. Using mostly profit of the business only to expand
direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria are referred to as
tax credits
what are considerations when choosing a business form
taxation, ability to raise capital, liability of owners
a current ratio greater than 1 could indicate
the business has sufficient current assets to satisfy its current liabilities and the business may have extra cash that it is not using efficiently
operating leverage
the relationship of fixed and variable costs
capital structure
the way a business finances its operations, the mix of debt and equity used in the business, the right side of the balance sheet (liabilities and equity)
a restaurant performance index greater that 100 indicates an increase in key industry indicators
true
major suppliers may use financial ratios to determine credit terms they would grant to a business
true
rapid growth in credit sales could mean much greater profits that cash
true
the current restaurant performance index indicates a positive outlook for sales growth, but negative for the overall economy
true
financial analysis
uses historical financial statements to measure a company's performance and in making financial projections of future performance
Capital budgeting is concerned with
what long term investments a firm should undertake
what is a cash equivalent
An investment that is readily convertible to a known amount of cash and has an original maturity to the investor of 3 months or less.
operating profit margin
EBIT/sales
what is a cash disbursement schedule
a schedule of the amounts and timings of payments of cash out of a business
what is a cash receipts schedule
a schedule of the amounts and timings of the cash coming into a business
the quick ratio of a firm would be unaffected by
accounts payable are reduced by obtaining a short term loan
the four things the restaurant performance index measures
capital expenditures, labor expenditures, same-store sales
what provides limited liability to owners
corporations, LLCs, S corporations
inventory is classified as a ___ and is shown on the ___
current asset, balance sheet
checking and savings accounts are the most common forms of
demand deposits
the break even model is a tool to
determine the number of units or sales needed to cover all operating costs
EBIT
earnings before interest and taxes
cost of goods sold is classified as a ___ and is shown in the ___
expense, income statement
the income statement gives a picture of the financial position of a business at a point in time
false (balance sheet)
a business with high fixed costs should generally
finance expansion by issuing equity
a set of theories and techniques used to optimize the receipt and use of capital
financial management
an important distinction of a benefit corporation is
flexibility regarding transfer of ownership
gifts of money made to a business for a specific purpose are referred to as
grants
capital structure
how a firm raises money to fund its investments
balance sheets indicate
how much debt a business has, what can be turned into cash, how much their customers owe
statement that shows the profit or loss of the company for a period of time (month, quarter, year)
income statement
what elements of the BRIE model represent the desire to start a business
intention
if a company pays $30,000 cash to pay off existing accounts payable, what will happen the the company's current ratio
it will increase
how quickly a company can raise money by converting assets to cash
liquidity
working capital management
managing cash flow in day to day operations
uses of financial accounting
obtaining loans, internal management decision making, preparing the income tax forms
a technique small business use to increase cash inflows
offering discounts for prompt payment
contribution margin
price minus variable cost
primary causes of cash flow problems for small businesses
requirements to periodically make large capital investments, difficulty collecting money due from customers, seasonal variation in sales
the four categories in the NRA industry update video
restaurant performance index, employment, food price inflation, menu price inflation
common sized balance sheets
show each balance sheet account as a percentage of total assets
a classified balance sheet
shows the amount of current liabilities
private businesses that are authorized to make SBA insured loans to start ups and small businesses are called
small business investment companies
Which ratio would be most useful to assess the ability of the company to pay off its short term debt
the current ratio
weighted average cost of capital
the overall cost of financing the business
what is a preference of small businesses vs high growth ventures
the preferred funding source for small businesses is the owner's own money
financial leverage
the relationship of debt and equity in the capital structure
what is the operating cycle of a business
the time required for a business to acquire resources, convert them into a product, sell the product, and receive cash from the sale
what are angel investors
they are wealthy individuals who invest in companies in relatively early stages of development
what is the purpose of a cash budget
to anticipate cash needs
debt ratio
total liabilities/total assets
what does the restaurant performance index measure
trends in four industry indicators as well as an expectations index
