Basic Business Appraisal

Question 1

What two financial documents would a business appraiser be most concerned with.

Answer 1

Balance Sheet and Income Statement.

Question 2

What is the difference between cash vs accrual accounting?

Answer 2

Cash basis accounting - recognize expenses when paid and income when received.

Accrual Basis Accounting - recognize income when a sale occurs not when cash is received. Expenses are recognized when occurred not when paid.

Question 3

In times of rising prices what inventory method FIFO or LIFO generates a higher reported profit for a company.

Answer 3

FIFO.

Question 4

What is the current ratio?

Answer 4

The current ratio is used to determine a firms ability to meet its obligations. The business appraiser calculates current ratio by dividing current assets by current liabilities. A quick ratio is more conservative measure.

Question 5

What is a quick ratio?

Answer 5

ratio to determine a firms ability to meet its obligations. The current ratio = current assets (less inventory) divided by current liabilities.

Question 6

There are 4 ways to determine a value for a business.

Answer 6

1) sales comparison
2) liquidation value
3) cost-depreciation approach
4) Income capitalization approach.