Deck 6: Analyzing Cash Flow and Other Financial Information

Question 1

It is possible to sell products and have no cash coming into a company.

Answer 1

True

Question 2

When there is a doubling in orders for a new business's products or services in a single month, it leads to an immediate increase in the cash flowing into the business.

Answer 2

False

Question 3

A cash flow statement is the same as a budget.

Answer 3

False

Question 4

A general rule of thumb when examining the initial equity needs of a new venture is to base it on equity investments competitors have made into their businesses.

Question 5

A firm obtains profits when its sales revenue is higher than its expenses.

Question 6

In a small business, profits will demonstrate to the owner if the business is viable over the long term.

Question 7

If a small firm is making a profit, then the firm must have a positive cash flow.

Question 8

Everything in cash flow in a small business is related to one activity: operations.

Question 9

A budget details all the expenses incurred by a company within a specified period.

Question 10

A budget does the exact opposite of a cash flow statement.

Question 11

In a business, the actual cash that flows into the firm minus the cash that goes out of it is known as cash flow.

Question 12

A new small business must pay its vendors by using purchase orders.

Question 13

To prevent a cash crunch, a company must accurately forecast its actual cash flow.

Question 14

Float is the difference between the money going out and the money coming in.

Question 15

One of the fundamental realities of starting a new business is that it takes a period of time for the new venture to ramp up sales and then to obtain cash from those sales.

Question 16

Cash flow in a business is the same as profit.

Question 17

A deviation analysis is a review of the differences between the predicted and the actual performance of cash flows.

Question 18

For a proposed new business, a financial analysis focuses exclusively on its ability to generate positive cash flow in the shortest time possible.

Question 19

In a large firm, when there is a separation between managers and ownership, profits are a useful measure to evaluate a manager's performance.

Question 20

In order to determine a firm's cash flow, the firm's owner must calculate the entire cash flow projection and multiply that by 150 percent to determine if the firm can meet its financial obligations.

Question 21

A cash flow statement measures cash flow on

A)an annual basis.
B)an accrual basis.
C)a cash basis.
D)a normalized basis.

Question 22

Revenues should be separated into as few categories as possible to provide the maximum insight to the owner.

Question 23

On a balance sheet, the assets minus the liabilities of a company reflected in the balance sheet should total zero.

Question 24

Fixed assets are assets that have a physical presence, such as buildings and office equipment.

Question 25

Pro forma is a term that describes estimates of what a firm's balance sheets and income statements will look like in the future.

Question 26

A sensitivity analysis of cash flows should show the best-case and the worst-case scenarios.

Question 27

In the context of financial tools, a sensitivity analysis is a summary of the assets and liabilities of an entrepreneurial business.

Question 28

A cash flow statement should be tailored to the information needs of a new business.

Question 29

A cash flow statement is used to describe all of the activities that generate cash and use cash during the period being examined.

Question 30

When used effectively, a cash flow statement provides a small business owner with a well-respected and accepted means of displaying the ability of the company to meet its financial obligations.

Question 31

In the context of financial tools, the values of fixed assets of new firms tend to be quite vague and ballpark estimates of their values are acceptable when calculating balance sheets.

Question 32

In the context of financial activities, new firms typically have only investing activities and financial activities.

Question 33

In the context of business tools, a sensitivity analysis examines a new firm's vulnerability to its competitors.

Question 34

A pro forma is a summary of assets and liabilities.

Question 35

In the context of cash flow analysis, ________ are a useful measure as a means to evaluate performance when there is a separation between managers and owners.

A)contracts
B)fixed assets
C)profits
D)balance sheets

Question 36

Current liabilities that are owed by a company need to be paid in 18 months.

Question 37

In the context of financial tools, a commonly held view is that cash is king in an entrepreneurial business.

Question 38

All the expenses of a firm need to be included in the cash flow statement.

Question 39

Current liabilities are all those debts and liabilities that a firm must pay to its investors and shareholders over a long period.

Question 40

Long-term liabilities are debts and liabilities owed by a business that are ultimately due more than a year from the current date.

Question 41

A cash flow statement is the exact opposite of a ________.

A)float
B)budget
C)cash plan
D)cash flow

Question 42

Identify a long-term benefit of developing accurate cash flow statements.

