Chapter 8

Pregunta	Respuesta
what does viability rely on	money
profitability	ability to earn profit
liquidity	a company's ability to meet its short term financial obligation
account receivables	money owed to it by its customers
efficiency	how productive a firm utilizes its assets relative to its revenue and its profit
stability	strength and vigor of the firms overall financial posture
debt to equity ratio	calculated by dividing long term debt by its shareholders equity
how can a company improve its efficiency when starting up a company	buying groups or co-ops
financial statement	a written report that quantitatively describes a firm's financial health
what financial statements do entrepreneurs use more commonly?	income statement balance sheet statement of cash flow
forecast	an estimate of the firms future income and statement
budget	itemized forecasts of a company's income, expenses and capital needs and are also important for financial planning and control
assets and liabilities	balance sheet
pro forma financial statement	fine tune the financial plan which is part of the forecasting of the financial statement
Financial Ratios	depicts the relationship between items on a firm's financial statement, are used to discern whether a firm is meeting its financial obligation; ratios are also used to assess trends
Historical financial statements	are projections for future periods; often done quarterly
pro forma financial statement	are projections for future periods based on forecasts and are typically completed for two to three years in the future
income statement	reflects the results of the operations of a firm over a specific period of time
net sales	total sales minus the allowance for returned goods and discounts
cost of sales	all the direct costs including the material cost and direct labor
operating expenses	includes marketing, administrative costs, and other expenses not directly related to producing a product or service.
profit margin	return on sales is computed by dividing net income on net sales high profit margin= boosting sales without increasing expenses or controlling costs low profit margin= losing control of its costs slashing prices to maintain or increase their sales
price to earning ratio	measures the price of a company's stock against its earnings the higher P/E the greater market predicted share that a company attains stock/earning(shares)
balance sheet	a snapshot of the company's assets and liabilities and the owners' equity at a certain point
current assests	includes cash plus accounts receivables, marketable securities, and inventories
Fixed Assets	assets used over a longer time such as real estate, buildings, equipment and furniture
other assets	miscellaneous assets
long term liabilities	long term liabilities include notes or loans that are repayable beyond one year
current liabilities	include obligations that are payable within a year
owner's equity	equity invested in the business by its owner
current ratio	equals the firm's current assets divided by its current liabilities.
operating activities	include net income or loss depreciation and charges in current assets and current liabilities other than cash and short-term debt
investment activities	include purchases, sales, or investment in fixed assets such as real estate, equipment and buildings
financial activities	include cash raised during the period by borrowing money or selling stock
what are major drains on a company's cash flows	Accounts Receivables; and inventory levels
Ratio Analysis	The most practical way to make sense of a firm's financial statement
Sales Forecast	projection of a firms sales over a period of time; 1. records of past sales 2. its current production capacity and product capacity and product demand 3.
regression analysis	technique- used to find relationships between variables for the purpose of predicting future sales were a function of its advertising expenditure,.....etc uses historical data
percent of sale method	expressing each method as a percentage of sales
constant ratio method of forecasting	expenses items expected to grow at the same rate as sales
break even point	total revenue receivables= total costs associated
pro forma financial statement	looks forward rather than track the past
pro forma balance sheet	provides the firm a sense of how its activities will affect its ability to meet its short-term liabilities and how its finances will evolve over time.
Pro Forma Cash FLow	Use to show the projected flow of cash into and out of the company over a period of time
Ratio Analysis(Pro Forma)	the same ratio analysis should also be used to evaluate a company's pro forma financial statements. to compare its current financial performance against its past

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