Entrepreneurship, 3e (Bamford)
Chapter 8 Business & Financial Analysis
1) In the context of hypothesis-driven experimentation, a linear analysis that tests a single aspect of
a product on the entire customer base of a company is the quickest way of developing the product.
2) The lean start-up approach suggests that entrepreneurs refine the products or services offered by
their firms by experimenting with them on customers.
3) The lean start-up approach suggests that it is more productive to experiment with a customer
with various products, services, and solutions than to craft a business using various products,
services, and solutions than to craft a business plan by speculating what the customer wants.
4) Using experiments to test various aspects of a business builds up credibility of the business
model among funding organizations and suppliers.
5) No operating business ever matches the proposed business exactly.
6) Any firm conducting an evaluation of its operations should focus primarily on the key aspects
with which it hopes to build a competitive advantage in the market.
7) A small business owner must constantly monitor the firm’s performance because competitors,
customers, and suppliers will change.
8) A new small business does not need to worry about monitoring how well its inventory
management system is operating.
9) A business has a limited number of items upon which to perform a financial analysis.
10) Ratio analysis is a tool used by a small business owner to examine the overall health of the
organization.
11) Liquidity, activity, marketing, and profitability are the four basic categories of performance
ratios.
12) Financial ratios measure the short-term ability of a business to meet its obligations.
13) If a business drops below the lower bounds of its liquidity level, then its bank will likely
increase the line of credit to the firm.
14) Current ratios are computed by dividing current assets by current liabilities.
15) Figures derived from a ratio analysis of a firm need to be evaluated against the past
performance of the firm to understand its current health.
16) Activity ratios measure the efficiency with which an entrepreneur is handling the resources of
his or her business.
17) In the context of activity ratios, a rise in a firm’s rate of inventory turnover indicates that the
firm is moving closer to a just-in-time system of inventory management.
18) Accounts payable turnover examines how fast a company turns credit sales into cash.
19) The fixed asset turnover ratio is net sales divided by fixed assets or net sales divided by total
assets.
20) Leverage ratios are used to examine the relative level of indebtedness of an entrepreneurial
business.
21) A deviation analysis is a chart that tracks various performance measures from one time period
to the next.
22) When conducting a deviation analysis, it is advisable to develop a chart using data gathered
across long intervals. This ensures that changes in the operations of the business are more apparent
in the chart.
23) A deviation analysis allows an entrepreneur to quickly evaluate the performance of his or her
organization on those items that are considered most important to the success of the firm.
24) A common feature of deviation analyses and sensitivity analyses is that they both focus on the
metric of sales figures to analyze the health of a firm.
25) A sensitivity analysis tracks an organization’s health by comparing its current performance to
its past performance.
26) Sensitivity analysis allows a business person an opportunity to test out assumptions and view
the potential financial impact of assumptions about future income and expenses prior to
committing any new resources.
27) Short surveys allow a business to gather contextual information that is not easy to categorize
about its customers, suppliers, and employees.
28) Short surveys can be given to any party to a transaction with your business and provide an
entrepreneur with the opportunity to evaluate his or her company’s performance on dimensions
that may lead to financial success.
29) Surveys are effective ways to analyze a business because the data they gather is free of bias.
30) In a survey being conducted on a very large set of customers, interviewing every third
customer will reflect the opinions of all customers within a small margin of error.
31) The questions on a survey should be designed to promote the business.
32) When designing a survey, an organization should focus on answering queries directly related
to its mission or strategy.
33) Deviation analyses and sensitivity analyses are very similar.
34) A sensitivity analysis surveys customers of a firm to see if their needs and desires are being
met by the products or services the firm provides.
35) In the context of the importance of having a measurement focus, the standard parts of a
business need to be managed in the simplest way possible and with minimal extra analysis.
36) Survey data can be analyzed by using simple statistical techniques, such as percentages. It does
not have to be a difficult process.
37) Conducting a regression analysis of survey data allows a business owner to see how different
variables explain the differences for a given measure, such as profits.
38) A small business owner needs to concentrate on analyzing business areas that are unique in
order to create differences from competitors.
39) When evaluating the financial foundation of a business, the owner should consider
A) whether the firm is exploiting its key competitive advantages.
B) comparing current activities with the firm’s mission statement.
C) comparing current activities with industry standards.
D) all of these.
40) The evaluation of a firm starts with
A) the mission of the firm.
B) a ratio analysis.
C) a deviation analysis.
D) the expectations of customers.
41) Any company analysis should proceed from the ________ and move toward the ________.
A) negative; positive
B) lowest; highest
C) general; specific
D) specific; general
42) All of the following are techniques used to perform an analysis of a business, its activities, and
its performance EXCEPT
A) ratio analysis.
B) deviation analysis.
C) sensitivity analysis.
D) management analysis.
43) Rosa, an entrepreneur, wants to measure the overall health of her small business by using a
form of ratio analysis. Her chosen method requires her to measure how often she must restock her
firm’s inventory, examine how quickly her firm can turn credit sales into cash, and measure the
productivity of her firm’s fixed assets. In this scenario, the ratio analysis method chosen by Rosa
requires the measurement of her firm’s ________.
A) liquidity ratios
B) activity ratios
C) leverage ratios
D) profitability ratios
44) ________ is a series of ratios along four areas of company performance (liquidity, activity,
leverage, and profitability) that provides a picture of the health of the company.
A) Deviation analysis
B) Ratio analysis
C) Sensitivity analysis
D) Profitability analysis
45) Dennis wants to measure the short-term ability of his company to meet its financial
obligations. He would use ________.
A) activity ratios
B) liquidity ratios
C) leverage ratios
D) profitability ratios
46) In the context of ratio analysis, identify the scenario that best illustrates a leverage ratio
analysis.
A) The owner of Aurvive Inc. measures the firm’s finances to make sure that it can generate
sufficient funds to repay loans.
B) Westburn Dairy is analyzed by its creditors to determine if it needs further loans to stabilize its
operations.
C) The CEO of Lupone Systems analyzes the frequency with which the inventory of the company
has to be restocked.
D) Antilles Consulting’s owner examines the performance of the firm and analyses its ability to
make economic returns over and above its costs.
47) A firm’s financial liquidity can be measured by its
A) sensitivity ratio.
B) turnover ratio.
C) total asset ratio.
D) current ratio.
48) The quick ratio is sometimes referred to as the ________.
A) acid test
B) current ratio
C) profitability test
D) leverage ratio