Exam 7: Creating a Solid Financial Plan

Investors mainly want to see that entrepreneurs:

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

A break-even analysis has several drawbacks including the fact that it ignores the importance of cash flows and that its accuracy is dependent on the accuracy of revenue and expense estimates.

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

Describe what operating ratios are.Identify the five operating ratios covered in your text,explaining how each of the five helps the small business owner manage his/her business.

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

The statement of cash flow:

________ is one indication that a small business may be undercapitalized.

If Mary wants to compare what her small business owes to what it owns in order to assess her ability to meet obligations in case of liquidation,she needs to look at the ________ ratio.

________ are those things that a business owns which have value.

The profit and loss statement,is also referred as the ________.

Leverage ratios are a gauge of the depth of a company's debt.

Financial ratios are a common tool used by over 50% of small business owners in the daily management of their businesses.

When comparing a company's ratios to industry standards,entrepreneurs should ask questions such as:

The cost of goods sold represents the total cost,including distribution,of the goods sold during the year.

Dividing gross profit by net sales produces:

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

A pro forma financial statement means:

Break-even analysis is somewhat complex to use,but it is a final screening device.

The first step in creating the pro forma income statement is to: