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Small Business Management > Exam 2 > Flashcards

Exam 2 Flashcards

0
Q

Fundamental accounting equation

A

Assets = liabilities + owner’e equity

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1
Q

The balance sheet

A

Estimate of the company’s worth on a given date

Assets the business owns and the claims creditors and owners have against those assets

Typically prepared on the last day of the month

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2
Q

Assets

A

Valued at cost, not actual worth

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3
Q

Current assets

A

Consist of cash and items to be converted into cash within one year (or normal operating cycle of the company)

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4
Q

Fixed assets

A

Those acquired for long-term use in the business

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5
Q

Intangible assets

A

Include items that are not tangible

Such as goodwill, copyrights, patents

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6
Q

Liabilities

A

Creditors’ claims against the company’s assets

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7
Q

Current liabilities

A

Those debts that must be paid within one year (or within the normal operating cycle of the company)

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8
Q

Long-term liabilities

A

Those due after one year

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9
Q

Owner’s equity

A

The value of the owner’s investment in the business

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10
Q

Income statement

A

Compared expenses against revenue over a certain period of time to show the company’s net income or loss

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11
Q

COGS

A

Represents the total cost (including shipping) of the merchandise sold during the year

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12
Q

Gross profit

A

Net sales revenue - COGS

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13
Q

Gross profit margin

A

Gross profit / net sales revenue

If a company’s gross profit margin slips too low, it is likely that it will operate at a loss

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14
Q

Operating expenses

A

Include those costs that contribute directly to the manufacture and distribution of goods

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15
Q

Net income (or loss)

A

Total revenue - total expenses

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16
Q

Statement of cast flows

A

Shows the changes in a company’s working capital from the beginning of the accounting period by listing the sources of funds and the uses of these funds

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17
Q

Current ratio

A

Current assets / current liabilities

Measures a small company’s solvency by indicating its ability to pay current liabilities from current assets

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18
Q

Quick ratio

A

Current assets - inventory / current liabilities

Shows the extent to which the company’s most liquid assets cover its current liabilities

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19
Q

Debt ratio

A

Total debt (or liabilities) / total assets

Measures the percentage of total assets financed by its creditors

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20
Q

Average inventory turnover ratio

A

COGS / average inventory

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21
Q

Average collection period ratio

A

Days in accounting period
________________________
Credit sales / AR

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22
Q

A/R turnover

A

Credit sales / AR

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23
Q

Average payable period days

A

Days in accounting period / payable turnover ratio

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24
Q

Payables turnover ratio

A

Purchases / accounts payable

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25
Q

ROA

A

Net income / total assets

X 100%

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26
Q

Break even point

A

The level of operation at which it neither earns a profit not incurs a loss

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27
Q

Fixed expenses

A

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

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28
Q

Variable expenses

A

Varies directly with changes in the volumes of sales or production

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29
Q

Cash management

A

Involves forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly

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30
Q

Flow cycle

A

The time lag between paying supplies for merchandise and receiving payment from customers

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31
Q

Cash flow

A

Measures a company’s liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time

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32
Q

Cash budget

A

Shows the amount and timing of the cash receipts and the cash disbursement a week-by-week or month-by-month

33
Q

5 steps to creating a cash budget

A
  1. Determining an adequate minimum cash budget
  2. Forecasting sales
  3. Forecasting cash receipts
  4. Forecasting cash disbursements
  5. Estimating the end of the month cash balance
34
Q

Determining an adequate minimum cash balance

A

Cash balance should equal at least 1/4 of its current liabilities

But best is to base it off past experience

35
Q

Forecasting sales

A

The central factor in creating an accurate of a company’s cash position because sales ultimately are transformed into cash receipts and cash disbursements

36
Q

Forecasting cash receipts

A

When a company sells goods and services on credit, a cash budget much count for the delay between the sale and the actual collection of the proceeds

37
Q

Forecasting cash disbursements

A

The key factor in the forecasting disbursements for a cash budget is to record them in the month in which they will be paid, not when the debt or obligation is incurred

