Prelims Flashcards
The process of identifying opportunities for which marketable needs exists and assuming the risk of creating an organization to satisfy them.
Entrepreneurship
The average cost of producing products will go down relative to the increase in production.
Economies of Scale
Anything that a particular business entity does better than anyone else in a specific industry.
Competitive Advantage
T or F.
Organizational Slack is how individuals act to maximize their own individual benefits.
False.
Agency Theory: Individuals act to maximize their own individual benefits.
Organizational Slack: Flexibility in the form of excess resources of large firms is usually not available to entrepreneurs.
A plan to take advantage of business growth and exit a business.
Harvest Plan
T or F.
Initial Public Offering: Sell the entire business
Full Exit: Going public
False.
Sell the entire business (Full exit)
Going public (Initial public offering)
T or F.
Harvest Plan facilitates rapid growth of the business.
True
T or F.
Venture Capital Backed Firms are engaged in inherently risky operation.
True
T or F.
Venture Capital Backed Firms are usually designed to take advantage of the skills of the investor. The business is oriented toward their personal goals.
False.
It is designed to take advantage of the skills of the founder and the business is oriented toward their personal goals.
T or F.
Venture Capital Backed Firms have a lot of employees, often to ensure that the organization grows as quickly as possible.
False.
Venture Capital backed Firms have a few or no employee at all
T or F.
It takes time to reach a level where the revenue can cover the expenses.
True
This is the rational decision making that is constrained by the background and history of the person making the decision.
Bounded Rationality
What are the three different supports you can have when generating a business?
Family, Networks, and Community
Which support system can help introduce the products to potential customers and provide the necessary feedback and advice?
Networks
This is a facility that houses new businesses and provides many critical services for new ventures
Incubator
It is a process of systematically examining the difference, or gap, between what is expected and what occurs.
Gap Analysis
It is a creative process whereby a group of individuals are brought together and asked to generate ideas with little or no effort made to evaluate the potential for each idea rather than focus is to generate numerous ideas.
Brainstorming
What are the 5 things you need to consider when choosing a business?
Finances, Time, Non-financial Resources, Risk, and Competitors
What are the two types of risk your chosen business could face?
Personal Level Risk – What will you do if the business fails?
Business Level Risk– What are the factors that could disrupt your supply chain?
The following are considered as financial resources EXCEPT?
A) Equipment Resources
B) Supplies
C) Rent and Utilities
D) Physical location of business
D) Physical location of business
It is a non-financial resource.
What are the 3 types of business threats?
Threat to Profit Margin, Threat to Sales Generation Schemes, and Threat to Operational Financing
T or F.
When considering the price offered of competitors, we are looking at the threat to profit margin.
False. It is a threat to sales generation schemes.
The following are threats to profit margin EXCEPT?
A) Significant competitors
B) Selling products on credit
C) Pricing constraints
B) Selling products on credit.
Selling products on credit but having to pay cash for the raw materials is a threat to operational financing.
T or F.
Once business operations begin in a venture capital backed firm, the immediate target is a positive cash flow.
True
T or F.
Accurately defining the customers of your business may help with your product content and pricing.
True
T or F,
Fragmented markets have several clear and dominant competitors.
False.
Fragmented markets have NO clear and dominant competitor and are instead made up of a large number of similar-sized firms.
It is a product that performs a similar function or achieves the same result but is not a precise imitation.
Substitute Product
T or F.
Toothbrush and toothpaste are examples of substitute products.
False. They are complementary products. Examples of substitute products are Coke and Pepsi, Starbucks and Tim Hortons, or Executive Optical and Sunnies Studio.
It refers to customers switching to substitutes or not using a product as the price of the product rises.
Elasticity of Demand
It is a barrier, such as investment in capital assets, that keeps a firm from leaving the industry.
Exit Barrier
T or F.
Although stopping the operation of a business is difficult, it can be easy to recover the initial investment.
False.
To stop operating a business is very easy, but to recover the initial investment is difficult.
This is what you call when you work with and learning from a company outside of your industry that has a particular skill that is potentially critical to your operation.
Benchmarking
T or F.
An entrepreneur can greatly rely on the accuracy of the sales forecast to assess how the business is doing terms of level of sales.
False.
While helpful to the business, a sales forecast is not 100% accurate.
T or F.
Variable Costs must be paid at a certain amount regardless of the number of production.
False.
Variable costs vary according to the quantity of production. What must be paid at a certain amount is the fixed cost.
What is the formula to determine the Contribution Margin / Break-even Point?
Fixed Cost / (Selling price - Variable Cost)
What is the formula to determine the Sales Revenue?
Break-even Point x Selling Price
What is the formula for Variable Cost?
Break-even Point in units x Variable Cost per unit
The following are sources of funds for a business EXCEPT?
A) Factoring
B) Asset-Based Lending
C) Grants
D) Crowdsourcing
D) Crowdsourcing.
Sources of Funds:
Equity Investment, Crowdfunding, Loan, Asset-Based Lending, Credit Card, Grants, Factoring
The following are four areas of company performance EXCEPT?
A) Profitability
B) Rationality
C) Liquidity
D) Activity
B) Rationality
The four areas of company performance are: Liquidity, Activity, Leverage, and Profitability
It is a series of ratios along four areas of company performance (liquidity, activity, leverage, profitability) that provides a picture of the health of the company
Ratio Analysis
T or F.
Liquidity ratios measure the efficiency with which the entrepreneur is handling the resources of the business.
False.
It is the activity ratio.
A liquidity ratio measures the short-term (current assets and liabilities) ability of the firm to meet its obligations.
T or F.
The current ratio examines the pure cash position relative to current liabilities.
False.
It is the Quick (Acid) Ratio.
The current ratio measures how quickly assets can be turned into cash and used to pay for current liabilities.
T or F.
If the current ratio is less than (<) 1, the business can easily pay its current debt.
False.
Ratio is > 1: The business can easily pay its current debt
Ratio is = 1: The current assets are just enough to pay its current debt
Ratio is < 1: The business will have a problem in paying its current debt
T or F.
If the quick (acid) ratio is equal to (=) 1, the most liquid current assets are just enough to pay its current debt.
True.
Ratio is > 1: The business can easily pay its current debt using its most liquid assets
Ratio is = 1: The most liquid current assets are just enough to pay its current debt
Ratio is < 1: The business will have a problem in paying its current debt using its most liquid assets
What is the formula for the Current Ratio?
Current Assets / Current Liabilities
What is the formula for the Quick (Acid Test) Ratio?
Current Assets (Excluding Inventories) / Current Liabilities
Which ratio measures the efficiency with which the entrepreneur is handling the resources of the business?
Activity Ratio
T or F.
A high inventory turnover rate (ratio) indicates there is excellent sales OR excess inventory.
False.
High Ratio: Excellent sales or insufficient inventory
Low Ratio: Weak sales or excess inventory
What is the formula to determine the Average Inventory?
(Beginning Inventory + Ending Inventory) / 2
What is the formula to determine the Inventory Turnover Rate?
Cost of Goods Sold / Average Inventory
T or F.
The accounts receivable turnover ratio measures how fast the company turns credit sales into cash.
True
What is the formula to determine the Accounts Receivable Turnover Ratio?
Net Credit Sales / Average Accounts Receivable
T or F.
Current liabilities are those obligations that will mature within 3 years.
False.
They mature within 1 year.
The following are examples of current assets EXCEPT?
A) Merchandise Inventories
B) Accounts Receivable
C) Bonds and Shares
D) Cash
C) Bonds and Shares
Bonds and Shares are examples of non-current assets that are for long-term use by the business and are expected to help generate income.
