Exam 11: Creating a Successful Financial Plan

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

In start-up firms, one guideline is for the owner to draw a salary 25-30 percent below the market rate for a similar position.

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

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

What are the advantages and the disadvantages of using break-even analysis?

Taking on debt destroys a business; therefore, small business owners should avoid it at all costs.

Mini-Case 11-4: Calculating the Break-even Point A small manufacturer plans to sell tents for $120 each. The variable cost for each tent is $90. Fixed costs for the process are estimated to be $36,000. How many tents must the company sell to break-even? -Suppose that the manufacturer desires a profit of $9,000 on this product. How many units must be sold?

Float is the net number of days of cash flowing into or out of a company.

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

Why is it important for an entrepreneur, about to launch a business, to perform a break-even analysis? Describe the steps in calculating it.

The ________ ratio measures the percentage of total assets financed by a small company's creditors compared to its owners.

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

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.

________ are those items of value the business owns; ________ are those things the business owes.

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

The net-sales-to-total assets ratio is also referred to as the total asset turnover.

Cash requirements can be determined by dividing cash expenses by:

A business that turns over its receivables 5.9 times a year would have an average collection period of about:

The net profit to equity ratio reports the percentage of the owners' investment in the business that is being returned through profits annually.

A current ratio of 2.4:1 means that a small company has $2.40 in current liabilities for every $1 has in current assets.