4.01 Vocab

Question 1

Includes determining the amount of money needed to start and operate the business until a profit is made. Also the major sales and expenses are determined.

Answer 1

Start Up

Question 2

Includes determining whether they are making enough money to operate. The basic formula used is Revenue – Expenses = Profit or Loss.

Answer 2

Operation

Question 3

Includes determining whether enough money is made to cover growth opportunities.

Answer 3

Expansion

Question 4

Used by a new business or during expansion of a business until profits are made.

Answer 4

Start up Budget

Question 5

Used for ongoing business operations for a specific period.

Answer 5

Operating Budget

Question 6

Used to estimate cash flow in and out of a business.

Answer 6

Cash Budget

Question 7

What a company owns.

Answer 7

Assets

Question 8

What a company owes.

Answer 8

Liabilities

Question 9

The value of the owner’s investment in the business.

Answer 9

Owner’s (or Shareholder’s) Equity

Question 10

Provide a picture of the financial performance of a business.

Answer 10

Financial Statements

Question 11

Includes: assets, liabilities, and owner’s equity.

Answer 11

Balance Sheet

Question 12

Includes: sales, expenses, and net profit or loss

Answer 12

Income Statement

Question 13

Comparisons using a company’s financial data to determine how well a business is performing.

Answer 13

Financial Performance Ratios

Question 14

Represents assets that the business could convert into cash in

Answer 14

Current Ratio

Question 15

Formula for Current Ratio

Answer 15

Current Assets / Current Liabilities

Question 16

Shows how much the business relies on money borrowed externally versus money from within the business. Ideally, this ratio should be less than 2.0.

Answer 16

Debt to Equity Ratio

Question 17

Formula for Debt to Equity Ratio

Answer 17

Total liabilities / Owner’s equity

Question 18

Indicates the rate of return the owners/stockholders are receiving on their investments. There is not an ideal ratio; however, it is used to compare with other types of investments to see if there may be another investment that is more desirable

Answer 18

Return on Equity Ratio

Question 19

Formula for Return on Equity Ratio

Answer 19

Net income/ Owner’s equity

Question 20

Shows the amount of sales needed for each dollar of net income. While there is not an ideal ratio, managers use this number to compare to past periods to determine how changes in sales affect net income.

Answer 20

Net Income

Question 21

Formula for Net Income

Answer 21

Total sales/ Net income