A)They assist a company in securing loans and credit lines in the future.
B)They reduce a company's vulnerability to competition within its market niche.
C)They improve the long-term profitability of a company.
D)They provide a significant float that allows a company great financial flexibility.

Question 43

A ________ is a summary of the assets and liabilities of a small business.

A)pro forma
B)balance sheet
C)current asset
D)cash flow

Question 44

An investment in a firm by the owner is called ________.

A)equity
B)intervention
C)severance
D)variability

Question 45

A ________ is an analysis by a small business owner of the best-case and the worst-case financial scenarios.

A)gap analysis
B)deficit analysis
C)sensitivity analysis
D)forecast analysis

Question 46

In the context of cash flow analysis, why is a period of rapid growth considered to be one of the most dangerous times for an entrepreneurial business?

A)Because it can result in the business ordering and paying for additional orders while there is no cash coming into the firm
B)Because it is difficult to accurately forecast the cash flow of the firm in this situation
C)Because a rapid slump in sales almost always comes after a rapid and unexpected growth
D)Because the employees of small firms are rarely equipped to cope with a rise in their workload

Question 47

Sarah is the founder of a small business.At the start of the business year, she makes a list of all the possible expenses that the business might incur over the following year.She totals the expenses and spreads out the expenses evenly across the following 12 months.In this context of cash flow analysis, Sarah is determining the ________ for her business.

A)budget
B)cash flow statement
C)profit margins
D)equity

Question 48

When the owner of a new firm is developing a ________, the individual should contact vendors and suppliers to ask about payment terms.

A)cash flow projection
B)cash flow statement
C)margin profit analysis
D)gap deficiency analysis

Question 49

A ________ describes estimates by a small business owner of what the balance sheets and income statements will look like in the future.

A)pro forma
B)balance sheet
C)current asset
D)cash flow

Question 50

________ is the difference between when the money goes out and when it comes in.

A)Accounts payable
B)Difference gap
C)Equity
D)Float

Question 51

In the context of financial tools, identify a difference between how traditional Fortune 500 firms and entrepreneurial ventures approach break-even analysis.

A)Traditional Fortune 500 firms calculate breakeven using profit, whereas entrepreneurial ventures calculate breakeven using cash flow.
B)Traditional Fortune 500 firms estimate breakeven based on gross profits, whereas entrepreneurial ventures estimate breakeven using net profits.
C)Traditional Fortune 500 firms calculate breakeven from returns on initial investments, whereas entrepreneurial ventures calculate breakeven from the profit margin from each sale.
D)Traditional Fortune 500 firms estimate breakeven as the point where costs equal sales, whereas entrepreneurial ventures estimate breakeven as the point where cash flow becomes positive.

Question 52

A ________ projects all the expenses incurred by a business over a specified period of time.

A)cash flow statement
B)float
C)financial map
D)budget

Question 53

A ________ is the analysis of the differences between the predicted and the actual performance of a business.

A)deviation analysis
B)gap analysis
C)margin analysis
D)profit analysis

Question 54

Mark, a new business owner, creates two cash flow statements for his firm.The first increases the monthly revenue of his firm by 40 percent, while the other reduces the monthly revenue by 40 percent.He compares the effect of each scenario on his firm's business to understand its financial situation.In this scenario, Mark is developing a ________.

A)gap analysis
B)balance sheet
C)sensitivity analysis
D)break-even analysis

Question 55

For a new business owner, what are the benefits of using a deviation analysis?

A)It helps develop realistic forecasts.
B)It identifies the differences between actual performances and predicted performances.
C)It allows the maximum flexibility in making changes to a new business.
D)All of these

Question 56

In the context of cash flow statements and budgets, for a new entrepreneurial firm, what is a benefit of separating cash inflows on a cash flow statement into as many categories as possible?

A)It aids in analyzing the actual revenue sources for the firm.
B)It reduces the firm's taxable income on paper.
C)It identifies weaknesses in the firm's supply chains.
D)It reduces the firm's vulnerability to undesirable market conditions.

Question 57

In the context of developing cash flow statements and budgets, what company activities are typically categorized as operations?

