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Indicate whether the statement is true or false.
1. Short-term financial planning typically involves preparing monthly financial statements and focuses on identifying and
planning for net income demands on the business.
a. True
b. False
2. Seed financing usually occurs during a venture’s development life cycle stage.
a. True
b. False
3. The actions of monitoring financial performance, projecting cash needs, and obtaining first-round financing occurs
during a venture’s survival stage.
a. True
b. False
4. Early-stage ventures are defined as firms that are only operating in either their development or startup stages.
a. True
b. False
5. The cash conversion cycle measures the time it takes to pay off the principal on a loan.
a. True
b. False
6. Short-term financial planning is critical during the survival stage because operations not yet turning a profit and the
associated cash burn often lead to a venture’s inability to pay its maturing liabilities.
a. True
b. False
7. The cash conversion cycle is the amount of time taken to buy materials and produce a finished good plus the time
needed to collect sales made on credit minus the time taken to pay suppliers for purchases on credit.
a. True
b. False
8. A venture’s cash conversion cycle will decrease if the purchase-to-payment conversion period increases.
a. True
b. False
9. A common way to express a venture’s anticipated cash needs is to project the balance sheet and income statement into
the future and produce the statement of cash flows.
a. True
b. False
10. Most initial business plans contain monthly projected (pro forma) financial statements for at least one year, and
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a. True
b. False
11. Due to the difficulty of projecting financial statements for a young firm, short-term financial forecasts are never
required of early-stage ventures.
a. True
b. False
12. Conversion period ratios show the average time in days it takes to convert certain current assets and current liabilities
into cash.
a. True
b. False
13. The sum of the inventory-to-sale conversion period and the purchase-to–payment conversion period minus the sale-to–
cash conversion period is called the cash conversion cycle.
a. True
b. False
14. Short-term financial planning forecasts address whether a venture is expected to generate the required cash to meet its
coming obligations.
a. True
b. False
15. Short-term cash planning tools include preparation of a sales schedule, purchases schedule, wages and commissions
schedule, and cash budget.
a. True
b. False
16. The cash conversion cycle refers to the time it takes to convert a sale into net income.
a. True
b. False
17. A venture’s operating cycle is the same as its cash conversion cycle.
a. True
b. False
18. A venture’s operating cycle measures the time it takes to purchase required materials, assemble, and sell the product
plus the time needed to collect receivables if the sales are on credit.
a. True
b. False
19. A cash budget shows a venture’s projected revenues and expenses over a forecast period.
a. True
b. False
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20. A venture’s operating schedules typically include a sales schedule, purchases schedule, and wages and commissions
schedule.
a. True
b. False
21. Even in a young, successful venture, restricted access to bank credit and little to no access to short-term lending
markets can hinder operations until the next round of financing.
a. True
b. False
22. First-round financing usually occurs during a venture’s rapid-growth life cycle stage.
a. True
b. False
23. Most early-stage ventures can easily locate debt-financing arrangements.
a. True
b. False
24. Cash shortages during the rapid-growth stage frequently derive from the lack of operating profits to fund working
capital and fixed asset investments needed to support sales growth.
a. True
b. False
25. Preparing monthly cash budgets for a full year allows the entrepreneur to determine whether there will be a cash need,
the maximum size of the cash need, and whether the need can be repaid during the year.
a. True
b. False
26. The actions of screening business ideas, preparing a business plan, and obtaining seed financing occurs during a
venture’s development stage.
a. True
b. False
27. The sale-to–cash conversion period is calculated by dividing average revenues by net sales per day.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
28. Calculate the sale-to-cash conversion period based on the following information: average inventories = $120,000;
average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.
a. 180 days
b. 90 days
c. 60 days
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d. 45 days
29. Calculate the inventory-to-sale conversion period based on the following information: average inventories = $120,000;
average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.
a. 240 days
b. 180 days
c. 90 days
d. 60 days
30. First-round financing is generally associated with which of the following life cycle stages?
a. development stage
b. startup stage
c. survival stage
d. rapid-growth stage
31. The process of examining exit opportunities is generally associated with which one of the following life cycle stages?
a. early-maturity stage
b. startup stage
c. survival stage
d. rapid-growth stage
32. A firm would not be considered to be an early-stage venture when it reaches which of the following life cycle stages?
a. rapid-growth stage
b. startup stage
c. survival stage
d. early-maturity stage
33. Which of the following measures the average time from purchase of materials and labor to actual cash payment?
a. sale-to–cash conversion period
b. inventory-to–sale conversion period
c. purchase-to-payment conversion period
d. cash conversion cycle
34. Based on the following information, determine the average receivables (rounded to thousands of dollars) that were
outstanding: net sales = $575,000; sale-to-cash conversion period = 57.1 days; purchase-to-payment conversion period =
76.8 days; and cost of goods sold = $380,000.
a. $90,000
b. $180,000
c. $121,000
d. $45,000
35. Which of the following conversion periods is not a component in the cash conversion cycle?
a. inventory-to–sale conversion period
b. sale-to–cash conversion period
c. purchase-to-payment conversion period
d. fixed assets-to–usage conversion period
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36. Which of the following is not considered to be an operating schedule?
a. sales schedule
b. balance sheet schedule
c. purchases schedule
d. wages and commissions schedule
37. Based on the following information, determine the venture’s cash conversion cycle: inventory-to–sale conversion
period = 112.9 days; sale-to–cash conversion period = 57.1 days; and purchase-to-payment conversion period = 76.8 days.
a. 170.0 days
b. 189.7 days
c. 93.2 days
d. 133.9 days
38. Based on the following information, determine the venture’s inventory-to-sale conversion period: cash conversion
cycle = 250 days; sale-to-cash conversion period = 60 days; and purchase-to–payment conversion period = 70 days.
a. 70 days
b. 140 days
c. 240 days
d. 260 days
39. Which of the following measures the average time it takes a firm to complete its operating cycle after deducting the
days supported by trade credit and delayed payroll financing?
a. sale-to–cash conversion period
b. inventory-to–sale conversion period
c. purchase-to-payment conversion period
d. cash conversion cycle
40. A major difference exists between a venture’s operating cycle and its cash conversion cycle because the conversion
cycle includes the time to:
a. buy materials
b. produce a finished good
c. collect sales made on credit
d. pay suppliers for purchases on credit
41. Which of the following conversion periods operates to reduce the length of the cash conversion cycle?
a. inventory-to–sale conversion period
b. sale-to–cash conversion period
c. purchase-to-payment conversion period
d. fixed assets-to–usage conversion period
42. Which of the following measures the average days of sales committed to the extension of trade credit?
a. sale-to–cash conversion period
b. inventory-to–sale conversion period
c. purchase-to-payment conversion period
d. cash conversion cycle period
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43. Which of the following is measured by dividing the average daily cost of goods sold into the average inventories?
a. sale-to–cash conversion period
b. inventory-to–sale conversion period
c. purchase-to-payment conversion period
d. cash conversion cycle
44. A venture’s operating cycle measures the time it takes to:
a. purchase raw materials and assemble a product
b. assemble a product and book the sale
c. assemble a product, book the sale, and collect on the sale
d. purchase raw materials, assemble a product, book the sale, and collect on the sale
45. Which of the following is not part of the operating cycle?
a. time it takes to produce products
b. time it takes to sell products
c. time it takes to pay suppliers
d. time it takes to collect receivables
46. Seed financing is generally associated with which of the following life cycle stages?
a. development stage
b. startup stage
c. survival stage
d. rapid-growth stage
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Answer Key
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chapter 6