Question 1

Small businesses with high leverage ratios are less vulnerable to economic downturns,but they have a lower potential for large profits.

Accepted Answer

A) True 
 B)False

Question 2

The times-interest-earned ratio expresses the relationship between the capital contributions of creditors and those of the owners.

Accepted Answer

A) True 
 B)False

Question 3

A quick ratio greater than 1:1 indicates that a small firm is overly dependent on inventory and on future sales to satisfy short-term debt.

Accepted Answer

A) True 
 B)False

Question 4

Ideally,the average payable period should match or exceed the time it takes to convert inventory into sales and sales into cash.

Accepted Answer

A) True 
 B)False

Question 5

________ measure how efficiently the firm is operating and offer information about its bottom line.

Accepted Answer

A) Operating ratios 
B) Profitability ratios 
C) Balance Sheet ratios 
D) All of the above 
A) Operating ratios 
B) Profitability ratios 
C) Balance Sheet ratios 
D) All of the above

Question 6

What are the options for repairing a poor gross profit margin?

Accepted Answer

A) Raise prices 
B) Cut manufacturing or purchasing costs 
C) Refuse orders with low profit margins 
D) All of the above 
A) Raise prices 
B) Cut manufacturing or purchasing costs 
C) Refuse orders with low profit margins 
D) All of the above

Question 7

The small firm's net sales to total assets ratio measures how many dollars in sales the business makes for every dollar of working capital.

Accepted Answer

A) True 
 B)False

Question 8

The higher the debt-to-net worth ratio,the lower the degree of protection afforded creditors should the business fail.

Accepted Answer

A) True 
 B)False

Question 9

The ________ ratio is the liquidity ratio most commonly used as a measure of short-term solvency.

Accepted Answer

A) working capital ratio 
B) quick 
C) debt-to-net worth 
D) turnover 
A) working capital ratio 
B) quick 
C) debt-to-net worth 
D) turnover

Question 10

A high debt ratio:

Accepted Answer

A) means that creditors provide a large percentage of the company's total financing. 
B) gives a small business more borrowing capacity. 
C) decreases the chances that creditors will lose money if the business is liquidated. 
D) decreases the creditor's interest in the business. 
A) means that creditors provide a large percentage of the company's total financing. 
B) gives a small business more borrowing capacity. 
C) decreases the chances that creditors will lose money if the business is liquidated. 
D) decreases the creditor's interest in the business.

Question 11

The most common method of creating a projected income statement is to develop a sales forecast and then "work down" to the bottom line.

Accepted Answer

A) True 
 B)False

Question 12

The balance sheet represents: Assets = Liabilities + Depreciation + Equity.

Accepted Answer

A) True 
 B)False

Question 13

As a general rule,financial analysts suggest that a small business maintain a(n)________ ratio of at least 2:1.

Accepted Answer

A) debt-to-net worth 
B) current 
C) inventory turnover 
D) quick 
A) debt-to-net worth 
B) current 
C) inventory turnover 
D) quick

Question 14

The gross profit margin is calculated by dividing net income by net sales revenue.

Accepted Answer

A) True 
 B)False

Question 15

________ ratios tell whether or not the small company will be able to meet its maturing obligations as they come due.

Accepted Answer

A) Leverage 
B) Profitability 
C) Liquidity 
D) Operating 
A) Leverage 
B) Profitability 
C) Liquidity 
D) Operating

Question 16

The company's average collection period ratio indicates the length of time the firm's cash is tied up in credit sales.

Accepted Answer

A) True 
 B)False

Question 17

The ________ is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

Accepted Answer

A) income statement 
B) sources and uses of funds statement 
C) balance sheet 
D) cash budget 
A) income statement 
B) sources and uses of funds statement 
C) balance sheet 
D) cash budget

Question 18

One of the most important tasks facing an entrepreneur is:

Accepted Answer

A) establishing a large enough reserve of capital. 
B) earning enough the first year to provide an adequate return on investment. 
C) the deferment of taxes. 
D) determining the funds needed for a company start-up. 
A) establishing a large enough reserve of capital. 
B) earning enough the first year to provide an adequate return on investment. 
C) the deferment of taxes. 
D) determining the funds needed for a company start-up.

Question 19

The average payable period tells the owner the average number of days it takes to pay its accounts payable.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 7: Creating a Solid Financial Plan

Small businesses with high leverage ratios are less vulnerable to economic downturns,but they have a lower potential for large profits.

The times-interest-earned ratio expresses the relationship between the capital contributions of creditors and those of the owners.

A quick ratio greater than 1:1 indicates that a small firm is overly dependent on inventory and on future sales to satisfy short-term debt.

Ideally,the average payable period should match or exceed the time it takes to convert inventory into sales and sales into cash.

________ measure how efficiently the firm is operating and offer information about its bottom line.

What are the options for repairing a poor gross profit margin?

The small firm's net sales to total assets ratio measures how many dollars in sales the business makes for every dollar of working capital.

The higher the debt-to-net worth ratio,the lower the degree of protection afforded creditors should the business fail.

The ________ ratio is the liquidity ratio most commonly used as a measure of short-term solvency.

A high debt ratio:

The most common method of creating a projected income statement is to develop a sales forecast and then "work down" to the bottom line.

The balance sheet represents: Assets = Liabilities + Depreciation + Equity.

As a general rule,financial analysts suggest that a small business maintain a(n)________ ratio of at least 2:1.

The gross profit margin is calculated by dividing net income by net sales revenue.

________ ratios tell whether or not the small company will be able to meet its maturing obligations as they come due.

The company's average collection period ratio indicates the length of time the firm's cash is tied up in credit sales.

The ________ is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

One of the most important tasks facing an entrepreneur is:

The average payable period tells the owner the average number of days it takes to pay its accounts payable.

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

Entrepreneurs: the Driving Force Behind Small Business

Strategic Management and the Entrepreneur

Choosing a Form of Ownership

Franchising and the Entrepreneur

Buying an Existing Business

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Managing Cash Flow

Building a Guerrilla Marketing Plan

Creative Use of Advertising and Promotion

Pricing and Credit Strategies

Global Marketing Strategies

E-Commerce and Entrepreneurship

Sources of Equity Financing

Sources of Debt Financing

Location,layout,and Physical Facilities

Supply Chain Management

Managing Inventory

Staffing and Leading a Growing Company

Management Succession and Risk Management Strategies in the Family Business

Ethics and Social Responsibility: Doing the Right Thing

The Legal Environment: Business Law and Government Regulation

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