Exam 11: Creating a Successful Financial Plan

Which of the following is not a liquidity ratio?

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

For Meters, Inc., refer to the following information to answer the question(s) below: Meters, Inc., reported net sales of $874,916 and a net profit of $74,563 on its most recent income statement. The company's balance sheet shows total assets of $342,742 and total liabilities of $88,367. -What is the return on net worth ratio for Meters, Inc.?

A business with a payables turnover ratio of 10.4 times a year would have an average payable period of about ________ days.

On a break-even chart, the break-even point occurs at the intersection of the fixed expense line and the total revenue line.

The times-interest-earned ratio tells how many times the company's earnings cover the interest payments on the debt it is carrying.

A company with a low debt-to-net worth ratio has less capacity to borrow than a company with a high debt-to-net worth ratio.

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

A high current ratio guarantees that the small firm's assets are being used in the most profitable manner.

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

The area labeled ________ is the "loss area."

Leverage ratios measure the financing supplied by the firm's owner against that supplied by his creditors.

Refer to the following information to answer the question(s) regarding Port Royal: Net Sales $927,641 Gross Profit $301,483 Net Profit $48,457 Total Assets $203,869 Total Liabilities $74,325 -Port Royal's debt-to-net worth ratio is ________.

The first section of a balance sheet lists ________.

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

Help Jim compute the break-even point for his brake service.

Mini-Case 11-7: Sharps and Flats Anthony Gray has been interested in music since he was old enough to sit at the piano. He literally grew up with music, and he used his talent to earn his way through college. Anthony has grown tired of his job at a large music house in Houston and is seriously considering moving back to his hometown in Massachusetts to open his own small music shop. In researching this venture, Anthony notices that he must include a projected income statement in his loan application. Use the following statistics from Robert Morris Associates' Annual Statement Studies to answer the following question(s). Net Sales 100.0 percent Cost of Sales 59.9 percent Gross Profit 40.1 percent Operating Expenses 31.2 percent Net Profit (Before Taxes) 8.9 percent -Gaither Mack is preparing projected financial statements to include in the business plan he is preparing for the launch of a specialty retail store. Using published financial statistics, Mack finds that the typical net profit margin for a store like his is 7.3 percent. If Mack's target income for his first year of operation is $32,000, what level of sales must he achieve to reach it?

The net profit on sales ratio measures the owner's rate of return on the investment in the business.

The break-even point ________.

Mini-Case 11-7: Sharps and Flats Anthony Gray has been interested in music since he was old enough to sit at the piano. He literally grew up with music, and he used his talent to earn his way through college. Anthony has grown tired of his job at a large music house in Houston and is seriously considering moving back to his hometown in Massachusetts to open his own small music shop. In researching this venture, Anthony notices that he must include a projected income statement in his loan application. Use the following statistics from Robert Morris Associates' Annual Statement Studies to answer the following question(s). Net Sales 100.0 percent Cost of Sales 59.9 percent Gross Profit 40.1 percent Operating Expenses 31.2 percent Net Profit (Before Taxes) 8.9 percent -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: