Entrepreneurship: Successfully Launching New Ventures, Ventures, 5e (Barringer/Ireland) Chapter 8 Assessing a New Venture's Financial Strength and Viability
1) GymFlow, GymFlow, the company profiled in the opening feature in Chapter 8, created a mobile app that shows how busy a gym is at any given point in time. According to the case, in regard to financial management, the cofounders of GymFlow found that was one of their most difficult challenges. A) managing accounts payable !) managing accounts receivable C) pro"ecting future income #) pro"ecting future e$penses %) completing financial statements Answer& C #iff& 1 'age (ef& *+ -& 8.1& earn about the importance of understanding the financial management of an entrepreneurial firm. AAC!& (eflective /hin0ing ) Financial management deals with two thingsmanaging a company2s finances and . A) operations management !) inventory control C) raising money #) production management %) supply chain management Answer& C #iff& 1 'age (ef& 31 -& 8.1& earn about the importance of understanding the financial management of an entrepreneurial firm. AAC!& (eflective /hin0ing 4) Financial management deals with raising money and managing a company2s finances in a way that achieves the highest rate of return. Answer& /(5% #iff& 1 'age (ef& 31 -& 8.1& earn about the importance of understanding the financial management of an entrepreneurial firm. AAC!& (eflective /hin0ing
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9) :hich of the following was not identified as one of the four main financial ob"ectives of a firm; A) tability !) %fficiency C) /imeliness #) i the overall health of the financial structure of the firm, particularly as it relates to its debttoe how productively a firm utili?es its assets C) li a company2s ability to ma0e a profit #) efficiency > a company2s ability to meet its shortterm obligations %) profitability > the overall health of the financial structure of the firm, particularly as it relates to its debttoe
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8) A company2s ability to productively p roductively utili?e its assets relative to its revenue and its profits is referred to as . A) efficiency !) effectiveness C) stability #) li
1) 'eggy -wens owns a store that sells e$ercise e
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13) tability is a company2s ability to meet its shortterm financial obligations. Answer& FA% #iff& 'age (ef& 3 -& 8.& dentify the four main financial ob"ectives of entrepreneurial entrepreneurial ventures. AAC!& (eflective /hin0ing 1@) A company2s accounts receivable is money owed to it by its customers. Answer& /(5% #iff& 1 'age (ef& 3 -& 8.& dentify the four main financial ob"ectives of entrepreneurial entrepreneurial ventures. AAC!& (eflective /hin0ing 18) f a firm2s debttoe
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1) are itemi?ed forecasts of a company2s income, e$penses, and capital needs and are also an important tool for financial planning and control. A) 'rofitability statements !) Financial statements C) -wners2 e depict relationships between items on a firm2s financial statements !) Forecasts > written reports that itemi?ed forecasts of a company2s income, e$penses, and capital needs #) Financial ratios > written report that an estimate of a firm2s future income and e$penses Answer& C #iff& 'age (ef& 34 -& 8.4& #escribe the process of financial management as used in in entrepreneurial firms. AAC!& (eflective /hin0ing 4) n regard to budgets, which of the following statements is not true; A) !udgets include an itemi?ed forecast of a company2s e$penses. !) !udgets are a poor tool for financial control. C) !udgets are an important tool for financial planning. #) !udgets include an itemi?ed forecast of a company2s capital needs. %) !udgets include an itemi?ed forecast of a company2s income. Answer& ! #iff& 4 'age (ef& 34 -& 8.4& #escribe the process of financial management as used in in entrepreneurial firms. AAC!& (eflective /hin0ing
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9) /he 'artnering for uccess feature in Chapter 8 focuses on buying groups, and recommends that small businesses see0 out buying groups to participate in. :hat is a buying group in the conte$t of the feature; A) A partnership that bands small businesses together to attain volume discounts on common products and services that they buy !) A partnership that bands small businesses together to collectively ma0e the commitment to buy local at every available opportunity C) A partnership that bands small businesses together to get the best prices possible from foreign importers and manufacturers #) A partnership that bands small businesses together to get the best possible terms from finance companies %) A partnership that bands small businesses b usinesses together to get the best possible rates on property and liability insurance Answer& A #iff& 'age (ef& 34 -& 8.4& #escribe the process of financial management as used in in entrepreneurial firms. AAC!& (eflective /hin0ing *) depict relationships between items on a firm2s financial statements. A) Financial proportions !) Fiscal relations C) Fiscal pro"ections #) =onetary balances %) Financial ratios Answer& % #iff& 'age (ef& 39 -& 8.4& #escribe the process of financial management as used in in entrepreneurial firms. AAC!& (eflective /hin0ing 3) !udgets are itemi?ed forecasts of a company2s income, e$penses, and capital needs and are also an important tool for financial planning and control. Answer& /(5% #iff& 'age (ef& 34 -& 8.4& #escribe the process of financial management as used in in entrepreneurial firms. AAC!& (eflective /hin0ing @) financial statements reflect past performance and are usually prepared on a
8) financial statements are pro"ections for future periods based on forecasts and are typically completed for two to three years into the future. A) Chronological !) Pro forma C) Ad-hoc #) Concurrent %) istorical Answer& ! #iff& 'age (ef& 3* -& 8.9& %$plain the difference difference between historical and pro forma forma financial statements. AAC!& (eflective /hin0ing +) :hich of the following statements about pro forma financial statements is incorrect; A) Pro forma financial statements are pro"ections for future periods based on forecasts. !) Pro forma financial statements are typically completed for two to three years into the future. C) Pro forma financial statements are re
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4) #escribe the difference between historical and pro forma financial statements. Answer& istorical financial statements statements reflect past performance and are usually prepared on a tells how much a firm is ma0ing or losing !) ncome statement > depicts the structure of a firm2s assets and liabilities C) !alance sheet > shows where a firm2s cash is coming from #) !alance sheet > tells how much a firm is ma0ing or losing %) tatement of cash flows > depicts the structure of a firm2s assets and liabilities Answer& A #iff& 4 'age (ef& 33 -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing 49) A firm2s reflects the results of its operations over a specified period and an d shows whether it is ma0ing a profit or is e$periencing a loss. A) statement of cash flows !) income statement C) forecast #) balance sheet %) operating budget Answer& ! #iff& 'age (ef& 33 -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing 4*) :hich financial statement records all of a firm2s revenues and e$penses for a given period and shows whether the firm is ma0ing a profit or e$periencing a loss; A) !alance sheet !) -wner2s e
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43) -n a firm2s income statement, net sales consists of . A) operating e$penses minus cost of sales !) total sales minus allowances for returned goods and discounts C) cost of sales minus allowances for returned goods and discounts #) cost of sales minus operating e$penses %) total sales minus operating e$penses Answer& ! #iff& 'age (ef& 33 -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing 4@) According to the te$tboo0, the three numbers that receive the most attention when evaluating an income statement are . A) depreciation, interest income, and income ta$ e$pense !) cost of sales, gross profit, and operating e$penses C) net sales, cost of sales, and operating e$penses #) gross profit, net sales, and incomes ta$ e$pense %) gross profit, other income, and net income Answer& C #iff& 4 'age (ef& 3@ -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing 48) A firm2s profit margin, or return on sales, is computed by dividing . A) net income by net sales !) gross profit by net sales C) net income by gross profit #) net income by cost of sales %) operating income by gross profit Answer& A #iff& 4 'age (ef& 3@ -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& Analytical /hin0ing 4+) AEn) is a snapshot of a company2s assets, liabilities, and owners2 e
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97) :hich of the following statement is incorrect regarding how balance sheets are prepared; A) /he lefthand side of a balance sheet shows a firm2s assets. !) /he assets on a balance sheet are shown in order of li
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94) Cash plus items that are readily convertible to cash, such as accounts receivable, mar0etable securities, and inventories are classified as assets on a firm2s balance sheet. A) other !) intermediate term C) temporary #) current %) fi$ed Answer& # #iff& 'age (ef& 38 -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& Analytical /hin0ing 99) :hich of the following is an e$ample of a longterm liability; A) Accounts payable !) (eal estate mortgage C) Accrued e$penses #) Current portion of real estate mortgage %) -wners2 e
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93) A firm2s wor0ing capital is its . . A) inventory and accounts receivable minus its current liabilities !) current assets minus its current liabilities C) total assets minus its total liabilities #) cash and cash e
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*7) n the conte$t of a firm2s statement of cash flows, activities include the purchase, sale, or investment in fi$ed assets Ee.g., real estate, e
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*9) /he balance sheet reflects the results of the operations of a firm over a specified period of time. Answer& FA% #iff& 'age (ef& 3@ -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing **) A firm2s profit margin, or return on sales, is computed by dividing net income by net sales. Answer& /(5% #iff& 4 'age (ef& 3@ -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing *3) /he ma"or categories of assets listed on a balance sheet include current, fi$ed, and other assets. Answer& /(5% #iff& 4 'age (ef& 3@ -& 8.*& #escribe the different different historical financial financial statements and their purposes. purposes. AAC!& (eflective /hin0ing *@) A statement of cash flows is a snapshot of a company2s assets, liabilities, and owners2 e
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31) #escribe the purpose of the income statement, the balance sheet, and the statement of cash flows. Answer& /he income statement reflects the results of the operations operations of a firm over a specified period of time. t records all the revenues and e$penses for the given period and shows whether the firm is ma0ing a profit or is e$periencing a loss. 5nli0e the income statement, which covers a specified period of time, a balance sheet is a snapshot of a company2s assets, liabilities, and owners2 e
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39) n the conte$t of computing the cost of sales, the common way to do this is to use the percentofsales method, which is a method for e$pressing each e$pense item as a percentage of . A) net sales !) gross profit C) net income #) operating income %) cost of sales Answer& A #iff& 'age (ef& @* -& 8.3& #iscuss the role role of forecasts in pro"ecting a firm2s future future income and e$penses. AAC!& (eflective /hin0ing 3*) f a firm determines it can use the percentageofsales method and it follows the procedure described in the te$tboo0, then the net result is that each e$pense item on o n its income statement Ewith the e$ception of those items that can be individually forecast) will grow at the same rate as sales. /his approach is called the . A) continuous percentage method of forecasting !) stable fraction method of forecasting C) regular proportion method of forecasting #) constant ratio method of forecasting %) steady percentage method of forecasting Answer& # #iff& 4 'age (ef& @* -& 8.3& #iscuss the role role of forecasts in pro"ecting a firm2s future future income and e$penses. AAC!& (eflective /hin0ing 33) /he brea0even point for a new n ew restaurant or product is the point where the total revenue received e
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38) A firm2s pro forma financial statements are similar to its historical financial statements e$cept that they . A) do not include the income statement !) are re
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@1) According to the te$tboo0, the most important function of the pro forma statement of cash flows is to pro"ect whether the firm will have sufficient . A) income to meet its payroll on a wee0ly or monthly basis !) income to e$ceed industry norms C) cash to meet its needs #) inventory to meet its sales and production forecasts %) shortterm assets to cover its shortterm liabilities Answer& C #iff& 'age (ef& 87 -& 8.@& %$plain the purpose of pro pro forma financial statements. statements. AAC!& (eflective /hin0ing @) /he pro forma balance sheet provides a firm a sense of how its activities will affect its ability to meet its shortterm liabilities and how its finances will evolve over time. Answer& /(5% #iff& 'age (ef& @@ -& 8.@& %$plain the purpose of pro pro forma financial statements. statements. AAC!& (eflective /hin0ing @4) /he pro forma income statement shows the pro"ected flow of cash into and out of the company during a specified period. Answer& FA% #iff& 'age (ef& @8 -& 8.@& %$plain the purpose of pro pro forma financial statements. statements. AAC!& (eflective /hin0ing @9) /he same financial ratios used to evaluate a firm2s historical financial statement should be used to evaluate the pro forma financial statements. Answer& /(5% #iff& 'age (ef& 84 -& 8.@& %$plain the purpose of pro pro forma financial statements. statements. AAC!& (eflective /hin0ing @*) #escribe each of the four primary financial ob"ectives of firms. Answer& /he four primary financial ob"ectives of most firms are& profitability, profitability, li
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