Exam 11: Creating a Successful Financial Plan

The break-even point is the level of operation at which a business neither earns a profit nor incurs a loss,and lets the business owner know the minimum level of activity required to keep the firm in operation.

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(True/False)

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Question 1

Correct Answer:

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Explain what ratio analysis is.Name the four categories of ratios and describe the type of information each group provides the small business owner.

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Question 2

Correct Answer:

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Ratios help measure the small firm's performance and can point out potential problem areas before they become business crises.They use accounts from both the balance sheet and income statement and provide relevant information to the overall financial plan.One way to use ratios is to compare those of the small business to other businesses in the same industry through a number of published industry averages and standards.It is also helpful for the owner to analyze the firm's financial ratios over time.The four ratio categories are: 1.Liquidity ratios Tell whether a firm will be able to meet its short-term financial obligations as they come due.These ratios can forewarn a business owner of impending cash flow problems.A firm with a solid liquidity is able to pay bills on time and take advantage of attractive opportunities as they arrive.2.Leverage ratios Measure the financing supplied by the firm's owners against that supplied by its creditors.The ratios are a gauge of the depth of a firm's debt.These ratios show the extent to which a business relies on debt capital (rather than equity)to finance operating expenses,capital expenditures,and expansion costs.In a sense,they measure the degree of financial risk in a company.Generally,small businesses with low leverage ratios are affected less by economic downturns,but the returns are lower during economic booms.Firms with higher ratios are more vulnerable during economic downturns because of their debt loads,but have a greater potential for large profits in economic booms.3.Operating ratios Evaluate a firm's overall performance and indicate how effectively the business employs its resources.The more effectively its resources are used,the less capital a small business will require.4.Profitability ratios Indicate how efficiently a small business is being managed.These ratios provide information on the company's bottom line.Profitability ratios assess how successfully the firm is using its available resources to generate a profit.

The break-even point:

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Question 3

Correct Answer:

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________ ratios tell whether or not the small company will be able to meet its short-term obligations.

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Question 4

On a projected income statement,a business owner's target income is the sum of a reasonable salary for the time spent running the business and a normal return on the amount the owner has invested in it.

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Question 5

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

(Multiple Choice)

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Question 6

The area labeled represents the firm's fixed expenses,while represents its variable expenses.

(Multiple Choice)

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Question 7

The ________ ratio is a conservative measure of a firm's liquidity and shows the extent to which a firm's most liquid assets cover its current liabilities.

(Multiple Choice)

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Question 8

If Anita's net profit target is $32,000,what level of net sales must she achieve?

(Multiple Choice)

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Question 9

Although sound cash management principles call for a business owner to keep her cash as long as possible,slowing accounts payable too drastically can severely damage a company's credit rating.

(True/False)

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Question 10

If Anita's research suggests that she can expect net sales of $475,000,what net profit could she expect?

(Multiple Choice)

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Question 11

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

(True/False)

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Question 12

As a company's debt-to-net worth ratio approaches 1:1,its creditors' interest in that business approaches that of the owners.

(True/False)

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Question 13

The ________ shows what assets the business owns and what claims creditors and owners have against those assets,and is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

(Multiple Choice)

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Question 14

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

(True/False)

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Question 15

If the accounting period is one year with credit sales totaling $2,500,000 and accounts receivable totaling $200,000,what is the average collection period ratio?

(Multiple Choice)

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Question 16

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:

(Multiple Choice)

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Question 17

Ratio analysis is a useful managerial tool that can help business owners maintain financial control over their businesses,but it is of no use to a business owner trying to obtain a bank loan.

(True/False)

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Question 18

In order to reach profit objectives,entrepreneurs must be aware of their firms':

(Multiple Choice)

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Question 19

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

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Question 20

Showing 1 - 20 of 136

The break-even point is the level of operation at which a business neither earns a profit nor incurs a loss,and lets the business owner know the minimum level of activity required to keep the firm in operation.

Explain what ratio analysis is.Name the four categories of ratios and describe the type of information each group provides the small business owner.

