Exam 12: Creating a Successful Financial Plan

Compute a break-even point in dollars.

You are to prepare a projected income statement for a proposed business venture. Your desired income is $28,000 and you have the following published statistics: Costs of Goods Sold = 56.9 percent of net sales Operating Expenses = 37.1 percent of net sales Gross Profit Margin = 43.1 percent of net sales This information indicates the net sales on your pro forma "P & L" (income statement)would be ________.

The ________ represents a "snapshot" of a business, showing an estimate of its value on a given date, while the ________ is a "moving picture" of the firm's profitability over time.

Which ratio would best give an owner an indication that the business is undercapitalized?

Which of the following is not true regarding the components of the income statement?

The first section of a balance sheet lists ________.

A high debt ratio ________.

Sarah's Smart Shop has an inventory turnover ratio of 3 times per year and an average inventory of $156,000. If Sarah could manage her inventory better and increase the number of turnovers to the industry average of 6 times per year, what average inventory would she need to generate the same level of sales?

Liquidity ratios help a business owner evaluate a small company's performance and indicate how effectively it employs its resources.

Ideally, a company reaches a point where increases in operating efficiency mean that expenses as a percentage of sales revenue flatten or even decline. This is referred to as ________.

The higher the ________ ratio, the lower the degree of protection afforded creditors, and the closer creditors' interest approaches the owner's interest.

Most firms calculate their quick assets by subtracting the value of their inventory from their current asset total.

When a company is forced into liquidation, owners are most likely to incur a loss when selling ________.

On a company's statement of cash flows, depreciation is ________.

The ________ ratio measures the owner's rate of return on the investment in the business.

A business should provide the owner with a reasonable rate of return based upon ________.

Concerning how much cash to have at startup, one rule of thumb is to have enough to cover operating expenses (less depreciation)for two inventory turnover periods.

On a projected income statement, a business owner's target income is ________.

Explain the procedure for constructing a graph that visually portrays the firm's break-even point (the point where revenues equal expenses).

If a company's average payable period ratio is significantly lower than the credit terms vendors offer, it may be a sign that the company is not using its cash most effectively.