Entrepreneurship and Small Business Management, 2e (Mariotti)
Chapter 13 Using Financial Statements to Guide a Business
1) What must balance with assets on the balance sheet?
A) Liabilities and owner’s equity
B) Net worth and owner’s equity
C) Capital and owner’s equity
D) Net profit
E) Available cash
Learning Obj.: LO 3
AACSB: Analytical thinking
2) In a business formula such as Return on Investment, “on” means ________.
A) “Divided by”
B) “Deducted from”
C) “On top of”
D) “Instead of”
E) None of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
3) To see how costs are affecting net profit, try analyzing the income statement by expressing
each item on the income statement ________.
A) As a percentage of sales
B) As a percentage of profit
C) As a percentage of costs
D) As a percentage of operations
E) As a percentage of assets
Learning Obj.: LO 6
AACSB: Analytical thinking
4) An older term used for the income statement is the ________.
A) Profit and loss statement
B) Cash flow analysis
C) Balance sheet
D) Liabilities report
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
1
5) Examining ________ monthly can help determine what is doing well, or poorly, in a business.
A) Operating ratios
B) Income statement ratios
C) Financial ratios
D) All of the above
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
6) Jared analyzed the income statement for his independent label and found that for every dollar
of sales, 30 cents was spent on cost of goods sold. The gross profit per dollar was 70 cents. If 20
cents was spent on operating costs and 10 cents on taxes, what is the net profit per dollar?
A) 40 cents
B) 60 cents
C) 30 cents
D) 70 cents
E) 50 cents
Learning Obj.: LO 1
AACSB: Application of knowledge
7) What analytic tool allows you to compare income statements from different periods, even if
the dollar figures are very different?
A) Financial analysis
B) Asset analyses
C) Income analyses
D) Same-size analysis
E) None of the above
Learning Obj.: LO 6
AACSB: Analytical thinking
8) You can create ________ from your income statement that will help you analyze your
business further.
A) Financial ratios
B) Asset categories
C) Liabilities categories
D) All of the above
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
2
9) The last line of an income statement shows a business’s ________.
A) Net profit or net loss
B) Gross profit or gross loss
C) Profit or loss
D) Taxes
E) Fixed costs
Learning Obj.: LO 1
AACSB: Analytical thinking
10) Entrepreneurs use a(n) ________ to track assets and liabilities.
A) Balance sheet
B) Cash flow statement
C) Income statement
D) Balance report
E) Liabilities list
Learning Obj.: LO 2
AACSB: Analytical thinking
11) When an entrepreneur makes a scheduled payment on a conventional loan ________.
A) Part of it goes to principal and part goes to interest
B) All of it goes to principal (balance sheet)
C) All of it goes to interest (income statement)
D) Part of it pays penalties
E) None of the above
Learning Obj.: LO 3
AACSB: Analytical thinking
12) An income statement shows whether the difference between revenues (sales) and expenses
(costs) is a profit or a ________.
A) Loss
B) Net profit
C) Breakeven
D) Mess
E) Yield
Learning Obj.: LO 1
AACSB: Analytical thinking
3
13) Liabilities that will be paid over a period of more than one year are ________.
A) Long-term liabilities
B) Long-term assets
C) Equity
D) Current liabilities
E) None of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
14) Calculate the return on sales for a business that has net income of $25,000 and sales of
$60,000.
A) 42%
B) 0.42
C) 4.2
D) 0.042
E) None of the above
Learning Obj.: LO 5
AACSB: Application of knowledge
15) EBIT is an acronym for ________.
A) Earnings before interest and taxes
B) Earnings before income taxes
C) Earnings before information technology costs
D) All of the above
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
16) Cash itself or items that could quickly be turned into cash or will be used within 1 year are
called ________.
A) Current assets
B) Long-term assets
C) Liquid assets
D) Current liabilities
E) Stuff
Learning Obj.: LO 2
AACSB: Analytical thinking
4
17) Ideally, you want to have a positive “double” bottom line. This means ________.
A) You are achieving a profit and meeting your mission
B) You have twice the number of customers that you expected
C) You have twice the profit that you expected
D) All of the above
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
18) Successful entrepreneurs use their financial records to prepare ________ income statements
that show sales and costs for the previous period.
A) Quarterly
B) Yearly
C) Monthly
D) Biannually
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
19) A business’s operating ratios are computed by ________.
A) Expense/sales
B) Cost of goods sold/sales
C) Income/sales
D) Expense/cost of goods sold
E) None of the above
Learning Obj.: LO 6
AACSB: Analytical thinking
20) The return on sales ratio is ________.
A) Net income/sales
B) Also called the operating ratio
C) Revenue/expenses
D) Debt/income
E) Inventory/receipts payable
Learning Obj.: LO 5
AACSB: Analytical thinking
5
21) Growth of ________ is a good way to measure company success.
A) Owner’s equity
B) Long-term debt
C) Cash
D) Liabilities
E) None of the above
Learning Obj.: LO 3
AACSB: Reflective thinking
22) ROI is always calculated for ________.
A) A specific time period, such as a month or a year
B) The length of a business’s fiscal year
C) A month
D) Ever
E) None of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
23) Which of the following is not something that can be invested?
A) Expertise
B) Money
C) Energy
D) Time
E) All of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
24) In the income statement, gross profit minus fixed operating costs equals ________.
A) Pretax profit
B) Net profit
C) Gross profit
D) COGS
E) Margin
Learning Obj.: LO 1
AACSB: Analytical thinking
6