Deck 8: Business Financial Analysis

Question 1

If a business drops below the lower bounds of its liquidity level, then its bank will likely increase the line of credit to the firm.

Answer 1

False

Question 2

A business has a limited number of items upon which to perform a financial analysis.

Answer 2

False

Question 3

Financial ratios measure the short-term ability of a business to meet its obligations.

Answer 3

False

Question 4

A new small business does not need to worry about monitoring how well its inventory management system is operating.

Question 5

In the context of hypothesis-driven experimentation, a linear analysis that tests a single aspect of a product on the entire customer base of a company is the quickest way of developing the product.

Question 6

Figures derived from a ratio analysis of a firm need to be evaluated against the past performance of the firm to understand its current health.

Question 7

Accounts payable turnover examines how fast a company turns credit sales into cash.

Question 8

A small business owner must constantly monitor the firm's performance because competitors, customers, and suppliers will change.

Question 9

The fixed asset turnover ratio is net sales divided by fixed assets or net sales divided by total assets.

Question 10

Current ratios are computed by dividing current assets by current liabilities.

Question 11

Any firm conducting an evaluation of its operations should focus primarily on the key aspects with which it hopes to build a competitive advantage in the market.

Question 12

The lean start-up approach suggests that entrepreneurs refine the products or services offered by their firms by experimenting with them on customers.

Question 13

No operating business ever matches the proposed business exactly.

Question 14

In the context of activity ratios, a rise in a firm's rate of inventory turnover indicates that the firm is moving closer to a just-in-time system of inventory management.

Question 15

Liquidity, activity, marketing, and profitability are the four basic categories of performance ratios.

Question 16

Using experiments to test various aspects of a business builds up credibility of the business model among funding organizations and suppliers.

Question 17

Activity ratios measure the efficiency with which an entrepreneur is handling the resources of his or her business.

Question 18

Ratio analysis is a tool used by a small business owner to examine the overall health of the organization.

Question 19

Leverage ratios are used to examine the relative level of indebtedness of an entrepreneurial business.

Question 20

The lean start-up approach suggests that it is more productive to experiment with a customer with various products, services, and solutions than to craft a business using various products, services, and solutions than to craft a business plan by speculating what the customer wants.

Question 21

When conducting a deviation analysis, it is advisable to develop a chart using data gathered across long intervals.This ensures that changes in the operations of the business are more apparent in the chart.

Question 22

A sensitivity analysis tracks an organization's health by comparing its current performance to its past performance.

Question 23

Sensitivity analysis allows a business person an opportunity to test out assumptions and view the potential financial impact of assumptions about future income and expenses prior to committing any new resources.

Question 24

Surveys are effective ways to analyze a business because the data they gather is free of bias.

Question 25

The questions on a survey should be designed to promote the business.

Question 26

In the context of the importance of having a measurement focus, the standard parts of a business need to be managed in the simplest way possible and with minimal extra analysis.

Question 27

A small business owner needs to concentrate on analyzing business areas that are unique in order to create differences from competitors.

Question 28

A deviation analysis allows an entrepreneur to quickly evaluate the performance of his or her organization on those items that are considered most important to the success of the firm.

Question 29

Short surveys can be given to any party to a transaction with your business and provide an entrepreneur with the opportunity to evaluate his or her company's performance on dimensions that may lead to financial success.

Question 30

Short surveys allow a business to gather contextual information that is not easy to categorize about its customers, suppliers, and employees.

Question 31

When designing a survey, an organization should focus on answering queries directly related to its mission or strategy.

Question 32

A sensitivity analysis surveys customers of a firm to see if their needs and desires are being met by the products or services the firm provides.

Question 33

Deviation analyses and sensitivity analyses are very similar.

Question 34

A common feature of deviation analyses and sensitivity analyses is that they both focus on the metric of sales figures to analyze the health of a firm.

Question 35

The evaluation of a firm starts with

A)the mission of the firm.
B)a ratio analysis.
C)a deviation analysis.
D)the expectations of customers.

Question 36

In a survey being conducted on a very large set of customers, interviewing every third customer will reflect the opinions of all customers within a small margin of error.

Question 37

Conducting a regression analysis of survey data allows a business owner to see how different variables explain the differences for a given measure, such as profits.

Question 38

A deviation analysis is a chart that tracks various performance measures from one time period to the next.

Question 39

When evaluating the financial foundation of a business, the owner should consider

A)whether the firm is exploiting its key competitive advantages.
B)comparing current activities with the firm's mission statement.
C)comparing current activities with industry standards.
D)all of these.

