Exam 11: Creating a Successful Financial Plan

Sarah's Smart Shop has an inventory turnover ratio of 3 times per year and an average inventory of $156,000. If Sarah could manage her inventory better and increase the number of turnovers to the industry average of 6 times per year, what average inventory would she need to generate the same level of sales?

To determine net profit, the owner records sales revenue for the year and subtracts liabilities.

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.

The difference between the total sources of funds and the total uses of funds represents the increase or decrease in a firm's working capital.

A high debt ratio ________.

Which of the following items would not be listed as a current asset in a company's financial reports?

An excessively high average payable period ratio indicates the possibility of the presence of a significant amount of past-due accounts payable.

Bettina has just calculated her company's current ratio. To calculate the quick ratio, she should ________.

List the 12 key ratios outlined in the text and explain the type of information they provide the small business owner.

An inventory turnover ratio above the industry average suggests that a business is overstocked with obsolete, stale, overpriced, or unpopular merchandise.

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 -Suppose that a market survey indicates that Anthony's proposed business is likely to generate only $190,000 in sales. What net profit should Anthony expect to earn?

On a company's statement of cash flows, depreciation is ________.

The balance sheet provides owners with an estimate of the firm's worth for a specific moment in time, while the income statement presents a "moving picture" of its profitability over a period of time.

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 profit margin on sales is ________ percent.

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

The average inventory turnover ratio ________.

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

Which of the following is an assumption of break-even analysis?

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

Which of the following associations is correct?