Question 1

A business with a payables turnover ratio of 10.4 times a year would have an average payable period of about ________ days.

Accepted Answer

A) 3 
B) 30 
C) 35 
D) 62

Question 2

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

Accepted Answer

A) Net sales to total assets 
B) Net sales to working capital 
C) Net profit on sales 
D) Net profit to equity

Question 3

If Anita's net profit target is $32,000, what level of net sales must she achieve?

Accepted Answer

A) $74,941 
B) $97,264 
C) $326,531 
D) $219,178

Question 4

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:
Cost 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?

Accepted Answer

A) $202,825 
B) $46,550 
C) $69,350 
D) $156,275

Question 5

________ is one indication that a small business may be undercapitalized.

Accepted Answer

A) A current ratio below 1:1 
B) A quick ratio above 2:1 
C) A debt-to-net worth ratio above 1:1 
D) A net sales-to-working capital ratio equal to 3:1

Question 6

Ratio analysis provides an owner with a "snapshot" of the company's financial picture at a single instant; therefore, (s)he should track these ratios over time, looking for trends that otherwise might go undetected.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

The answer of If Harry's profit target is $15,000, what...

Question 8

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

Accepted Answer

The answer of Define what a pro forma financial statement...

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Why is it important for an entrepreneur, about to launch a business, to perform a break-even analysis? Describe the steps in calculating it.

Accepted Answer

The answer of Why is it important for an entrepreneur,...

Question 11

On the income statement, the cost of goods sold represents the total cost, excluding shipping, of the merchandise sold during the year.

Accepted Answer

A) True 
 B)False

Question 12

You are provided this information about a retail store called "BoardSports:" BoardSports Industry Mean
Current Ratio 1.5 : 1 2: 1
Quick Ratio .75 : 1 1 : 1
Debt Ratio 0.87 : 1 0.75 : 1
Average Collection Ratio 46 days 33 days
Net Profit on Sales Ratio 5.5% 8.2%
Net Profit to Equity Ratio 7.7% 13.2%
What can you reasonably assess about the current financial status of this company?

Accepted Answer

A) The company is in excellent financial condition with no changes required. 
B) The company is in respectable financial condition with no changes required. 
C) The company is in questionable financial condition with minor changes required. 
D) The company is in poor financial condition with significant changes required.

Question 13

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 ________.

Accepted Answer

A) 29.2 days 
B) 365 days 
C) 119.3 days 
D) Cannot be determined from the information provided

Question 14

Which of the following combinations of ratios would indicate that a company is financially mismanaged and is not a good credit risk?

Accepted Answer

A) High liquidity; high leverage 
B) Low liquidity; high leverage 
C) High liquidity; low leverage 
D) Low liquidity; low leverage

Question 15

What are the advantages and the disadvantages of using break-even analysis?

Accepted Answer

The answer of What are the advantages and the disadvantages...

Question 16

The ________ shows what assets the business owns and what claims creditors and owners have against those assets, and is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

Accepted Answer

A) income statement 
B) sources and uses of funds statement 
C) balance sheet 
D) cash budget

Question 17

Although sound cash management principles call for a business owner to keep her/his cash as long as possible, slowing accounts payable too drastically can severely damage a company's credit rating.

Accepted Answer

A) True 
 B)False

Question 18

Cost of goods sold is located on which financial statement?

Accepted Answer

A) Income statement 
B) Balance sheet 
C) Statement of cash flows 
D) All of the above

Question 19

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

Accepted Answer

A) 1:1 
B) 2:1 
C) 3:1 
D) 4:1

Question 20

The net profit to asset ratio measures ________.

Accepted Answer

A) the owner's rate of return on investment 
B) how much profit a company generates for each dollar of assets that it owns 
C) a company's profit per dollar of sales 
D) a company's ability to generate sales in relation to its asset base

Exam 12: Creating a Successful Financial Plan

A business with a payables turnover ratio of 10.4 times a year would have an average payable period of about ________ days.

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

If Anita's net profit target is $32,000, what level of net sales must she achieve?

________ is one indication that a small business may be undercapitalized.

Ratio analysis provides an owner with a "snapshot" of the company's financial picture at a single instant; therefore, (s)he should track these ratios over time, looking for trends that otherwise might go undetected.

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

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

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

Why is it important for an entrepreneur, about to launch a business, to perform a break-even analysis? Describe the steps in calculating it.

On the income statement, the cost of goods sold represents the total cost, excluding shipping, of the merchandise sold during the year.

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 ________.

Which of the following combinations of ratios would indicate that a company is financially mismanaged and is not a good credit risk?

What are the advantages and the disadvantages of using break-even analysis?

The ________ shows what assets the business owns and what claims creditors and owners have against those assets, and is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

Although sound cash management principles call for a business owner to keep her/his cash as long as possible, slowing accounts payable too drastically can severely damage a company's credit rating.

Cost of goods sold is located on which financial statement?

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

The net profit to asset ratio measures ________.