ENTR Midterm Flashcards
Avg Propensity to consume
Percentage of each dollar of income, on average, that a person spends for current needs rather than saving
Standard of living
Neccessities, comforts, and luxuries enjoyed or desired by an individual of family
Tangible asset
Physical assets such as real estate and automobiles that can be held for either consumption or investment purposes
Prosperity to consume formula
Consumption/ Income
T/F: A personal balance sheet shows financial condition at a certain date
True
• Actual income statement vs budget
What time periods do they look at?
Income statement: over time
Budget: forward looking
Net Worth formula
Total Assets- Total liabilities
investment asset
Assets such as stocks, bonds, real estate that are acquired in order to earn a return than provide a service
What percentage of american households prepare a budget
30-40%
Do you record the value of the asset you buy the same on a balance sheet if you bought it on cash or credit
ya
What traits do a successful entrepreneur exhibit
- Sees and seizes a commercial opportunity
- Tends to be doggedly optimistic (perhaps even to a fault)
- Plans to obtain the physical, financial, and human resources needed for the venture to succeed
• Percentage of US Business that cease operations withing how many years
“Small Business Facts”: 1/3 gone in 2 years; 1/2 gone in five
E-Commerce
Use of electronic means to conduct business online
Life cycle stages of a company
- Development
- Start up
- Survival
- Rapid-Growth
- Early Maturity
Development Stage:
period involving the progression from an idea to a promising business opportunity
Developing opportunities and seed financing
Startup Stage:
period when the venture is organized, developed, and an initial revenue model is put in place
Gathering resources and startup financing
Survival Stage:
period when revenues start to grow and help pay some, but typically not all, of the expenses
Gathering resources, managing and building operations and first-round financing
Rapid-Growth Stage:
period of very rapid revenue and cash flow growth
Managing and building operations and second-round mezzanine, & liquidity stage financing
Maturity Stage:
period when the growth of revenue and cash flow continues but at a much slower rate than in the rapid-growth stage
Managing and building operations and obtaining bank loans, issuing bonds, & issuing stock
Seed Financing
Funds needed to determine whether an idea can be converted into a viable business oppurtunity
Mainly comes from financial bootstrapping (creative methods)
Second round financing
Financing for ventures in their rapid growth stage to support investments in working capital
Mezzanine financing
Funds for plant expansion, marketing expenditures, working capital, and product or service improvements
Liquidity stage financing/ bridge financing
temporary financing needed to keep the venture afloat until the next offering
Seasoned Financing
the offering of securities by a firm that has previously offered the same or substantially similar securities
Secondary Stock offering
founder and venture investor shares sold to the public
Private Financial Markets
customized contracts bought and infrequently sold in inefficient private negotiations
Profit Formula
Profit= Revenues- Cost
Expected Outcome
(% * Number) + (% * Number)
Main goal of entr. process
Creating Value
3 types of business oppurtunities
Salary replacement firms, lifestyle firm, entr. ventures. US
Entrepreneurial ventures:
entrepreneurial firms that are flows- and performance-oriented as reflected in rapid value creation over time
COMPONENTS OF A SOUND BUSINESS MODEL
Generate Revenues
Make Profits
Produce Free Cash Flows (You must generate cash inflows that exceed net working capital and capital expenditures)
Cost of Goods Sold:
direct costs of producing a product or providing a service
Gross Profit Margin:
gross profit divided by revenues
Net Profit:
dollar profit left after all expenses, including financing costs and taxes, have been deducted from the firm’s revenues
Net Profit Margin (NPM):
net profit divided by revenues
asset turnover (so ATO =
Revenues/Total Assets)
Proprietorship:
business venture owned by an individual who is personally liable for the venture’s liabilities
Partnership (general)
two or more; moderate time and legal costs
Limited Partnership
one or more general and one or more limited partners; moderate time and legal costs
Corporation:
a legal entity that separates personal assets of the owners (shareholders) from the assets of the business
S Corporation:
provides limited liability for shareholders; plus, corporate income is taxed like personal income to the shareholders
Limited Liability:
creditors can seize the corporation’s assets but have no recourse against the shareholders’ personal assets
Business Angels
wealthy individuals who invest money in fledgling ventures in exchange for the excitement of launching a business and a share in any financial rewards
TRADEMARKS
Intellectual property rights that allow firms or others to differentiate their products and services through the use of unique “marks”
COPYRIGHTS
Intellectual property rights to “writings” in written and electronically-stored formsProtects the “form of expression of an idea” and not just words themselves
PATENT BASICS
Intellectual property rights granted for inventions that are “useful,” “novel,” and “non-obvious
Which one over 10-15 years had the time period increase from 17-20 years
Patent
Balance Sheet:
financial statement that provides a snapshot of a venture’s financial position as of a specific date
Income Statement:
financial statement that reports the revenues generated and expenses incurred over an accounting period
Operating Income or Earnings Before Interest and Taxes (EBIT):q
indicates a firm’s profit after operating expenses, excluding financing costs, have been deducted from net sales
Statement of Cash Flows:
shows how cash, reflected in accrual accounting, flowed into and out of a firm during a specific period of operation
Which of the following business orgs proviede s owners with limited investor liabilty income passed directly to the owners?`
Limited Liability Company (LLC)
Current Assets:
cash & other assets that are expected to be converted into cash in less than one year (cash, recievables, inventory)
Retained earnings
Earnings u keep from previous years on SE
Marketable Securities
Short term, high quality, highly liquid investments that typically pay interest
Inventory stages
Raw Materials, WIP, Finished product that they hope to sell
Use of Cash
Amount of coin, currency, and checking account balances
3 parts of cash flow
Operating, investing, financing
CURRENT LIABILITIES
Payables, accrued wages, bank loans
Investment banker and com. Bankers use ratios during which life cycle stage
Rapid Growth Stage
Entr angels and captialist are important during which life cycle stage
Development
Trend Analysis:
used to examine a venture’s performance over time
Cross-sectional Analysis:
used to compare a venture’s performance against another firm at the same point in time
Industry Comparables Analysis:
used to compare a venture’s performance against the average performance in the same industry
Cash Build
Net sales – Change in receivables
Cash Burn:
cash a venture expends on its operating and financing expenses and its investments in assets
Net Cash Burn =
Cash burn – Cash build
What net cash means
If cash flow from operating + cash flow from investing = positive, The venture is building cash
Negative amount = Net burn position
Current ratio meaning
If >1, all current assets could pay all current liabilites
Quick ratio meaning
Ratio <1, liquid assets wouldn’t be enough to pay off current liabilities
