Exam 12: Creating a Successful Financial Plan

Refer to the following Gunther's Emporium information to answer the question(s)below: Gunther's Emporium expects net sales of $2,396,919 for the upcoming year, with variable expenses totaling $1,813,443 and fixed expenses of $412,190. -Gunther's Emporium expects net sales of $2,396,919 for the upcoming year, with variable expenses totaling $1,813,443 and fixed expenses of $412,190. What is Gunther's break-even point?

Ratio analysis allows a business owner to identify potential problem areas in her/his business before they become business-threatening crises.

An excessively high average payable period ratio indicates the possibility of the presence of a significant amount of past-due accounts payable.

________ ratios help a business owner evaluate the company's performance and indicate how effectively the business employs its resources.

Operating ratios measure the extent to which an entrepreneur relies on debt capital rather than equity capital to finance the business.

Generally, the higher the current ratio, the stronger the small firm's financial position.

The small business with a high debt-to-net worth ratio has more borrowing capacity than a firm with a low ratio.

Mini-Case 12-6: Crazy Harry's The following is a pro forma income statement for Crazy Harry's. Crazy Harry's Pro Forma Income Statement Sales $96,000 Cost of Goods Sold 46,240 Gross Profit $49,760 Fixed Expenses Rent $2,400 Insurance 3,000 Salaries 16,500 Taxes 1,100 Miscellaneous Fixed Expenses 900 Total Fixed Expenses $23,900 Variable Expenses Wages $11,200 Advertising 5,700 Benefits 2,800 Other Variable Expenses 1,120 Total Variable Expenses $20,080 Net Profit $5,040 -Calculate Harry's break-even point.

A quick ratio of more than 1:1 suggests that a small company is overly dependent on inventory and future sales to satisfy its short-term debt.

On a break-even chart, the break-even point occurs at the intersection of the fixed expense line and the total revenue line.

Generally, the higher the small firm's average collection period ratio, the greater the chance of bad debt losses.

Refer to the following break-even chart to answer the question(s)below: -The area labeled ________ is the "profit area."

Pro forma financial statements show a company's most recent financial position.

Bettina has just calculated her company's current ratio. To calculate the quick ratio, she should ________.

Refer to the following break-even chart to answer the question(s)below: -The area labeled ________ is the "loss area."

A high current ratio guarantees that the small firm's assets are being used in the most profitable manner.

Fixed expenses are those that do not vary with changes in the volume of sales, but do vary with production.

Mini-Case 12-7: Sharps and Flats Anthony Gray has been interested in music since he was old enough to sit at the piano. He literally grew up with music, and he used his talent to earn his way through college. Anthony has grown tired of his job at a large music house in Houston and is seriously considering moving back to his hometown in Massachusetts to open his own small music shop. In researching this venture, Anthony notices that he must include a projected income statement in his loan application. Use the following statistics from Robert Morris Associates' Annual Statement Studies to answer the following question(s). Net Sales 100.0 percent Cost of Sales 59.9 percent Gross Profit 40.1 percent Operating Expenses 31.2 percent Net Profit (Before Taxes) 8.9 percent -Using Anthony's target income of $23,000, construct a pro forma income statement for Anthony's proposed music shop. Net Sales $258,427 Cost of Goods Sold 254,798 Gross Profit 103,629 Operating Expenses 80,629 Net Profit (Before Taxes) $23,000

Refer to the following Gunther's Emporium information to answer the question(s)below: Gunther's Emporium expects net sales of $2,396,919 for the upcoming year, with variable expenses totaling $1,813,443 and fixed expenses of $412,190. -Using break-even analysis, what is Gunther's contribution margin?

For Meters, Inc., refer to the following information to answer the question(s)below: Meters, Inc., reported net sales of $874,916 and a net profit of $74,563 on its most recent income statement. The company's balance sheet shows total assets of $342,742 and total liabilities of $88,367. -What is the return on net worth ratio for Meters, Inc.?