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Entrepreneurship > chapter 7 > Flashcards

chapter 7 Flashcards

1
Q

Payback period

A

Estimated time required to earn sufficient net cash flow to cover start up investment

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2
Q

Variable costs

A

Expenses that very directly with changes in production or sales volume

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3
Q

two types of variable costs

A

Cost of goods/services sold and other variable cost

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4
Q

fixed cost

A

Expenses that must be paid regardless of whether or not sales are being generated
if a business does not have enough sales to cover it’s fixed cost it will lose money

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5
Q

calculating critical costs

A

Total gross profit
economics of one unit
inventory cost

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6
Q

total gross profit (contribution margin)

A

Gross profit per unit the selling price minus total variable cost plus other variable costs

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7
Q

EOU when multiple products sold

A

A business selling a variety of products have to create a separate EOU for each item to determine whether each is profitable

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8
Q

Inventory costs

A

Expenses associated with materials and direct labor for production until the product is sold

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9
Q

average contribution margin

A

A business selling a variety of products can use average COGs to determine an average contribution margin

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10
Q

Seven common fixed operating costs USAIID

A 
utilities 
salaries
advertising
interest
insurance
rent
deprecreciation
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11
Q

Fixed operating cost

A

Expenses that do not vary with changes in the volume of production or sales

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12
Q

depreciation

A

The percentage of value an asset subtracted periodically to reflect the declining value

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13
Q

accounting

A

The systematic recording reporting and analysis of the financial transactions of a business records of and flowing out loud

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14
Q

receipt

A

document with date and amount of purchase

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15
Q

invoice

A

A bill or statement that shows the product or service sold and the amount the customer is to pay

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16
Q

cash flow basics

A

Cash is the energy that keeps your business flowing
the success of the business will depend upon cash from start up through existence
cash is essential for initial investment on going operations and growth

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17
Q

cash flow statement

A

Financial document that tracks the money coming into you and going out of an organization

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18
Q

working capital

A

The value of current assets minus current liabilities

Tells how much cash the company would have if it paid it short term debt with the cash it had on hand

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19
Q

cash flow cycles

A

Cash flow cycles of care for every business in our important to understand because they make a difference between success and failure

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20
Q

cash flow seasonal

A

cash flow can be seasonal for many business amount of cash flowing into a business may depend on where the business is in its fiscal year

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21
Q

Cash flow statement

A

inflows and outflows of cash are divided into three categories operations investment and financing

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22
Q

cash flow equation

A

Cash flow = cash on hand + cash receipts -cash disbursements

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23
Q

Healthy cash one

A

Keeping sufficient cash on hand and available to pay your bills any timely fashion and in general to have financial resources available to you when you need them

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24
Q

burn rate

A

The pace at which a company spends capital before generating positive cash flow

25
Q

Capital budgeting

A

(cash available + revenue) / negative cash outflow per month = #of months before cash runs out

26
Q

Future value

A

the amount an asset will gain overtime

27
Q

Compound interest

A

The interest or rate of return accumulating on the interest or other returns in addition to earnings on the principal

28
Q

present value

A

The worth of a future asset or other investment discounted back to the present example inflation risk opportunity

29
Q

Discount rate

A

The interest rate you need to earn on a given amount of money today to end up with a given amount of money in the future

30
Q

financing

A

The act of providing or raising funds for a purpose

31
Q

Three ways for a business to raise the capital to grab

A

Finance with earnings
finance with equity
finance with debt

32
Q

Risk tolerance

A

The amount of risk or threat of loss that an individual is willing to sustain

33
Q

Debt financing forms

A

Commercial loans
personal loans
leases
bonds

34
Q

Debt financing pros

A

Loan payments are predictable
lenders do not share business profits
lender has no say in operation of business

35
Q

Debt financing cons

A

If loan payments are not made lender can force business into bankruptcy
if business is not incorporated and defaults lender can take house and other possesions of owner
loan payments increase fixed cost lower profit

36
Q

Promissory note

A

A loan document that is written promise to pay a specific sum of money on or before a particular date

37
Q

Principal

A

The amount of a loan before interest and fees are added

38
Q

leveraged

A

Financed by debt as opposite to equity

39
Q

default

A

The result of a borrower failing to meet the repayment agreement on a day

40
Q

The five C’s of credit/borrowing

A 
Collateral 
character 
capacity 
capital 
conditions
41
Q

Three categories of financial investment/risk

A

Stocks-shares of company
bonds-loans
cash-liquidation

42
Q

how stocks work

A

Shares of stock represent a percent ownership in a corporation public corporation sell stock to general public to raise capital prices of starred reflect investors opinion about business performance and value traded on the stock exchanges

43
Q

Share

A

A single unit of a corporate stock

44
Q

How bonds work

A

interest-bearing certificates that corporations and government issues to raise capital lower risk and return expected then with Stocks a form of debt financing with a guaranteed rate of return to investors securities maturity face value par premium discount

45
Q

Five legal business structures

A 
Sole proprietorship 
partnership 
C corporation 
professional corporation (PC)
limited liability company (LLC)
46
Q

contract

A

In agreement between two or more parties enforceable by law

47
Q

For A’s of successful contract

A

Avoid misunderstanding
assure work
assure payment
avoid liability

48
Q

Breach of contract

A

the failure of a signatory to perform as agreed

49
Q

Basis of bankruptcy

A

The legal process in which an individual or business declares the inability or impaired ability to pay debts as they come due

50
Q

trademark

A

Any words of Sandor or design that identifies and distinguishes the source of the goods of one party from those of others

51
Q

Patents

A

And exclusive right granted by the government to produce use and sell an invention or process

52
Q

Basics of selling maintaining growing clothing

A

Sell to others and merge
maintain
grow- generate internally -acquire others -license your brand -franchise business close- cease operations -bankrupt

53
Q

Licensing

A

Renting your brand or other intellectual property to increase sales

54
Q

Replication strategy (franchising)

A

A way to obtain money from a business by letting others copy it for a fee

55
Q

harvesting

A

The act of selling taking public offering or merging a company to yield proceeds for the owners

56
Q

exiting

A

Leaving the business through closure liquidator or bankruptcy

57
Q

Harvesting options

A

Increase free cash flow management buyout (MBO)
employee stock ownership plan (ESOP)
merging or being acquired
initial public offering (IPO)

58
Q

Exiting strategies

A

Aquisition
earn out
debt equity exchange
merger

Entrepreneurship (7 decks)

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