A)Activities related to cash flowing either in or out of a company
B)Activities related to managing a company's equity capital
C)Activities related to forecasting a company's performance
D)Activities related to developing new strategies for a company to implement

Question 58

In the Numi Organic Tea case study, Numi Organic Tea was founded based on the principles of

A)justice.
B)fair trade.
C)equality.
D)none of these.

Question 59

Mariana wants to analyze the potential viability of a new business idea.She does this by researching the sales levels of existing businesses similar to her projected business.She analyzes the information to predict sales levels that can be expected for her business at various stages of its growth.In this scenario, Mariana develops a

A)pro forma income statement.
B)break-even analysis.
C)sensitivity analysis.
D)pro forma balance sheet.

Question 60

In the Friend's Home Health case study, the cash flow statement reflected receipts from

A)actual expenses.
B)projected expenses.
C)estimated expenses.
D)all of these.

Question 61

The focus of an income statement is on

A)profits.
B)assets.
C)liabilities.
D)cash.

Question 62

________ are owed by a business and are ultimately due more than a year from the current date.

A)Current assets
B)Long-term liabilities
C)Current balance liabilities
D)Pro forma liabilities

Question 63

An income statement provides both the ________ and the ________ profit figures for a firm.

A)current; long-term
B)gross; net
C)fixed; varied
D)goods; services

Question 64

Ingrid is the owner of an entrepreneurial firm.She makes an estimate of the assets and liabilities of the firm.She then uses these estimates to plan the future activities of the firm.In this scenario, Ingrid creates a

A)time value of money graph.
B)deviation analysis.
C)cash flow statement.
D)pro forma balance sheet.

Question 65

________ costs change according to how many goods are produced.

A)Expected
B)Current
C)Fixed
D)Variable

Question 66

Marcus performs an analysis of his new business to anticipate its future requirements.He makes a list of the various assets the firm must account for.He categorizes each asset in two lists: one for assets that can be easily converted into cash and the other for assets that have a physical presence.In this scenario, Marcus is analyzing his new business by

A)creating a balance sheet.
B)compiling an income statement.
C)compiling a break-even analysis.
D)creating a cash flow statement.

Question 67

The ________ of money is calculated on the value of an investment in time and money, if the owner did not do the proposed venture.

A)expected inflow
B)accurate rate
C)future value
D)time value

Question 68

In the context of balance sheets, the current assets of a firm minus its current liabilities are referred to as the ________.

A)organizational budget
B)variable costs
C)working capital
D)break-even point

Question 69

________ costs must be paid regardless of how many products or services are sold.

A)Expected
B)Current
C)Fixed
D)Variable

Question 70

________ is the situation where there is a difference between when the money goes out to pay business expenses and when it comes in from sales.

Question 71

________ is a tool for the estimation of when a business's income exceeds its expenses.

A)Gap deficit analysis
B)Long-term analysis
C)Cash flow analysis
D)Break-even analysis

Question 72

A ________ can easily be converted to cash, such as accounts receivable and notes receivable.

A)pro forma
B)balance sheet
C)current asset
D)cash flow

Question 73

A ________ projects all the costs that will be incurred by an organization over a specified period of time.

Question 74

In the context of financial tools, identify a true statement about income statements.

A)Income statements summarize a firm's assets and liabilities.
B)For an entrepreneurial firm, predicting sales is key to developing income statements.
C)Income statements only estimate the net profit figures for a firm during each financial quarter.
D)When creating income statements, entrepreneurs must be liberal when estimating demand for their firms' products.

Question 75

A ________ analysis is an analytic tool that identifies the differences between the predicted and the actual performance of a company over time.

Question 76

Which of the following terms is used to describe assets that can be easily converted to cash?

A)Fixed liabilities
B)Fixed assets
C)Current assets
D)Current profits

Question 77

In the context of financial tools, when a new venture's net cash flow exceeds the initial investment plus the time value of the money invested, the venture is said to have achieved ________.

A)positive equity
B)entrepreneurial breakeven
C)long-term sustainability
D)positive float

Question 78

An investment into a small business by owners is called ________.

Question 79

The assets minus the liabilities of a firm reflected on the balance sheet should total

A)to half of the profits.
B)the number predicted by the pro forma balance sheet.
C)to zero.
D)the sum of current liabilities.

Question 80

A ________ is an examination of the best-case and the worst-case cash flow scenarios.