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Entrepreneurship: Successfully Launching New Ventures, 6e (Barringer/Ireland)
Chapter 8 Assessing a New Venture’s Financial Strength and Viability
1) For Essentium Materials, the company profiled in the opening feature in Chapter 8, an
essential financial metric is to work to grow its monthly revenues faster than its monthly
________ rate.
A) accounts payable
B) accounts receivable
C) burn
D) return
E) profitability
2) Financial management deals with two things—managing a company’s finances and ________.
A) operations management
B) inventory control
C) raising money
D) production management
E) supply chain management
3) Financial management deals with raising money and managing a company’s finances in a way
that achieves the highest rate of return.
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4) Which of the following was NOT identified as one of the four main financial objectives of a
firm?
A) Stability
B) Efficiency
C) Timeliness
D) Liquidity
E) Profitability
5) The four main financial objectives of a firm are ________.
A) efficiency, effectiveness, strength, and flexibility
B) power, success, efficiency, and effectiveness
C) control, effectiveness, liquidity, and power
D) success, strength, liquidity, and profitability
E) profitability, liquidity, efficiency, and stability
6) Match the financial objective with its correct definition.
A) Stability — the overall health of the financial structure of the firm, particularly as it relates to
its debt-to-equity ratio
B) Profitability — how productively a firm utilizes its assets
C) Liquidity — a company’s ability to make a profit
D) Efficiency — a company’s ability to meet its short-term obligations
E) Profitability — the overall health of the financial structure of the firm, particularly as it relates
to its debt-to-equity ratio
7) ________ is a company’s ability to meet its short-term financial obligations.
A) Liquidity
B) Profitability
C) Effectiveness
D) Stability
8) A company’s ability to productively utilize its assets relative to its revenue and its profits is
referred to as ________.
A) efficiency
B) effectiveness
C) stability
D) liquidity
E) profitability
9) Money owed to a company by its customers is referred to as ________.
A) accounts obtainable
B) accounts payable
C) accounts receivable
D) inventory
E) accounts collectable
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10) Susan Howard owns a seafood restaurant in Naples, Florida. She is currently owed $21,000
by a corporation that she catered a series of meetings for and $3,000 on an overdue account.
Amanda has $24,000 in ________.
A) accounts receivable
B) inventory
C) accounts collectable
D) accounts obtainable
E) accounts payable
11) A company’s merchandise, raw materials, and products waiting to be sold are called its
________.
A) set aside
B) accumulation
C) reserve
D) inventory
E) stock
12) Peggy Owens owns a store that sells exercise equipment. Each January 1, she makes a very
accurate account of all her merchandise and products waiting to be sold that are in her store. On
January 1, Peggy is taking account of her store’s ________.
A) long-term assets
B) owners’ equity
C) accounts payable
D) accounts receivable
E) inventory
13) Southwest Airlines uses its assets very productively. Its turnaround time, or the time that its
airplanes sit on the ground while they are being loaded and unloaded, is the lowest in the airline
industry. In terms of the primary financial objectives of a firm, this attribute is a measure of
Southwest’s ________.
A) efficiency
B) effectiveness
C) stability
D) liquidity
E) profitability
14) The strength and vigor of a firm’s overall financial posture is referred to as ________.
A) liquidity
B) effectiveness
C) stability
D) profitability
E) efficiency
15) Efficiency is the ability to earn a profit.
16) Stability is a company’s ability to meet its short-term financial obligations.
17) A company’s accounts receivable is money owed to it by its customers.
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18) If a firm’s debt-to-equity ratio gets too high, it may have trouble meeting its obligations and
securing the level of financing needed to fuel its growth.
19) A financial statement is a(n) ________.
A) set of ratios which depict relationships between a firm’s financial items
B) estimate of a firm’s future income and expenses
C) hybrid statement of cash flows
D) itemized forecast of a company’s income, expenses, and capital needs
E) written report that quantitatively describes a firm’s financial health
20) ________ are an estimate of a firm’s future income and expenses, based on its past
performance, its current circumstances, and its future plans.
A) Calculation statements
B) Forecasts
C) Statements of cash flow
D) Financial statements
E) Prediction statements
21) ________ are itemized forecasts of a company’s income, expenses, and capital needs and are
also an important tool for financial planning and control.
