Exam 11: Creating a Successful Financial Plan

To reach profit objectives, entrepreneurs must be aware of their firms' ________.

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

A high inventory turnover ratio relative to the industry average could mean that a business has too little inventory and is experiencing stockouts.

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 net profit-to-equity ratio is ________ percent.

Define what a pro forma financial statement is. What are the two types a small business owner uses, and how are they created?

Assets represent what a business owns, while liabilities represent the claims creditors have against a company's assets.

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

Which ratio would be most helpful to a business owner to measure the profit per dollar of sales?

Cost of goods sold is located on which financial statement?

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 -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 average inventory turnover ratio measures the number of times a company's inventory is sold out during the accounting period.

The net-sales-to-total assets ratio measures a company's ability to generate sales in relation to its asset base.

A business should provide the owner with a reasonable rate of return based upon ________.

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 -Michelle Becker's target income in her business for the upcoming year is $78,500. The company's gross profit margin averages 32.6 percent of sales, and its total operating expenses run 24.7 percent of sales. To achieve her target income, sales of Michelle's company should be ________.

The higher the ________ ratio, the lower the degree of protection afforded creditors, and the closer creditors' interest approaches the owner's interest.

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 ________.

Concerning how much cash to have at startup, one rule of thumb is to have enough to cover operating expenses (less depreciation) for two inventory turnover periods.

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.

According to one study, 23 percent of small business owners lack financial literacy to identify the cost that has the greatest impact on their companies.

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