Exam 11: Forecasting Financial Requirements

The most common way that entrepreneurs accomplish more with less is called

The greater a firm's sales, the greater need for financing because of greater _____ requirements.

What are the two sources of equity ownership in a business?

There must be a corresponding dollar of financing for every dollar of assets. Stated another way, debt plus assets must equal total equity.

For every dollar of assets there must be a corresponding dollar of

Accounts payable and accrued expenses rise as a firm's sales increase. This phenomenon is known as

The cost of goods sold can be either fixed or variable.

D&R Products forecast first year asset requirements of $143,000; therefore, the total debt requirement must be

List the factors that drive net profits in the order that they should appear on the income statement.

Pro forma financial statements mean that the financial statements are prepared in the proper format.

In a real world situation an entrepreneur should project the profits to two years into the future.

A firm's sales are the primary force driving future asset needs.

David Allen plans to invest $110,000 of his personal savings to provide the needed startup equity for D&R Products, Inc. He will receive _____ for his investment.

To the greatest extent possible the entrepreneur should use other people's resources, a common way entrepreneurs accomplish more with less. This is called bootstrapping.

Financial forecasts are required by lenders who want to know how they will be paid back, but not by investors, because they are receiving equity for their investment.

Cecilia Levine purchased badly needed equipment from a customer who deducted an amount from his invoices to cover the cost of the equipment. This strategy on the part of Levine illustrates a growth strategy called

The assets-to-sales relationship tends to be relatively constant within an industry, allowing for a(n) _____ technique to be utilized in projecting asset requirements.

Entrepreneurs tend to be conservative and usually underestimate what they can actually achieve when it comes to future sales.

Projections of a venture's profits, its asset and financing requirements and its cash flows are essential in determining whether a venture is economically viable.

Although the asset-to-sales ratio varies over time and with individual businesses, it tends to be relatively constant within an industry. This allows the startup to use the method of estimating asset requirements called the percentage-of-sales technique.