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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
Payables turnover ratio
Purchases / accounts payable
25
ROA
Net income / total assets | X 100%
26
Break even point
The level of operation at which it neither earns a profit not incurs a loss
27
Fixed expenses
Those that do not vary with changes in the volume of sales or production
28
Variable expenses
Varies directly with changes in the volumes of sales or production
29
Cash management
Involves forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly
30
Flow cycle
The time lag between paying supplies for merchandise and receiving payment from customers
31
Cash flow
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
32
Cash budget
Shows the amount and timing of the cash receipts and the cash disbursement a week-by-week or month-by-month
33
5 steps to creating a cash budget
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
Determining an adequate minimum cash balance
Cash balance should equal at least 1/4 of its current liabilities But best is to base it off past experience
35
Forecasting sales
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
Forecasting cash receipts
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
Forecasting cash disbursements
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
Estimating the end of the month cash balance
Includes cash on hand as well as cash in checking and savings accounts
39
The big three of cash management
Accounts receivable Accounts payable Inventory
40
Barter
The exchange of goods and services for other goods and services
41
Zero-based budgeting (ZBB)
A shift in the philosophy of budgeting
42
Money market account
An interest bearing account offered by a variety of financial institutions ranging from banks to mutual funds
43
Zero balance account (ZBA)
A checking account that technically never had any funds in it but is tied to a master account
44
Sweep account
Automatically sweeps all funds in a company's checking account above a predetermined minimum into an interest bearing account
45
Layered financing
Rather than rely primarily on a single source of funds, entrepreneurs must piece together capital from multiple sources
46
Capital
Any form of employed to produce more wealth
47
Fixed capital
Represents a business's temporary funds
48
Growth capital
Not related to the seasonal fluctuations of a small business
49
Equity capital
Represents the personal investment of the owner in a business
50
Private investors
Angels Wealthy individuals who invest in business start ups
51
Venture capital companies
Private, for profit organizations that purchase equity positions in young businesses they believe have high growth and high potential
52
Initial public offering (IPO)
Offering shares to the public
53
Letter of intent
Outlines the details of the deal
54
Firm commitment agreement
The underwriter agrees to purchase all of the shares in the offering and then resells them to investors
55
Best efforts agreement
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
Lock up agreement
Prevents the sale of insider shares for 12-36 months
57
Registration statement
To be filed with the securities and exchange commission and the prospects to be distributed to potential investors
58
Quiet period
Agreement with the managing underwrites and ends 90 days after the effective date
59
Road show
A gathering of potential syndicate members sponsored by the managing underwriter
60
Debt financing
Involves the funds that the small business owner borrows and mush repay with interest
61
Prime rate
The interest rate banks charge their most creditworthy customers
62
Lines of credit
Short term loan Preset limit Provides cash flow for day to day operations
63
Term loan
Unsecured Banks grant these loans to businesses whose last operating history suggests a high probability of repayment
64
Covenants
Restrictions on loans
65
Asset based lenders
Smaller commercial banks Allow small businesses to borrow money by pledging otherwise idle assets
66
Advance rate
The percentage of an asset's value that a lender will lend
67
Margin loans
Carry lower rates because the collateral supporting them
68
Margin call
Broker can call the loan in and require the borrower to provide more cash and securities as collateral
69
Policy loans
Extended on the basis of the amount of money paid through premiums into the insurance policy
70
Mortgage loans
Based on the value of the real property being purchased
71
Credit unions
Nonprofit financial cooperatives that promote saving and provide loans to their members
72
Convertible bonds
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
Small business investment companies
Privately owned financial institutions that are licensed and regulated by the SBA
74
Certified leader
The lender makes enough good loans
75
Preferred lender
Makes the final lending decision itself
76
Disaster loans
Made to small businesses decades by financial or physical losses from disasters
77
Revolving loan funds
Combine private and public funds to make loans to small businesses
78
Bootstrap financing
Business finances itself
79
Favor
Buys a company's accounts receivable and pays for them

Small Business Management (2 decks)

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