The break-even point:

________ ratios tell whether or not the small company will be able to meet its short-term obligations.

On a projected income statement,a business owner's target income is the sum of a reasonable salary for the time spent running the business and a normal return on the amount the owner has invested in it.

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

The area labeled represents the firm's fixed expenses,while represents its variable expenses.

The ________ ratio is a conservative measure of a firm's liquidity and shows the extent to which a firm's most liquid assets cover its current liabilities.

If Anita's net profit target is $32,000,what level of net sales must she achieve?

Although sound cash management principles call for a business owner to keep her cash as long as possible,slowing accounts payable too drastically can severely damage a company's credit rating.

If Anita's research suggests that she can expect net sales of $475,000,what net profit could she expect?

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

As a company's debt-to-net worth ratio approaches 1:1,its creditors' interest in that business approaches that of the owners.

The ________ shows what assets the business owns and what claims creditors and owners have against those assets,and is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

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

If the accounting period is one year with credit sales totaling $2,500,000 and accounts receivable totaling $200,000,what is the average collection period ratio?

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:

Ratio analysis is a useful managerial tool that can help business owners maintain financial control over their businesses,but it is of no use to a business owner trying to obtain a bank loan.

In order to reach profit objectives,entrepreneurs must be aware of their firms':

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

The Foundations of Entrepreneurship

Inside the Entrepreneurial Mind: From Ideas to Reality

Designing a Competitive Business Model and Building a Solid Strategic Plan

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Forms of Business Ownership

Franchising and the Entrepreneur

Buying an Existing Business

Building a Powerful Marketing Plan

E-Commerce and the Entrepreneur

Pricing Strategies

Managing Cash Flow

Sources of Financing: Debt and Equity

Choosing the Right Location and Layout

Global Opportunities

Building a Team and Management Succession

Filters

Exam 11: Creating a Successful Financial Plan

The break-even point is the level of operation at which a business neither earns a profit nor incurs a loss,and lets the business owner know the minimum level of activity required to keep the firm in operation.

Explain what ratio analysis is.Name the four categories of ratios and describe the type of information each group provides the small business owner.

The break-even point:

________ ratios tell whether or not the small company will be able to meet its short-term obligations.

On a projected income statement,a business owner's target income is the sum of a reasonable salary for the time spent running the business and a normal return on the amount the owner has invested in it.

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

The area labeled ________ represents the firm's fixed expenses,while ________ represents its variable expenses.

The ________ ratio is a conservative measure of a firm's liquidity and shows the extent to which a firm's most liquid assets cover its current liabilities.

If Anita's net profit target is $32,000,what level of net sales must she achieve?

Although sound cash management principles call for a business owner to keep her cash as long as possible,slowing accounts payable too drastically can severely damage a company's credit rating.

If Anita's research suggests that she can expect net sales of $475,000,what net profit could she expect?

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

As a company's debt-to-net worth ratio approaches 1:1,its creditors' interest in that business approaches that of the owners.

The ________ shows what assets the business owns and what claims creditors and owners have against those assets,and is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

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

If the accounting period is one year with credit sales totaling $2,500,000 and accounts receivable totaling $200,000,what is the average collection period ratio?

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:

Ratio analysis is a useful managerial tool that can help business owners maintain financial control over their businesses,but it is of no use to a business owner trying to obtain a bank loan.

In order to reach profit objectives,entrepreneurs must be aware of their firms':

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

The Foundations of Entrepreneurship

Inside the Entrepreneurial Mind: From Ideas to Reality

Designing a Competitive Business Model and Building a Solid Strategic Plan

Conducting a Feasibility Analysis and Crafting a Winning Business Plan

Forms of Business Ownership

Franchising and the Entrepreneur

Buying an Existing Business

Building a Powerful Marketing Plan

E-Commerce and the Entrepreneur

Pricing Strategies

Managing Cash Flow

Sources of Financing: Debt and Equity

Choosing the Right Location and Layout

Global Opportunities

Building a Team and Management Succession

Filters

The area labeled represents the firm's fixed expenses,while represents its variable expenses.