38
Q

Estimating the end of the month cash balance

A

Includes cash on hand as well as cash in checking and savings accounts

39
Q

The big three of cash management

A

Accounts receivable
Accounts payable
Inventory

40
Q

Barter

A

The exchange of goods and services for other goods and services

41
Q

Zero-based budgeting (ZBB)

A

A shift in the philosophy of budgeting

42
Q

Money market account

A

An interest bearing account offered by a variety of financial institutions ranging from banks to mutual funds

43
Q

Zero balance account (ZBA)

A

A checking account that technically never had any funds in it but is tied to a master account

44
Q

Sweep account

A

Automatically sweeps all funds in a company’s checking account above a predetermined minimum into an interest bearing account

45
Q

Layered financing

A

Rather than rely primarily on a single source of funds, entrepreneurs must piece together capital from multiple sources

46
Q

Capital

A

Any form of employed to produce more wealth

47
Q

Fixed capital

A

Represents a business’s temporary funds

48
Q

Growth capital

A

Not related to the seasonal fluctuations of a small business

49
Q

Equity capital

A

Represents the personal investment of the owner in a business

50
Q

Private investors

A

Angels

Wealthy individuals who invest in business start ups

51
Q

Venture capital companies

A

Private, for profit organizations that purchase equity positions in young businesses they believe have high growth and high potential

52
Q

Initial public offering (IPO)

A

Offering shares to the public

53
Q

Letter of intent

A

Outlines the details of the deal

54
Q

Firm commitment agreement

A

The underwriter agrees to purchase all of the shares in the offering and then resells them to investors

55
Q

Best efforts agreement

A

The underwriter merely agrees to use its best efforts to sell the company’s shares and does not guarantee the company will receive the needed financing

56
Q

Lock up agreement

A

Prevents the sale of insider shares for 12-36 months

57
Q

Registration statement

A

To be filed with the securities and exchange commission and the prospects to be distributed to potential investors

58
Q

Quiet period

A

Agreement with the managing underwrites and ends 90 days after the effective date

59
Q

Road show

A

A gathering of potential syndicate members sponsored by the managing underwriter

60
Q

Debt financing

A

Involves the funds that the small business owner borrows and mush repay with interest

61
Q

Prime rate

A

The interest rate banks charge their most creditworthy customers

62
Q

Lines of credit

A

Short term loan

Preset limit

Provides cash flow for day to day operations

63
Q

Term loan

A

Unsecured

Banks grant these loans to businesses whose last operating history suggests a high probability of repayment

64
Q

Covenants

A

Restrictions on loans

65
Q

Asset based lenders

A

Smaller commercial banks

Allow small businesses to borrow money by pledging otherwise idle assets

66
Q

Advance rate

A

The percentage of an asset’s value that a lender will lend

67
Q

Margin loans

A

Carry lower rates because the collateral supporting them

68
Q

Margin call

A

Broker can call the loan in and require the borrower to provide more cash and securities as collateral

69
Q

Policy loans

A

Extended on the basis of the amount of money paid through premiums into the insurance policy

70
Q

Mortgage loans

A

Based on the value of the real property being purchased

71
Q

Credit unions

A

Nonprofit financial cooperatives that promote saving and provide loans to their members

72
Q

Convertible bonds

A

Bonds that give the buyer the option of converting the debt to equity by purchasing the company’s stock at a fixed price in the future

73
Q

Small business investment companies

A

Privately owned financial institutions that are licensed and regulated by the SBA

74
Q

Certified leader

A

The lender makes enough good loans

75
Q

Preferred lender

A

Makes the final lending decision itself

76
Q

Disaster loans

A

Made to small businesses decades by financial or physical losses from disasters

77
Q

Revolving loan funds

A

Combine private and public funds to make loans to small businesses

78
Q

Bootstrap financing

A

Business finances itself

79
Q

Favor

A

Buys a company’s accounts receivable and pays for them

Small Business Management (2 decks)

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