Question 40

Survey data can be analyzed by using simple statistical techniques, such as percentages.It does not have to be a difficult process.

Question 41

Dennis wants to measure the short-term ability of his company to meet its financial obligations.He would use ________.

A)activity ratios
B)liquidity ratios
C)leverage ratios
D)profitability ratios

Question 42

________ is a metric that examines how fast a company turns credit sales into cash.

A)Inventory control turnover
B)Account receivable turnover
C)Total asset turnover
D)Fixed asset turnover

Question 43

The ________ ratio provides information on the portion of a business owned by the lenders and the portion owned by the founders.

A)debt-to-equity
B)debt-to-assets
C)times-interest-earned
D)equity-to-profit

Question 44

The quick ratio is sometimes referred to as the ________.

A)acid test
B)current ratio
C)profitability test
D)leverage ratio

Question 45

In the context of ratio analysis, the quick ratio measures

A)the current assets of a firm, excluding its current inventory, relative to its current liabilities.
B)the total assets of a firm, including equity investments and accounts receivable.
C)the cash that can be quickly gained by selling a firm's current inventory at hugely discounted rates.
D)the overall profits of a firm measured across a fixed period of time.

Question 46

________ are used to measure the level of indebtedness of a small business.

A)Profitability ratios
B)Activity ratios
C)Leverage ratios
D)Financial ratios

Question 47

The ________ ratio measures the percentage of the assets of a firm that are owned by the creditors.

A)debt-to-equity
B)debt-to-assets
C)times-interest-earned
D)equity-to-profit

Question 48

________ measure the efficiency with which an entrepreneur can handle his or her business's resources.

A)Profitability ratios
B)Leverage ratios
C)Inventory ratios
D)Activity ratios

Question 49

A firm's financial liquidity can be measured by its

A)sensitivity ratio.
B)turnover ratio.
C)total asset ratio.
D)current ratio.

Question 50

The ________ ratio estimates the number of times that a business could repay the current interest owed on its debt.

A)debt-to-equity
B)debt-to-interest
C)times-interest-earned
D)times-debt-earned

Question 51

Any company analysis should proceed from the ________ and move toward the ________.

A)negative; positive
B)lowest; highest
C)general; specific
D)specific; general

Question 52

Which of the following figures is also known as Earnings before Interest and Taxes (EBIT)?

A)Gross profit margin
B)Operating profit margin
C)Net profit margin
D)Return to equity

Question 53

The ________ figure presents a picture of the relative margin after all obligations and expenses are considered.

A)gross profit margin
B)operating profit margin
C)net profit margin
D)return on equity

Question 54

Rosa, an entrepreneur, wants to measure the overall health of her small business by using a form of ratio analysis.Her chosen method requires her to measure how often she must restock her firm's inventory, examine how quickly her firm can turn credit sales into cash, and measure the productivity of her firm's fixed assets.In this scenario, the ratio analysis method chosen by Rosa requires the measurement of her firm's ________.

A)liquidity ratios
B)activity ratios
C)leverage ratios
D)profitability ratios

Question 55

________ examine the performance of a business and its ability to make economic returns over and above its costs.

A)Financial ratios
B)Activity ratios
C)Leverage ratios
D)Profitability ratios

Question 56

The ________ ratio measures the overall profits that are obtained from all sales during a given period.

A)gross profit margin
B)operating profit margin
C)net profit margin
D)return on equity

Question 57

________ is a series of ratios along four areas of company performance (liquidity, activity, leverage, and profitability)that provides a picture of the health of the company.

A)Deviation analysis
B)Ratio analysis
C)Sensitivity analysis
D)Profitability analysis

Question 58

All of the following are techniques used to perform an analysis of a business, its activities, and its performance EXCEPT

A)ratio analysis.
B)deviation analysis.
C)sensitivity analysis.
D)management analysis.

Question 59

To analyze his firm's health, the CEO of Epixore Software tries to determine how quickly the firm's current assets can be turned into cash to cover short-term liabilities.He then subtracts the firm's inventory from the list of current assets to determine if the remaining assets alone could cover short-term liabilities.In the context of ratio analysis, the CEO of Epixore Software is trying to determine his firm's ________ ratio.

A)leverage
B)profitability
C)activity
D)liquidity

Question 60

In the context of ratio analysis, identify the scenario that best illustrates a leverage ratio analysis.

A)The owner of Aurvive Inc.measures the firm's finances to make sure that it can generate sufficient funds to repay loans.
B)Westburn Dairy is analyzed by its creditors to determine if it needs further loans to stabilize its operations.
C)The CEO of Lupone Systems analyzes the frequency with which the inventory of the company has to be restocked.
D)Antilles Consulting's owner examines the performance of the firm and analyses its ability to make economic returns over and above its costs.

