Exam 11: Forecasting Financial Requirements

High-tech businesses (such as computer manufacturers) generally require fewer assets than service businesses.

Financial forecasts are required by lenders since they will want to know how they will be paid back; investors will use the forecasts to value the company.

After pro forma statements are prepared, they should be checked against actual results every month so projections can be modified.

A business should finance its growth in such a way as to maintain adequate:

Veronica wants to avoid a common mistake often made by new entrepreneurs.What advice would you give her?

Match the term with its definition. a.Cash budget b.Current ratio c.Line of credit d.Net working capital e.Pro forma financial statements f.Percentage-of-sales technique g.Spontaneous debt financing -A listing of cash receipts and cash disbursements, usually for a relatively short time period.

The term net working capital equals current assets less total liabilities and is a measure of a company's liquidity.

Natasha has been in business for a little over a year with her Sips and Munchies Coffee Shop where she sells an array of coffees and pastries.She rents a building with a downtown location and manages the business and employees herself.Discuss factors that drive the company's profits.

For the typical small business, the primary source of equity capital for financing growth is:

Martin has high hopes for his new business, anticipating a very large profit margin.For the preparation of his forecasts, he should use industry averages regardless of his hopes.

Pro forma financial statements are statements that have been prepared in the proper format by a chartered accountant.

Profits reward an owner for investing in a company and constitute a primary source of financing for future growth.

What are sources of equity ownership in a business? Are these sources cash resources?

Many small businesses have a tendency to underestimate the amount of capital the business requires when beginning operations.

Match the term with its definition. a.Cash budget b.Current ratio c.Line of credit d.Net working capital e.Pro forma financial statements f.Percentage-of-sales technique g.Spontaneous debt financing -A short-term loan.

Spontaneous debt financing results when accounts payable increase in proportion to a business's profits.

Financial projections should be limited to the statement of profit and loss to prevent information overload on lenders and investors.

Explain the percentage-of-sales technique.Will this technique differ by industry type?

As her accounts payable and accrued expenses rose along with her business's sales, Asanda noticed that ________ occurs.

As Will's business grows and propsers, his company's total assets requirements will equal ___________.