A) Profitability statements
B) Financial statements
C) Owners’ equity statements
D) Budgets
E) Statements of cash flows
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22) Match the financial term with its proper definition.
A) Forecasts — depict relationships between items on a firm’s financial statements
B) Forecasts — written reports that quantitatively describe a firm’s financial health
C) Budget — itemized forecasts of a company’s income, expenses, and capital needs
D) Financial ratios — written report that quantitatively describes a firm’s financial health
E) Financial statements — an estimate of a firm’s future income and expenses
23) In regard to budgets, which of the following statements is NOT true?
A) Budgets include an itemized forecast of a company’s expenses.
B) Budgets are a poor tool for financial control.
C) Budgets are an important tool for financial planning.
D) Budgets include an itemized forecast of a company’s capital needs.
E) Budgets include an itemized forecast of a company’s income.
24) The Partnering for Success feature in Chapter 8 focuses on buying groups, and recommends
that small businesses seek out buying groups to participate in. What is a “buying group” in the
context of the feature?
A) A partnership that bands small businesses together to attain volume discounts on common
products and services that they buy
B) A partnership that bands small businesses together to collectively make 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
D) A partnership that bands small businesses together to get the best possible terms from finance
companies
E) A partnership that bands small businesses together to get the best possible rates on property
and liability insurance
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25) ________ depict relationships between items on a firm’s financial statements.
A) Financial proportions
B) Fiscal relations
C) Fiscal projections
D) Monetary balances
E) Financial ratios
26) Budgets are itemized forecasts of a company’s income, expenses, and capital needs and are
also an important tool for financial planning and control.
27) ________ financial statements reflect past performance and are usually prepared on a
quarterly and annual basis.
A) Chronological
B) Ad-hoc
C) Historical
D) Concurrent
E) Pro forma
28) ________ financial statements are projections for future periods based on forecasts and are
typically completed for two to three years into the future.
A) Chronological
B) Pro forma
C) Ad-hoc
D) Concurrent
E) Historical
29) Which of the following statements about pro forma financial statements is incorrect?
A) Pro forma financial statements are projections for future periods based on forecasts.
B) Pro forma financial statements are typically completed for two to three years into the future.
C) Pro forma financial statements are required by the SEC.
D) Most companies consider their pro forma financial statements to be confidential and reveal
them to outsiders only on a “need to know basis.”
E) Pro forma financial statements are strictly planning tools.
30) Historical financial statements reflect past performance and are usually prepared on a
quarterly and annual basis.
31) Pro forma financial statements are projections for future periods based on forecasts and are
typically completed for 2 to 3 years into the future.
32) Describe the difference between historical and pro forma financial statements.
33) Which of the following selections correctly matches the financial statement with its
description?
A) Income statement — tells how much a firm is making or losing.
B) Income statement — depicts the structure of a firm’s assets and liabilities.
C) Balance sheet — shows where a firm’s cash is coming from.
D) Balance sheet — tells how much a firm is making or losing.
E) Statement of cash flows — depicts the structure of a firm’s assets and liabilities.
34) A firm’s ________ reflects the results of its operations over a specified period and shows
whether it is making a profit or is experiencing a loss.
A) statement of cash flows
B) income statement
C) forecast
D) balance sheet
E) operating budget
35) Which financial statement records all of a firm’s revenues and expenses for a given period
and shows whether the firm is making a profit or experiencing a loss?
A) Balance sheet
B) Owner’s equity statement
C) Statement of cash flows
D) Forecast
E) Income statement
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36) On a firm’s income statement, net sales consists of ________.
A) operating expenses minus cost of sales
B) total sales minus allowances for returned goods and discounts
C) cost of sales minus allowances for returned goods and discounts
D) cost of sales minus operating expenses
E) total sales minus operating expenses
37) According to the textbook, the three numbers that receive the most attention when evaluating
an income statement are ________.
A) depreciation, interest income, and income tax expense
B) cost of sales, gross profit, and operating expenses
C) net sales, cost of sales, and operating expenses
D) gross profit, net sales, and income tax expense
E) gross profit, other income, and net income
38) A firm’s profit margin, or return on sales, is computed by dividing ________.
A) net income by net sales
B) gross profit by net sales
C) net income by gross profit
D) net income by cost of sales
E) operating income by gross profit