Exam 11: Creating a Successful Financial Plan

Financial analysts suggest that a small business should maintain a current ratio of at least ________.

If Gunther's net profit target for the year is $190,000, what sales level must he achieve?

The ________ ratio measures the owner's rate of return on the investment in the 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.

The area labeled ________ is the "profit area."

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

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

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

Most firms calculate their quick assets by subtracting the value of their inventory from their current asset total.

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

For the most meaningful interpretation, the small business owner should compare her/his firm's average collection period to ________.

If Harry's profit target is $15,000, what level of sales must be achieved?

A quick ratio of more than 1:1 suggests that a small company is overly dependent on inventory and future sales to satisfy its short-term debt.

Mini-Case 11-1: Bowden Brake Service (Part A) Jim Bowden, owner of Bowden Brake Service, is planning to expand his six-year-old brake service to include tune-ups and tire services. Based on budget estimates for the upcoming year, Jim expects net sales to be $825,000 with a cost of goods sold of $530,000 and total operating expenses of $210,000. From the budget he created, Jim computes fixed expenses to be $168,000, while variable expenses (including cost of goods sold) are $572,000. Jim is concerned that the new cost structure may damage his ability to produce a profit and he wants to perform a break-even analysis for the upcoming year to gain insight. -If Jim were to reduce his fixed costs by 10 percent by reducing a middle management position, what benefit would that be to him and the company? What would his new contribution margin be?

Refer to the following information to answer the question(s) regarding Anita Lupino's toy and game shop: Anita Lupino is planning to open her own toy and game shop. She has conducted a great deal of research at the local library, contacted the industry trade association, and has set up a meeting with a consultant at the SBDC next week. Before she goes to the SBDC, she wants to sketch out an estimated income statement. She reviews the following data from RMA's Annual Statement Studies: Costs of Goods Sold 57.3 percent of net sales Operating Expenses 32.9 percent of net sales Gross Profit 42.7 percent of net sales -If Anita's research suggests that she can expect net sales of $475,000, what net profit could she expect?

The small business with a high debt-to-net worth ratio has more borrowing capacity than a firm with a low ratio.

Comparing a company's current income statement to those of prior accounting periods rarely reveals valuable information about key trends.

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

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 net profit margin for Meters, Inc.?

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.