Question 61

Any company analysis should proceed from the ________ and move toward the ________.

Question 62

The investors of Intra Dynamix request an evaluation of its profitability.The firm's managers provide them with an evaluation of the profit the firm is generating, focusing on how much each dollar invested in the firm is generating in profit.In the context of profitability ratios, the managers of Intra Dynamix are evaluating the firm's ________.

A)return on assets
B)net profit margin
C)return on equity
D)gross profit margin

Question 63

Sensitivity analysis is one of the methods for examining the ability of an organization to handle changes in the future.Which financial statement is required for this type of analysis?

A)A balance sheet
B)An income statement
C)A current cash flow statement
D)All of these

Question 64

A ________ analysis involves using a current cash flow statement, income statement, or balance sheet to create a pro forma projection of a dramatic increase or decrease in sales or a major complication that might be experienced by a business.

A)deviation
B)sensitivity
C)leverage
D)financial

Question 65

In the context of leverage ratios, the figure that estimates how capable a firm is of servicing the current interest owed on its debts is referred to as ________.

A)accounts payable
B)debt-to-assets
C)debt-to-equity
D)times interest earned

Question 66

In the context of analyzing the health, activities, and performance of a business, which of the following is a nonfinancial method of analysis?

A)Dividend discount model
B)Horizontal analysis
C)Short surveys
D)Ratio analysis

Question 67

Identify a true statement about ratio analysis.

A)Entrepreneurs must evaluate their firms on all ratio analysis figures to gain a proper understanding of their firms' operational health.
B)A ratio analysis only provides insight into a firm's health when compared over time or to the ratios of other firms.
C)While they are valuable tools, ratio analysis is ultimately less useful than nonfinancial data analysis methods.
D)Because of the large amounts of financial data it requires, a ratio analysis cannot be performed by relatively new entrepreneurial firms.

Question 68

Which of the following statements about having a measurement focus is correct?

A)Concentrate the analysis efforts on areas that are ordinary.
B)Concentrate the analysis efforts on areas that are unique.
C)Focus on unorthodox factors.
D)Focus on orthodox factors.

Question 69

________ profit is created by taking the total net sales of a firm and subtracting returned merchandise as well as the direct cost of goods.

Question 70

A ________ is the evaluation of a series of ratios along four categories of company performance (liquidity, activity, leverage, and profitability)that provides a picture of the health of a company.

Question 71

In the context of measuring the performance of a business, identify a true statement about deviation analysis.

A)Deviation analysis analyzes the performance of the company in terms of the expectations of its customers.
B)Effective deviation analysis requires the performance of a business to be contrasted against a competitor's performance across the same time frame.
C)To gain the greatest possible insight on a business, deviation analysis must be performed on its performance at frequent intervals.
D)Profit margins are considered the most important metric in a deviation analysis.

Question 72

The ________ ratio examines the ability of a firm to return an overall profit compared to the amount of assets that has been invested into the effort.

A)return on debt
B)return on profit
C)return on assets
D)return on equity

Question 73

A ________ analysis is a chart that tracks various performance measures from one time period to the next.

A)deviation
B)sensitivity
C)leverage
D)financial

Question 74

________ ratios are used to examine the relative level of indebtedness of the entrepreneurial business.

Question 75

________ profit is the bottom-line calculation from the income statement.

Question 76

Which of the following statements about deviation analysis is NOT correct?

A)A deviation analysis chart should be maintained at least monthly.
B)Any drops in a factor that is being charted should be cause for alarm.
C)Deviation analysis quickly shows the performance on factors deemed important by a business owner.
D)None of these

Question 77

The management at Invive Soap Company wishes to improve its understanding of how customers view the company's products.It selects an analysis method where it asks five questions to a randomly chosen group of customers.The questions test how the customers feel about the variety and quality of products offered by the company.In the context of measuring company performance, the management at Invive Soap Company is using

A)short surveys.
B)hypothesis-driven testing.
C)deviation analysis.
D)ratio analysis.

Question 78

A ________ analysis allows an owner to quickly evaluate the performance of the organization on those items that the individual considers most important to the success of the firm.

Question 79

The quick ratio is also known as the ________ test.

Question 80

Dennis's stockholders want him to constantly improve his firm's ________ ratio because it would improve the future value of their investment in the firm.

A)return on total assets
B)profit margin on sales
C)return on equity
D)fixed asset turnover